On Guilty Pleas

Austin Campbell
3 min readDec 24, 2022
Photo by Ante Hamersmit on Unsplash

I do not envy the job of Sam Bankman-Fried’s lawyer after seeing the screenshots of Caroline Ellison’s guilty plea.

That is… some ugly stuff. Waking up naked in a dumpster after a three day bender level ugly. The confession details the following:

  • Alameda and FTX executives were aware that Alameda had special terms to borrow unlimited amounts from FTX without paying for it (or, put differently, steal the customer funds)
  • Alameda and FTX were knowingly making large, illiquid investments in the market and loans to the senior executives using said customer funds
  • That the senior staff were fully aware of what was going on and acting to disguise this activity, up to and including providing false information to others about the balance sheet and activity

Reading this, I think there are several conclusions that one can come to about the court case, and then some policy and regulatory considerations that should come after, given this activity.

First, I don’t know if there is a path for SBF to get out of this

From a legal perspective, now that you have one of his co-conspirators flipping on him and giving this kind of ammunition to the feds, SBF’s defense will have to convince a jury of one of the following:

  • What Caroline said is not true and they didn’t do these things
  • What Caroline said is true, but SBF wasn’t involved and there was somehow a mass conspiracy of the people below him without his knowledge

Given his public statements that indicated at least some level of knowledge and the ground being laid for “lax controls” or something of the sort as a defense, I think the latter is going to be very hard to prove. Clearly he knew something was up, so at a bare minimum fraud and gross negligence are almost open and shut, given this level of confession.

This is also… pretty bad!

Secondly, what does this mean for Caroline Ellison?

This agreement puts her in pretty good shape with regard to the core charges that the FTX crew is facing. There will probably be a bad taste in the mouth of many if she totally skates, and a judge may…

Austin Campbell

Austin is a Columbia Business School professor, has run one of the top 3 stablecoins, and has decades of experience trading profoundly weird financial stuff