And now, Ellison has parted ways with Bankman-Fried in a big way: He’s cooperating with federal prosecutors who accuse him of masterminding one of the largest financial frauds in U.S. history.
Last month, Ellison, 28, pleaded guilty to charges that Bankman-Fried and other FTX executives conspired to steal their clients’ money to invest in other companies, make political donations and buy expensive real estate — charges that carry a maximum sentence of 110 years in prison. On December 19 listening, Ellison apologized to FTX clients and investors and said that he knows what he did was wrong.
Bankman-Fried, 30, will appear in court on Jan. 3, according to a person familiar with the matter who spoke on condition of anonymity to discuss personal information. In numerous interviews before his arrest on December 12, he insisted that he was only guilty of mismanagement and that he had not knowingly deceived anyone.
Gary Wang, 29, the former technology director of FTX, also pleaded guilty. Attorneys for Ellison and Wang did not respond to requests for comment. Mark Botnick, a spokesman for Bankman-Fried, declined to comment.
Ellison’s settlement with the government could be bad news for Bankman-Fried. The fact that he and Wang quickly entered guilty pleas and signed agreements indicates they will testify against Bankman-Fried, said Neama Rahmani, a Los Angeles-based trial attorney and former federal prosecutor. “They are fully cooperative,” he said.
If Ellison provides substantial assistance to prosecutors, the government will ask the judge to take that into account when sentencing him. Defendants often agree to testify against their co-conspirators in order to reduce their sentences. If Ellison helps the government, Rahmani believes his sentence could be as low as five years, compared to Bankman-Fried’s likely 10 to 20 years.
Ellison’s rise to one of the most important figures in the crypto world has been swift. In a July 2020 interview on FTX’s in-house podcast, he described his childhood, education and quick tour of Wall Street before landing at Alameda Research, a Bankman-Fried-owned hedge fund closely integrated with FTX.
Bankman-Fried’s parents are Stanford law professors, while Ellison’s mother and father are professors of economics at the Massachusetts Institute of Technology. His father, who wrote mathematics textbooks for children, got him involved in mathematics at a young age. He read a lot when he was just 5 years old, poring over a thick book about Harry Potter because he was too impatient to wait for his parents to read it to him, he said.
Her father encouraged her and her siblings to participate in math competitions, which she continued through middle and high school before starting to study mathematics at Stanford in 2012. Boston,” he said.
Unsure of what to do with her degree, she applied in her junior year to intern at quantitative trading firms that use complex math and algorithms to predict market movements.
Ellison completed two internships at Jane Street Capital, a large quantitative trading firm, and received a job offer after college, she said. There he met Bankman-Fried, who had worked for several years in the firm’s New York office. In 2017, he quit his job and moved to the Bay Area, where Ellison asked to meet him a year later. “He canceled a few times and then said yes,” she said.
Bankman-Fried told him about Alameda Research, a cryptocurrency trading firm he had recently started. He soon left Jane Street to join her. “It seemed like too good an opportunity to pass up,” he said.
In a Tumblr blog linked to his Twitter account, Ellison said he didn’t get into cryptocurrency as a “true believer.” “It’s more scams and memes,” reads a post on an archived version of the Tumblr account. But he saw the value in the underlying technology behind cryptocurrency, which enables transactions without bank or government intervention.
The March 24, 2022, post continues: “If authoritarian governments are a serious threat to civilization, and this may seem completely unreasonable.
However, Ellison’s job at FTX was more about cashing in on the explosion of interest and investment in cryptocurrencies than avoiding authoritarian governments. The company was one of the biggest winners of the massive cryptocurrency boom between 2020 and 2021, when ordinary people around the world invested in bitcoin, ethereum and several other tokens. The value of the world market has risen to nearly $3 trillion, the same as the UK’s gross domestic product.
FTX has grown rapidly as one of the main places where people can buy, sell and speculate on cryptocurrencies. His ads featured sports stars like Tom Brady and Stephen Curry, and he paid millions for the naming rights to the Miami Heat basketball team’s stadium. Many users invest on margin, that is, they make financial bets with money borrowed from the stock market, hoping that their investments will pay off. By the end of 2021, FTX was doing about $350 million in crypto trades per day, earning a percentage of each transaction.
Alameda was technically separate from FTX, investing and trading with the goal of making money like any other hedge fund. But it also played a key role as a market maker on the FTX exchange itself, buying and selling tokens and other digital assets. in large volumes to increase liquidity in the stock market and make it more attractive to customers.
In interviews, Ellison talked about the challenges and excitement of the job.
“There are a lot of people who are very smart but not very good at the very confusing world of trading, especially crypto trading,” he said in the El Momento cryptocurrency podcast published on May 25, 2022. information. So you have to make your best guess based on what you see.”
He moved up in the firm, and Bankman-Fried became its CEO in 2021, along with Sam Trabucco. In August 2022, Trabucco resigned and Ellison became Alameda’s sole leader. (Trabucco did not respond to a request for comment, and his whereabouts are unknown.) In a January 2021 podcast, Ellison described how he was responsible for the trade, and Bankman-Fried’s involvement diminished over time.
The business was extremely profitable. At its peak, FTX was valued by venture capital investors at $32 billion, giving Bankman-Fried a net worth of $26 billion in spring 2022, according to the Bloomberg Billionaires Index. Bankman-Fried, Ellison and a group of colleagues lived in a luxurious $40 million penthouse in Nassau, Bahamas. According to cryptocurrency news agency CoinDesk, the employees were romantically involved, and Bankman-Fried and Ellison met occasionally. Stimulants were part of the lifestyle.
“There’s nothing like regular amphetamine use to appreciate just how stupid the normal, drug-free human experience is,” Ellison he tweeted last year.
Like Bankman-Fried, Ellison advocated effective altruism, a philanthropic philosophy that encouraged intelligent young people to pursue high-paying jobs, accumulate wealth, and donate. He found the movement at Stanford, surrounded by smart and soon-to-be-rich people like himself.
“The ultimate goal, or one of the most important goals, I think, is to increase my influence,” he said in a July 2020 podcast interview. “Working at Alameda is good for this for several reasons. In other words, the direct thing is to make money.”
Bankman-Fried himself pledged his billions to the movement. In an interview published on January 21, 2021, also with the in-house FTX podcast, Ellison again talked about how he saw the value of his work.
“Of course it’s stressful at times, but it gives me a sense of purpose and meaning to feel that I’m needed or that what I’m doing is worthwhile,” Ellison said.
However, behind the scenes, according to federal prosecutors, the FTX is breaking the law. The company took customer deposits and lent them to Alameda, who used them to make risky trades, invest in other companies, and donate to politicians and effective altruism groups.
Alameda had special access and privileges on the FTX exchange that its clients did not have, which allowed it to borrow freely without repaying loans or face the same consequences if it lost money on its auctions with borrowed funds – this practice. Ellison was aware in 2019, he testified earlier this month.
In November, Bankman-Fried told the New York Times at the DealBook conference that he had never knowingly commingled funds between Alameda and FTX and was surprised by the size of Alameda’s exposure to the FTX exchange.
“Frankly, I made a lot of mistakes. There are things I would give anything to be able to do again. “I have never tried to deceive anyone.”
Alameda borrowed large sums of money from other crypto lenders to fund Bankman-Fried’s investments and donations, but as the price of cryptocurrencies plummeted by 2022, those lenders demanded their money back. Ellison and his colleagues made it back with customer money, he said, adding that something was happening that the platform’s users didn’t know about.
When investors asked questions, he and Bankman-Fried and other colleagues agreed to lie, covering up the company’s true financial situation and special arrangements to allow Alameda to freely use client assets, Ellison told the judge.
“I colluded with Mr. Bankman-Fried and others to provide Alameda creditors with materially false financial statements,” he said. “I’m really sorry for what I did. I knew it was wrong.”
The judge asked if he knew it was illegal.
Dalton Bennett and Nitasha Tiku contributed to this report.