She was a little-known crypto trader. Then FTX collapsed.

World News

When his cryptocurrency exchange started teetering in early November, Sam Bankman-Fried went on Twitter to calm everyone down. FTX was fine, he insisted. Nothing to worry about. Joining him in the outreach was a close colleague: Caroline Ellison, the 28-year-old CEO of Alameda Research, a crypto trading firm Bankman-Fried also founded.

A little-known figure outside crypto circles, Ellison claimed repeatedly that Bankman-Fried’s empire was on stable financial footing. On Twitter, she sparred with Changpeng Zhao, CEO of Binance, who was voicing doubts about FTX and Alameda.

Caroline Ellison, 28, joined Alameda Research after a few years with another firm.

But her words weren’t enough to keep FTX alive. A run on deposits, prompted partly by Zhao’s comments, left the company owing $US8 billion ($11.8 billion). Within less than a week, FTX and Alameda had filed for bankruptcy. Now the companies are facing investigations by the US Justice Department and the financial markets regulator, the Securities and Exchange Commission, focused on whether FTX’s shortfall arose because it had illegally lent its customers’ deposits to Alameda.

Ellison is at the centre of the furor. In a meeting with Alameda employees the week that the companies imploded, Ellison acknowledged that her company had dipped into FTX user funds, The New York Times and The Wall Street Journal have previously reported. On Twitter, amateur detectives have spent the past two weeks dissecting her life, and she is likely to play a crucial role in any criminal case that emerges from FTX’s collapse.

“She will face an immense amount of scrutiny both from criminal prosecutors and a variety of different civil agencies, and also civil suits,” said Eugene Soltes, an expert on corporate integrity at Harvard Business School. “It looks pretty awful from her perspective.”

Lawyers for Ellison declined to comment.

In some ways, Bankman-Fried, 30, and Ellison couldn’t be more different. While he was an aggressive and outgoing public cheerleader for the crypto industry, she maintained a relatively low profile. But they emerged from the same intellectual milieu. Like Bankman-Fried, Ellison was deeply involved in the effective altruism movement — a community that has become increasingly influential in technology circles. At times, the pair were romantically involved.

‘She will face an immense amount of scrutiny both from criminal prosecutors and a variety of different civil agencies, and also civil suits.It looks pretty awful from her perspective.’

Effective altruism is a global philanthropic movement in which donors seek to maximise the effect of their giving for the long term. But the tight-knit community — driven by online forums, blogs and mailing lists — is also a hothouse for all sorts of other ideas outside the mainstream, from polyamorous living to the possibility that artificial intelligence will one day destroy humankind.

In blog posts that Ellison is believed to have written over the years, she philosophised at length about a wide range of topics, from book recommendations and dating preferences to her one-time view that “the sexual revolution was a mistake,” a position she said she had moved away from.

The daughter of economists at the Massachusetts Institute of Technology, Ellison grew up in the Boston area, where she was the captain of the Newton North High School math team and regarded as a serious student and a hard worker.

“I am shocked,” said Pavel Etingof, a math professor at MIT who worked with Ellison when she was in high school. “I trust the US law enforcement to get to the bottom of it.”

Ellison is the daughter of MIT economists.Credit:AP

In 2012, Ellison moved across the country to attend college at Stanford University, where she majored in math. Former classmates described her as studious and quiet; one friend recalled that Ellison read widely, including biographies and science fiction, and seemed sincere in her interest in philanthropy.

Ellison has given a handful of interviews over the years, speaking in soft, halting tones. By her own account, she got interested in effective altruism in her freshman year at Stanford, after reading about the movement online. When she graduated, Ellison joined quantitative trading firm Jane Street, where she was part of a cohort of new arrivals coached by Bankman-Fried, who was a couple of years older.

“I was kind of scared of him,” she said in an interview with the Times in March. “You could tell he was quite smart and sort of intimidating.”

The pair stayed in touch, and Ellison got in contact with Bankman-Fried in February 2018, not long after he had started Alameda, which was based in an office in Berkeley, California. They had coffee, and Bankman-Fried seemed cagey, informing her that he had just embarked on a new project he couldn’t tell her about. But eventually he decided to share his plans for Alameda.

“I was like, ‘Oh, man, this sounds pretty exciting,’” she recalled in March. “For the next week, I kept thinking about it and being like, ‘I wonder what’s going on at Alameda right now?’ It sounded like crypto trading is pretty crazy.”

Alameda made fast profits by exploiting inefficiencies in the Bitcoin market. Not long after its founding, Bankman-Fried moved the company to Hong Kong, where Ellison eventually joined him with a small group of traders. In 2019, he started FTX; as the new exchange started to consume more of his time, he appointed Ellison and another trader, Sam Trabucco, as joint CEOs of Alameda. Trabucco stepped down earlier this year, leaving Ellison in sole charge.

The relationship between Alameda and FTX was the original sin that led to the implosion of Bankman-Fried’s empire. Alameda traded heavily on the FTX platform, meaning it sometimes benefited when FTX’s other customers lost money, a conflict of interest that Bankman-Fried sometimes seemed uncomfortable discussing in interviews.

‘I do think a lot of crypto projects don’t have much real value.’

Even as she profited from crypto’s explosion in popularity, Ellison was hardly a true believer in the technology. “I do think a lot of crypto projects don’t have much real value,” she said matter-of-factly on FTX’s official podcast in early 2021. On another episode, she said she had pursued crypto trading mainly to make lots of money, which she planned to give away as part of her commitment to effective altruism. “Young people tend to be too risk averse,” she said.

As her career advanced, Ellison is believed to have posted frequently on social networking site Tumblr, blogging under the handle “worldoptimization.” The blog was anonymous, but it included specific details from her life, as well as a link to her public Twitter account. In an interview, Bankman-Fried confirmed that Ellison was the author, although the blog has now been deleted, and it’s not clear whether she has publicly acknowledged it was hers.

In an archived post from 2019, the blog’s author said that effective altruism seemed to be an “inevitable consequence of ambition.”

“If I want to do something with my life, what is there to do?” the post said. “Money is too easy.”

The penthouse in the Bahamas previously owned by Sam Bankman-Fried’s now collapsed crypto exchange FTX, where Ellison also lived.

Last year, FTX relocated to the Bahamas, and Ellison set about encouraging other people in the effective altruism community to follow. A post under her name on an effective altruist forum listed some of the benefits, including “low tax” and “beaches!”

“It’s a fairly small country,” the post said. “If a lot of EAs [effective altruists] move there, EA could end up being a somewhat influential force.”

In the Bahamas, Ellison lived in the five-bedroom penthouse of Albany, a luxury resort on the island of New Providence. She shared the space with nine other occupants, including Bankman-Fried, as well as Nishad Singh and Gary Wang, two other top FTX executives.

The four housemates sat on the board of the FTX Future Fund, an effective altruist group that Bankman-Fried financed with his crypto fortune. In April, Ellison, Singh and Bankman-Fried joined a $US580 million funding round for a little-known artificial intelligence lab founded by other effective altruists. The startup aimed to build “safe AI” — a key part of the effective altruist belief system.

At times, the FTX leadership team’s charitable commitments manifested in a holier-than-thou attitude, making colleagues outside the clique feel alienated and judged, according to two people familiar with the matter who requested anonymity to discuss sensitive matters. Ellison was sometimes blunt, one of the people said, and struck other staff as self-righteous.

Online, she could also be flippant about her management of Alameda. When she finished calls with the CEOs of other companies, she would say to herself, “Oh, thank God, I think I fooled them into thinking I’m a real adult,” according to a Tumblr post on worldoptimization’s account.

At Alameda and FTX, traders often used Adderall-like stimulants to remain alert over long hours, said people familiar with the matter — a habit that Ellison appeared to publicly acknowledge.

Even before the crisis of the past two weeks, there were signs that Alameda was in big trouble. According to a recent bankruptcy filing, the company’s quarterly financial statements were never audited. One business partner, who requested anonymity to describe private business discussions, ended work with Alameda after a call with its executives raised red flags late last year.

The business partner asked about a line representing $US2 billion of investments on Alameda’s balance sheet — a sizable chunk of the firm’s overall assets — and the Alameda representatives couldn’t explain what it was.

Then, on November 2, crypto news site CoinDesk published an article based on a leaked Alameda balance sheet that appeared to show that a large portion of the company’s assets consisted of FTT, the cryptocurrency that FTX invented.

The disclosure raised concerns about the financial stability of Bankman-Fried’s empire. On November 6, Zhao announced plans to sell an enormous supply of FTT. At the time, the token was worth about $US22; if its price dropped too much, FTX would be in trouble.

Ellison confronted Zhao on Twitter: “Alameda will happily buy it all from you today at $22,” she said. Behind the scenes, she gave orders to her small team of traders to keep the token’s price at $US22 by placing bids at roughly that level, according to a person familiar with the matter.

But Zhao’s tweets set off the crypto equivalent of a bank run, and customers rushed to withdraw their holdings from FTX.

As the crisis unfolded, Ellison was visiting the Alameda office in Hong Kong, where she worked in a private meeting room, taking phone calls, according to a person familiar with the matter. Two days after Zhao’s tweets, Bankman-Fried announced what had seemed unthinkable: The exchange was facing “liquidity crunches,” unable to meet withdrawals.

In a meeting with employees the next day, Ellison admitted that Alameda had taken customer funds from FTX to make up for shortfalls in its accounts, according to a person familiar with the matter who was granted anonymity to share internal discussions. Ellison sounded tearful, the person said, and told the group she was sorry.

FTX now owes creditors $US8 billion, and the amount it lent to Alameda is as high as $US10 billion, according to people familiar with the firm’s finances.

The Alameda staff member were shocked. As the news sank in, they commiserated, discussing plans to leave Hong Kong and seek legal help.

Ellison was not included.

This article originally appeared in The New York Times.

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