How Caroline Ellison Found Herself at the Centre of the FTX Crypto Collapse

On a video call in early November, employees at Alameda Research dialled in to learn the fate of the trading firm, which was teetering on the brink.

It was up to Caroline Ellison to deliver the bad news. Alameda was at the centre of Sam Bankman-Fried‘s collapsing FTX empire. Ms. Ellison, who had just turned 28, was at the centre of Alameda. And they were all in crisis.

Alameda and crypto exchange FTX were both the brainchild of Ms. Ellison’s friend Mr. Bankman-Fried, and he had picked her to help lead Alameda the year before. For a time, they rode the crypto wave together, with FTX eventually notching a blockbuster valuation of $32 billion. This month, it all came crashing down in a matter of days.

Customers had grown fearful about the companies’ financial health, yanking their money from FTX in a short, frenzied period. The firms scrambled to stay afloat, but they filed for bankruptcy shortly after Ms. Ellison’s call with employees. Mr. Bankman-Fried resigned as FTX’s chief executive.

Prosecutors, regulators and even FTX’s new CEO are investigating what happened. Customers are losing hope they will ever see their money again. Lawsuits have followed, and many top employees have left. Ms. Ellison has been fired along with Gary Wang and Nishad Singh. They were also top deputies of Mr. Bankman-Fried’s.

Before the crash, Mr. Bankman-Fried hugged the spotlight, promoting crypto and lobbying for its interests in Washington, while Ms. Ellison remained in the engine room. Alameda, a trading firm owned almost entirely by Mr. Bankman-Fried, had one overarching purpose: Make money. Ms. Ellison was tasked with keeping it running.

In a handful of podcasts and other public appearances, Ms. Ellison was quick to summarise her rapid ascent as almost accidental. She joined Wall Street straight from graduating Stanford University in 2016, though the move was less a calling than an answer to the question she found herself asking in college: What are math majors supposed to do with their lives, anyway?

It was at her first job, at the quant-trading powerhouse Jane Street Capital, that she met another 20-something trader, Mr. Bankman-Fried. Like her, he had been raised by two professors. Like her, he spoke highly of a movement called “effective altruism,” or the idea of making big money to give away.

When Mr. Bankman-Fried left to start Alameda, Ms. Ellison soon followed in what she called “a blind leap into the unknown.” She was still barely out of college—but she was also one of the more experienced traders there, she said in an FTX podcast in 2020.

Caroline Ellison grew up in the Boston suburbs, the daughter of two MIT economists. At 5, she read the second “Harry Potter” book to herself, she said on the podcast. At 8, she wrote an analysis of stuffed-animal prices, according to Forbes. Her father, inspired by his daughters, wrote advanced-math textbooks for children bored by basic lessons.

She and Messrs. Bankman-Fried, Wang and Singh comprised the board of what they called the Future Fund, with the goal of making grants to nonprofits and investments in “socially impactful companies.” Critics say the effective altruism worldview can encourage excessive risk-taking—since people can always argue that bigger paydays lead to bigger donations.

Messrs. Bankman-Fried, Wang and Singh all owned stakes in at least some of the FTX companies, according to a filing in bankruptcy court by the new CEO.

At times, Ms. Ellison and Mr. Bankman-Fried were romantically involved, The Wall Street Journal previously reported.

When Ms. Ellison arrived at Alameda, she was surprised at how it made even fast-paced Jane Street look slow. “It was like, wow, the process for doing things is just someone suggests something and then someone codes it up and releases it,” she said in the FTX podcast. “An hour later and it’s already happened.”

Everything in Mr. Bankman-Fried’s orbit seemed to move at the same breakneck speed. He launched an Alameda sister firm, FTX, in 2019, and it took just a few years for it to become one of the biggest crypto exchanges in the world. For a while, Mr. Bankman-Fried was CEO of both companies.

Use of stimulants was common among his upper echelon, the Journal previously reported.

“Nothing like regular amphetamine use to make you appreciate how dumb a lot of normal, non-medicated human experience is,” Ms. Ellison tweeted last year.

Alameda and FTX had employees in both Hong Kong and the Bahamas. Ms. Ellison, like Mr. Bankman-Fried, had recently been working from the Bahamas much of the time, according to a person familiar with the matter.

Among Alameda’s trading strategies was arbitrage—buying a coin in one location and selling it elsewhere for more. FTX, meanwhile, emerged as a key marketplace for investors large and small to buy and sell crypto. As a major player in digital currencies, Alameda traded frequently on FTX’s platform.

Around 2020, Alameda began “yield farming,” investing in tokens that pay interest-rate-like rewards. At first, Ms. Ellison pushed back. In an FTX podcast in early 2021, she recalled arguing about whether the firm should engage, and said she had concerns about the riskiness. “I lost that argument,” she said in the podcast.

Over time, Alameda’s aggressive trading strategies relied more on intuition and indicators like Elon Musk’s social-media posts, according to tweets in 2021 by Sam Trabucco, then another rising star at Alameda.

By fall 2021, cryptocurrency prices were approaching their all-time high and FTX was celebrating its recent deal for the naming rights of the University of California, Berkeley’s football stadium. Mr. Bankman-Fried named Ms. Ellison and Mr. Trabucco as co-CEOs to run Alameda so he could focus on FTX. They inherited a 25-person operation, according to Alameda’s press release at the time.

Though Mr. Bankman-Fried was no longer CEO, Alameda was still his company, too. According to FTX’s bankruptcy filings, he owned 90% of the trading firm. Mr. Wang owned the other 10%.

By early 2022, digital currencies were in free fall. Many of the industry’s biggest investment and lending firms began to buckle, then give way. As panic swept through the crypto world, Mr. Bankman-Fried sought to appear as a rescuer, buying out some troubled firms and extending credit to others to help stabilise the market.

Behind the scenes, though, Alameda was far from immune from the shakeout. Mr. Bankman-Fried’s vaunted trading firm was getting margin calls, too.

In August of this year, Mr. Trabucco said he was stepping down as co-CEO. In a lengthy Twitter thread, he said working at Alameda had been “difficult and exhausting and consuming.”

By early November, the spotlight that Mr. Bankman-Fried so often courted began to reveal his companies’ troubles. A CoinDesk report raised concerns about the financial health of Alameda and FTX. Changpeng Zhao, head of rival exchange Binance, tweeted that his firm would dump its holdings of FTT as a risk-management move. FTT is a digital currency of FTX.

As Mr. Zhao and Mr. Bankman-Fried sparred over Twitter, Ms. Ellison tried to cool the fire. “If you’re looking to minimise the market impact on your FTT sales, Alameda will happily buy it all from you today at $22!” she tweeted, tagging Mr. Zhao. A few minutes before, FTT had traded around $22.15, according to CoinDesk data.

When asked on Twitter why Ms. Ellison had made the offer, Mr. Bankman-Fried replied, “I mean that’s up to her to answer, but they said they were worried about impact which this would solve for them, and this is just quicker and easier.” Binance contacted her about the offer but never heard back, the Journal reported.

Ultimately, the close ties between Alameda and FTX were their undoing. FTX used customer money to lend billions of dollars to Alameda for risky trades and investments, according to previous reporting by the Journal. In traditional finance, regulators require brokerages to segregate customer funds from any capital they use for trading.

In the video meeting in early November, held late in the evening Hong Kong time, Ms. Ellison told employees that FTX used customer money to help Alameda meet its liabilities, the Journal previously reported. She apologised and said that she had disappointed the staff, the Journal reported. By then, the companies’ financial problems had spilled into public view, but the companies hadn’t yet filed for bankruptcy,

Ms. Ellison also told employees that she, Messrs. Bankman-Fried, Singh and Wang were aware of the decision to send customer money to Alameda.

Many Alameda employees quit the next day, the Journal reported.

Many people considering an electric vehicle are turned off by their prices or the paucity of public charging stations. But the biggest roadblock often is “range anxiety”—the fear of getting stuck on a desolate road with a dead battery.

All EVs carry window stickers stating how far they should go on a full charge. Yet these range estimates—overseen by the Environmental Protection Agency and touted in carmakers’ ads—can be wrong in either direction: either overstating or understating the distance that can be driven, sometimes by 25% or more.

How can that be? Below are questions and answers about how driving ranges are calculated, what factors affect the range, and things EV owners can do to go farther on a charge.

How far will an electric vehicle go on a full battery?

The distance, according to EPA testing, ranges from 516 miles for the 2023 Lucid Air Grand Touring with 19-inch wheels to 100 miles for the 2023 Mazda MX-30.

Most EVs are in the 200-to-300-mile range. While that is less than the distance that many gasoline-engine cars can go on a full tank, it makes them suitable for most people’s daily driving and medium-size trips. Yet it can complicate longer journeys, especially since public chargers can be far apart, occupied or out of service. Plus, it takes many times longer to charge an EV than to fill a tank with gas.

How accurate are the EPA range estimates?

Testing by Car and Driver magazine found that few vehicles go as far as the EPA stickers say. On average, the distance was 12.5% shorter, according to the peer-reviewed study distributed by SAE International, formerly the Society of Automotive Engineers.

In some cases, the estimates were further off: The driving range of Teslas fell below their EPA estimate by 26% on average, the greatest shortfall of any EV brand the magazine tested. Separately, federal prosecutors have sought information about the driving range of Teslas, The Wall Street Journal reported. Tesla didn’t respond to a request for comment.

The study also said Ford’s F-150 Lightning pickup truck went 230 miles compared with the EPA’s 300-mile estimate, while the Chevrolet Bolt EV went 220 miles versus the EPA’s 259.

A GM spokesman said that “actual range may vary based on several factors, including things like temperature, terrain/road type, battery age, loading, use and maintenance.” Ford said in a statement that “the EPA [figure] is a standard. Real-world range is affected by many factors, including driving style, weather, temperature and if the battery has been preconditioned.”

Meanwhile, testing by the car-shopping site Edmunds found that most vehicles beat their EPA estimates. It said the Ford Lightning went 332 miles on a charge, while the Chevy Bolt went 265 miles.

That is confusing. How can the test results vary so much?

Driving range depends largely on the mixture of highway and city roads used for testing. Unlike gasoline-powered cars, EVs are more efficient in stop-and-go driving because slowing down recharges their batteries through a process called regenerative braking. Conversely, traveling at a high speed can eat up a battery’s power faster, while many gas-engine cars meet or exceed their EPA highway miles-per-gallon figure.

What types of driving situations do the various tests use?

Car and Driver uses only highway driving to see how far an EV will go at a steady 75 mph before running out of juice. Edmunds uses a mix of 60% city driving and 40% highway. The EPA test, performed on a treadmill, simulates a mixture of 55% highway driving and 45% city streets.

What’s the reasoning behind the different testing methods?

Edmunds believes the high proportion of city driving it uses is more representative of typical EV owners, says Jonathan Elfalan, Edmunds’s director of vehicle testing. “Most of the driving [in an EV] isn’t going to be road-tripping but driving around town,” he says.

Car and Driver, conversely, says its all-highway testing is deliberately more taxing than the EPA method. High-speed interstate driving “really isn’t covered by the EPA’s methodology,” says Dave VanderWerp, the magazine’s testing director. “Even for people driving modest highway commutes, we think they’d want to know that their car could get 20%-30% less range than stated on the window sticker.”

What does the EPA say about the accuracy of its range figures?

The agency declined to make a representative available to comment, but said in a statement: “Just like there are variations in EPA’s fuel-economy label [for gas-engine cars] and people’s actual experience on the road for a given make and model of cars/SUVs, BEV [battery electric vehicle] range can exceed or fall short of the label value.”

What should an EV shopper do with these contradictory range estimates?

Pick the one based on the testing method that you think matches how you generally will drive, highway versus city. When shopping for a car, be sure to compare apples to apples—don’t, for instance, compare the EPA range estimate for one vehicle with the Edmunds one for another. And view all these figures with skepticism. The estimates are just that.

Since range is so important to many EV buyers, why don’t carmakers simply add more batteries to provide greater driving distance?

Batteries are heavy and are the most expensive component in an EV, making up some 30% of the overall vehicle cost. Adding more could cut into a vehicle’s profit margin while the added weight means yet more battery power would be used to move the car.

But battery costs have declined over the past 10 years and are expected to continue to fall, while new battery technologies likely will increase their storage capacity. Already, some of the newest EV models can store more power at similar sticker prices to older ones.

What can an EV owner do to increase driving range?

The easiest thing is to slow down. High speeds eat up battery life faster. Traveling at 80 miles an hour instead of 65 can cut the driving range by 17%, according to testing by Geotab, a Canadian transportation-data company. And though a primal appeal of EVs is their zippy takeoff, hard acceleration depletes a battery much quicker than gentle acceleration.

Does cold weather lower the driving range?

It does, and sometimes by a great amount. The batteries are used to heat the car’s interior—there is no engine creating heat as a byproduct as in a gasoline car. And many EVs also use electricity to heat the batteries themselves, since cold can deteriorate the chemical reaction that produces power.

Testing by Consumer Reports found that driving in 15- to-20-degrees Fahrenheit weather at 70 mph can reduce range by about 25% compared to similar-speed driving in 65 degrees.

A series of short cold-weather trips degraded the range even more. Consumer Reports drove two EVs 40 miles each in 20-degree air, then cooled them off before starting again on another 40-mile drive. The cold car interiors were warmed by the heater at the start of each of three such drives. The result: range dropped by about 50%.

Does air conditioning degrade range?

Testing by Consumer Reports and others has found that using the AC has a much lower impact on battery range than cold weather, though that effect seems to increase in heat above 85 degrees.

I don’t want to freeze or bake in my car to get more mileage. What can I do?

“Precondition” your EV before driving off, says Alex Knizek, manager of automotive testing and insights at Consumer Reports. In other words, chill or heat it while it is still plugged in to a charger at home or work rather than using battery power on the road to do so. In the winter, turn on the seat heaters, which many EVs have, so you be comfortable even if you keep the cabin temperature lower. In the summer, try to park in the shade.

What about the impact from driving in a mountainous area?

Going up hills takes more power, so yes, it drains the battery faster, though EVs have an advantage over gas vehicles in that braking on the downside of hills returns juice to the batteries with regenerative braking.

Are there other factors that can affect range?

Tires play a role. Beefy all-terrain tires can eat up more electricity than standard ones, as can larger-diameter ones. And underinflated tires create more rolling resistance, and so help drain the batteries.

Most EVs give the remaining driving range on a dashboard screen. Are these projections accurate?

The meters are supposed to take into account your speed, outside temperature and other factors to keep you apprised in real time of how much farther you can travel. But EV owners and car-magazine testers complain that these “distance to empty” gauges can suddenly drop precipitously if you go from urban driving to a high-speed highway, or enter mountainous territory.

So be careful about overly relying on these gauges and take advantage of opportunities to top off your battery during a multihour trip. These stops could be as short as 10 or 15 minutes during a bathroom or coffee break, if you can find a high-powered DC charger.

Before embarking on a long trip, what should an EV owner do?

Fully charge the car at home before departing. This sounds obvious but can be controversial, since many experts say that routinely charging past 80% of a battery’s capacity can shorten its life. But they also say that charging to 100% occasionally won’t do damage. Moreover, plan your charging stops in advance to ease the I-might-run-out panic.

So battery life is an issue with EVs, just as with smartphones?

Yes, an EV battery’s ability to fully charge will degrade with use and age, likely leading to shorter driving range. Living in a hot area also plays a role. The federal government requires an eight-year/100,000-mile warranty on EV batteries for serious failure, while some EV makers go further and cover degradation of charging capacity. Replacing a bad battery costs many thousands of dollars.

What tools are available to map out charging stations?

Your EV likely provides software on the navigation screen as well as a phone app that show charging stations. Google and Apple maps provide a similar service, as do apps and websites of charging-station networks.

But always have a backup stop in mind—you might arrive at a charging station and find that cars are lined up waiting or that some of the chargers are broken. Damaged or dysfunctional chargers have been a continuing issue for the industry.

Any more tips?

Be sure to carry a portable charger with you—as a last resort you could plug it into any 120-volt outlet to get a dribble of juice.