Molly White's Citation Needed - Caroline Ellison: A woman with agency or a helpless pawn?

Episode Date: October 2, 2024

Why did the former Alameda Research CEO receive only two years imprisonment for her role in the FTX collapse? Originally published on October 2, 2024.

I'm Molly White, and you're listening to the audio feed for the citation needed newsletter. You can see the text version of the newsletter online at citation needed. news. Caroline Ellison, a woman with agency or a helpless pawn. Why did the former Alameda Research CEO receive only two years imprisonment for her role in the FTX collapse? This issue was originally published on October 2, 2024. Former Alameda Research CEO Caroline Ellison has been sentenced to two years in prison for her role in the massive fraud at FTX. She will also serve three years supervised release, and she was ordered to forfeit $11 billion. I think it's worth unpacking this sentencing decision a bit, because it came as a surprise to many.

Some were surprised that she would receive such a short sentence for her central role in such a massive crime, while others were surprised to see her receive any prison time, after prosecutors seemed to support a non-custodial sentence. I've also seen some confusion around the $11 billion restitution order, namely surprise that Ellison had $11 billion to forfeit. That one's an easy one to clear up, so I'll tackle it first. She does not have $11 billion. This order was merely communicating that Ellison and the other co-conspirators

must forfeit all proceeds of the crime. An $11 billion was the total amount deemed to be proceeds traceable to the offenses committed by Bankman Fried, Ellison, and the other defendants. The Sentencing Recommendation. As I mentioned in a recent issue of this newsletter, the Probation Department had recommended that Ellison be sentenced to no jail time at all. When determining a sentencing recommendation, the probation department considers what the sentencing guidelines dictate. A rather complex bit of analysis to determine a numerical offense level, which is then combined with a criminal history of the offender to suggest a duration of imprisonment. These guidelines are intended to provide some degree of consistency, so that people receive roughly similar sentences for similar crimes, regardless of the judge they wind up in front of. The offense level calculation begins with a baseline number based on the offense, which for fraud is six. If that was all that went into consideration, a level six offense for a first-time offender has a guideline sentencing recommendation of zero to six months imprisonment.

However, the base offense level is adjusted upwards by various factors that the sentencing guidelines consider to make the offense more severe. Factors like the number of victims involved, the use of, quote, sophisticated means to commit the crime, the laundering of proceeds of the crime, whether the offender was considered to be a leader of the criminal enterprise, and the amount of money that was lost in the fraud. There are also downwards adjustments, for example, if the offender was considered to have been a, quote, minimal participant in the crime, if they assist authorities in investigating or prosecuting the crimes, or if they are believed to have accepted responsibility. As we observed during Sam Bankman-Fried sentencing, the The upwards adjustment based on monetary losses is what causes the offense levels to skyrocket for FTX defendants.

Even then, the sentencing guidelines clearly aren't designed for $11 billion frauds, with adjustments maxing out at losses of $550 million or more. This adjustment alone tax on 30 points to the offense level, skyrocketing the recommended sentence by about eight years. Eventually, with all adjustments applied, both Elisement. Allison and Bankman-Fried were off the charts as far as offense levels go, hitting the maximum of 43. While guidelines suggest that an offense level of 43 should result in a life sentence, regardless of the criminal history of the offender, the maximum length of imprisonment for fraud is set at 110 years.

However, the guidelines are only guidelines, and both the probation department and the judge may choose to deviate from them. The pre-sentencing reports are not public, so we don't know specifics, but according to Ellison's pre-sentencing memo, the decision by the probation department was based on her, quote, extraordinary cooperation with the government, her otherwise unblemished record, and the numerous testimonials of Caroline's honesty and ethical behavior, both before she started working at Alameda and since she left Alameda. Prosecutors also seem to implicitly endorse the probation department's recommendation, opting not to recommend any specific sentence in their filings, but going on at great length about how important her cooperation had been to their conviction of Sam Bankman-Fried. Sentencing When it came to the judge's decision,

I don't think anyone was surprised that Judge Kaplan agreed to go with a lower sentence than the 110-year guidelines recommendation. After all, he'd sentenced Bankman-Fried to 25 years, a very long time in prison, to be sure, but substantially less than the statutory maximum, and it would have been incredibly weird for him to go above this for a co-conspirator who pleaded guilty and cooperated with the investigation and prosecution.

As he explained it during sentencing, Kaplan opted for a relatively short sentence because he wished to balance Ellison's acceptance of responsibility, remorse, and cooperation with the feeling that some prison time was still necessary for her role in a fraud of this magnitude. This seems to me to be a reasonable choice, and so the question then becomes what sentence would be appropriate. Two years does seem very short, particularly given that Ellison was so deeply involved in the fraud, and only began cooperating after the FTX collapse, once authorities were aware that a crime had likely been committed.

Had she chosen to go the whistleblower route before the FTX collapse, a very short or non-custodial sentence certainly might have felt more appropriate. Ultimately, I think she and her defense team were extremely successful in telling the story that Ellison was manipulated by her boss and romantic partner, whose approval she desperately sought. Quote, you were vulnerable and you were exploited, remarked Kaplan during the sentencing hearing, before expressing that he believed she would never, quote, do something like this again. To be clear, I don't think Ellison fabricated that story. It's painfully clear from her writings that her relationship was.

with Bankman Fried was lopsided and unhealthy. Even the diary entries, Bankman Fried leaked to the New York Times in an attempt to portray Allison as responsible for FTX's collapse, revealed that she believed that Bankman Freed's love for her was highly dependent on her success at work. Quote, at times, Ms. Ellison worried that Mr. Bankman Fried thought she wasn't good enough. When he was around, she wrote in the February 22 Google document, she had, quote, an instinct to shrink and become smaller and quieter and defer to others. Diary entries submitted, along with her sentencing memo, reflect this even more starkly. Quote, I wonder if maybe a lot of stuff traces back

to feeling romantically rejected by Sam. I think when Sam and I are sleeping together, or are in flirty mode, I feel better about work and life and don't have the same negative spirals. A lot of what stresses me out about work is specifically failing Sam, or Sam's disapproval or something. I get easily upset when he disagrees with me or criticizes me in a way that I don't think I get upset if other people do the same things. Maybe I feel like Sam is rejecting me for not being good enough, and then everything else he says or does is just rubbing this in. I think I feel like Sam doesn't love me because I'm not good enough for him. I can become good enough for him by working harder, being more reliable and on top of things, being more productive, being a good manager slash leader, being less emotional

slash needy, being less shallow and concerned with trivialities slash appearances, having good judgment slash being right about stuff, being confident and self-possessed, being more assertive, trading my interests for his. Sam's rejection is really painful. I deal with it in varying ways. Sometimes I believe that I can be good enough. Then I feel motivated and work hard on all of the above things. Then I get evidence that I can't. This can take the form of me doing something wrong, Sam disagreeing with me, etc. This makes me sad. The fact that I feel sad about this is itself evidence that I'm not good enough, since Sam's ideal woman would base her actions on her own judgments of what's good and not care what Sam thinks about her.

Further evidence makes me more sad, which leads to a positive feedback loop of sadness. I feel despair and feel like there's no hope of him ever loving me. Then I just feel angry and hurt and want to lash out. This makes me want to be as pathetic as possible, so he'll feel bad for hurting me. Is this reasonable? It's not totally wrong. However, low self-esteem and the desperation for a boyfriend's approval hardly excuse stealing billions of dollars from people, and it's surprising to me to see this level of leniency.

Certainly some of it was also thanks to her cooperation and assistance with the investigation, prosecution, and bankruptcy proceedings, but it seems that a lot of the decision came down to the story that she was merely a helpless pawn in Bankman-Fries machinations, rather than a human being with agency and a moral compass. Few are so lucky to receive this kind of benefit of the doubt, and there are many people in prisons today who have not been afforded the same degree of leniency as Ellison, despite manipulation and, in some cases, violent coercion by romantic partners. While I am not one to celebrate draconian prison sentences, throwing out sentencing guidelines to impose such a light sentence does feel like a failure to ensure similar sentencing among defendants

for similar crimes. It's hard not to wonder if a woman of color or a person without such a pedigreed upbringing would earn a similar outcome. Thanks for listening to this issue of the citation needed newsletter. To learn how to support my work, visit mollywhite.net slash support. If you'd like to read the text versions of these episodes, sign up to receive the newsletter in your email, or support my work on a recurring basis. Go to citation needed.news.