Caroline Ellison Plea Hearing Transcript (12/19/2022) [pdf]
johnreedstark.com
johnreedstark.com
> But even if your sentence is different from what you had hoped for or expected, you won't be allowed to withdraw your plea on that basis.
IANAL but this makes it look like the case is so strong against her that she's just throwing herself at the mercy of the courts. All the cooperation buys her is brownie points with the judge, who might decide to make an example out of her anyway.
They didn't even really have to flip her, she just walked in the front door.
So it appears as if she flipped not out of goodness of her heart, or a fierce desire to restore justice, but because it's the only sane thing to do to save one's ass.
In the federal system. Like the bail situation, one of the reasons this violates people’s expectation is the federal system does not work the same as most state systems.
The point is the prosecutor can’t agree to a deal. They can agree to recommend this or that. But a judge ultimately sentenced.
There is no such thing as a sentencing agreement in the US federal system. At most, the defense and prosecution, when it gets to that point, could agree on recommendations, but the judge would still be free to disagree.
It’s not clear to me that ~100% of the blame for all this falls on the one guy.
THE COURT: Now, tell me in your own words what you did that makes you believe that you are guilty of these crimes.
THE DEFENDANT: From approximately March 2018 through November 2022, I worked at Alameda Research, a cryptocurrency trading firm principally owned by Sam Bankman-Fried. At Alameda Research, I first worked as a cryptocurrency trader and was later appointed by Mr. Bankman-Fried as the co-CEO and eventually CEO of Alameda Research Ltd., the subsidiary that housed the firm's main trading and market making operations. In those roles, I reported to Mr. Bankman-Fried.
From 2019 through 2022, I was aware that Alameda was provided access to a borrowing facility on FTX.com, the cryptocurrency exchange run by Mr. Bankman-Fried. I understood that FTX executives had implemented special settings on Alameda's FTX.com account that permitted Alameda to maintain negative balances in various fiat currencies and crypto currencies. In practical terms, this arrangement permitted Alameda access to an unlimited line of credit without being required to post collateral, without having to pay interest on negative balances and without being subject to margin calls or FTX.com's liquidation protocols.
I understood that if Alameda's FTX accounts had significant negative balances in any particular currency, it meant that Alameda was borrowing funds that FTX's customers had deposited onto the exchange.
While I was co-CEO and then CEO, I understood that Alameda had made numerous large illiquid venture investments and had lent money to Mr. Bankman-Fried and other FTX executives.
I also understood that Alameda had financed these investments with short-term and open-term loans worth several billion dollars from external lenders in the cryptocurrency industry. When many of those loans were recalled by Alameda's lenders in and around June 2022, I agreed with others to borrow several billion dollars from FTX to repay those loans.
I understood that FTX would need to use customer funds to finance its loans to Alameda. I also understood that many FTX customers invested in crypto derivatives and that most FTX customers did not expect that FTX would lend out their digital asset holdings and fiat currency deposits to Alameda in this fashion.
From in and around July 2022 through at least October 2022, I agreed with Mr. Bankman-Fried and others to provide materially misleading financial statements to Alameda's lenders. In furtherance of this agreement, for example, we prepared certain quarterly balance sheets that concealed the extent of Alameda's borrowing and the billions of dollars in loans that Alameda had made to FTX executives and to related parties.
I also understood that FTX had not disclosed to FTX's equity investors that Alameda could borrow a potentially unlimited amount from FTX, thereby putting customer assets at risk. I agreed with Mr. Bankman-Fried and others not to publicly disclose the true nature of the relationship between Alameda and FTX, including Alameda's credit arrangement.
I also understood that Mr. Bankman-Fried and others funded certain investments in amounts more than $10,000 with customer funds that FTX had lent to Alameda. The investments were done in the name of Alameda instead of FTX in order to conceal the source and nature of those funds.
I am truly sorry for what I did. I knew that it was wrong. And I want to apologize for my actions to the affected customers of FTX, lenders to Alameda and investors in FTX. Since FTX and Alameda collapsed in November 2022, I have worked hard to assist with the recovery of assets for the benefit of customers and to cooperate with the government's investigation. I am here today to accept responsibility for my actions by pleading guilty.
> And if we hadn't caught you?
"Umm, well..."
Where this gets interesting, and where the cynic smiles at their naïveté, is, thank goodness they didn't build more actors into this pipeline. Because while the research was somewhat discredited, I still think it's about right that with each participant covering 50% of the way to a fraud, you have indictments, but when each participant covers only say, 15% of the distance you instead have a shady little cottage industry.
This was an organized crime where many people have taken part of it (I think Blockfi people knew what's going on as well for example, that's why they went so silent)
No, its not. This isn’t her testimony against other people, her cooperation with prosecutors, or anything other than her statements confirming her understanding of her guilt that arr necessary to validate that her guilty plea is entered into voluntarily, and under an understanding of the facts that represents actual guilt of the crime.
All those other things will happen or have, in part, already happened outside of this court proceeding. They are separate-but-related events that will be taken into account in sentencing.
Follow-up question: Let's say that 6-12 months ago Alameda went bust, and FTX didn't steal all their customers funds to bail them out. Presumably Alameda fails. Maybe FTX fails too depending on their state, but they return all their customers funds first. Is that possible? I dunno if any crypto-related company has ever shut down cleanly so I don't know how it would work. It seems like it would be a better option though, they'd have dented reputations from a failed hedge fund/business but y'know, not any fraud.
Meanwhile they've also been enriching themselves personally, living large in the Bahamas and what not.
Boils down to 2 things.
1. They were unscrupulous from day 1 and implemented a system with no restrictions or checks on their ability to move money around. In addition, they were comfortable with straight up lying to customers and lenders about the
2. They believed their own hype.
> With respect to your liberty on Counts Five and Six, the maximum term of imprisonment for each count is five years
> And then lastly, on Count Seven, that has a maximum term of imprisonment of 20 years
Whoa
They need to unanimously agree? So, one bad/corrupt juror could render anyone not guilty?
I thought it would be majority or 3/4 majority (as they do for some bills in parliament). Unanimous seems pretty risky.
No, they need to unanimously agree on either guilty or not guilty. A hung jury would result in a retrial.
Historically unanimous juries were required in criminal trials through the English speaking world, and that's still true in the US, Canada, and NZ at least.
For a period of time criminal trials at a state level could have majority verdicts in Louisiana and Oregon, but a recent Supreme Court case (Ramos v. Louisiana) declared this unconstituional, and federal cases (as here) always required unanimous verdicts. Somewhat oddly the UK has allowed majority verdicts in some criminal trials since 1967 (although I believe they're generally rare and somewhat controvesial), as does Australia. But they're very much the outliers.
> Unanimous seems pretty risky.
Generally speaking, allowing a pure majority has been seen as the risky option, given the stakes. (Much the same logic applies to the standard of proof required, which is "beyond reasonable doubt", otherwise phrased as there being no plausible reason to believe the accused might not be guilty. Obviously it would be much easier to achieve a guilty verdict if the standard was "preponderance of the evidence", but the goal of the system is justice, not guilty verdicts.)
Some history here: https://corkerbinning.com/jury-unanimity-uk-us-verdict/
Hmm. How can I explain this. Human beings are social animals and go along with the crowd.
There are not 12 independent decision makers on a jury. Most jurors are followers, and will be persuaded by another member of the jury. We decide what to think based upon what others think.
>So, one bad/corrupt juror could render anyone not guilty?
No, that's called a hung jury. Gov't can try again.
No. If all 12 agree, that's the verdict. Guilty or Not Guilty, whichever was voted by all 12.
If they cannot agree, they are allowed time to argue and convince each other. Since they are agreeing on an interpretation of facts based on the same evidence provided, that can work. Maybe one person can hear a compelling argument from another juror.
If all 12 still cannot agree and don't think more talking will resolve the issue (and the judge agrees!), they are a hung jury. At that point, the state can retry the case or let the defendant go. If all 12 have voted Not Guilty, the state is not allowed to retry the case - a verdict has been given.
Hung juries are fairly rare. In the federal courts, it's around 2.5%. A big part of this is weak cases that are likely to result in hung jury are not pursued before that point. This is the intended goal, to make it less likely innocent people have to go to trial. After all lawyers and putting your life on hold to go to court is expensive.
The other driver is that what the jury is asked is to decide if something factually happened. The information that should drive that decision was presented to them in court after both lawyers and a judge vetted it. So whats left are multiple interpretations of the evidence and fuzzier things like "that witness didn't seem trustworthy".
This isn't a question like "what's your opinion of [Politician X]".
* conspiracy to commit wire fraud on customers
* conspiracy to commit wire fraud on lenders
* conspiracy to commit securities fraud
* conspiracy to commit money laundering
She is waiving the right to appeal, must be a witness for the prosecution, and she is agreeing that the maximum sentence recommendation imposed on her is 20 years in jail and a $250k fine.
> THE DEFENDANT: From approximately March 2018 through November 2022, I worked at Alameda Research, a cryptocurrency trading firm principally owned by Sam Bankman-Fried. At Alameda Research, I first worked as a cryptocurrency trade and was later appointed by Mr. Bankman-Fried as the co-CEO and eventually CEO of Alameda Research Ltd., the subsidiary that housed the firm's main trading and market making operations. In those roles, I reported to Mr. Bankman-Fried. From 2019 through 2022, I was aware that Alameda was provided access to a borrowing facility on FTX.com, the cryptocurrency exchange run by Mr. Bankman-Fried. I understood that FTX executives had implemented special settings on Alameda's FTX.com account that permitted Alameda to maintain negative balances in various fiat currencies and crypto currencies. In practical terms, this arrangement permitted Alameda access to an unlimited line of credit without being required to post collateral, without having to pay interest on negative balances and without being subject to margin calls or FTX.com's liquidation protocols. I understood that if Alameda's FTX accounts had significant negative balances in any particular currency, it meant that Alameda was borrowing funds that FTX's customers had deposited onto the exchange. While I was co-CEO and then CEO, I understood that Alameda had made numerous large illiquid venture investments and had lent money to Mr. Bankman-Fried and other FTX executives. I also understood that Alameda had financed these investments with short-term and open-term loans worth several billion dollars from external lenders in the cryptocurrency industry. When many of those loans were recalled by lenders in and around June 2022, I agreed with others to borrow several billion dollars from FTX to repay those loans. I understood that FTX would need to use customer funds to finance its loans to Alameda. I also understood that many FTX customers invested in crypto derivatives and that most FTX customers did not expect that FTX would lend out their digital asset holdings and fiat currency deposits to Alameda in this fashion. From in and around July 2022 through at least October 2022, I agreed with Mr. Bankman-Fried and others to provide materially misleading financial statements to Alameda's lenders. In furtherance of this agreement, for example, we prepared certain quarterly balance sheets that concealed the extent of Alameda's borrowing and the billions of dollars in loans that Alameda had made to FTX executives and to related parties. I also understood that FTX had not disclosed to FTX's equity investors that Alameda could borrow a potentially unlimited amount from FTX, thereby putting customer assets at risk. I agreed with Mr. Bankman-Fried and others not to publicly disclose the true nature of the relationship between Alameda and FTX, including Alameda's credit arrangement. I also understood that Mr. Bankman-Fried and others funded certain investments in amounts more than $10,000 with customer funds that FTX had lent to Alameda. The investments were done in the name of Alameda instead of FTX in order to conceal the source and nature of those funds. I am truly sorry for what I did. I knew that it was wrong. And I want to apologize for my actions to the affected customers of FTX, lenders to Alameda and investors in FTX. Since FTX and Alameda collapsed in November 2022, I have worked hard to assist with the recovery of assets for the benefit of customers and to cooperate with the government's investigation. I am here today to accept responsibility for my actions by pleading guilty.
"...the case was reassigned to Lewis A. Kaplan, a senior judge at the court, legal filings show."
Kaplan was appointed by Bill Clinton in 1994: https://en.wikipedia.org/wiki/Lewis_A._Kaplan
Abrams' husband works at Davis Polk, but Davis Polk (firm w/ ~1000 attorneys) has represented FTX in the past. It's pretty typical for these sorts of conflicts to arise, and in this case it's probably best to remove any sniff of a perceived conflict by Abrams stepping aside. Nothing here is going to be controversial -- though our federal courts are currently going through serious turmoil due to events of last few years, albeit not really SDNY and the 2nd Circuit is mostly normal too.