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.

In our 20s, my new husband and I took a year off from our fledgling careers to travel in Southeast Asia. Equipped with paper maps, we began in China and improvised each day’s “itinerary” on the go. A gap year for grown-ups, I called it, although I scarcely qualified as one.

Nearly 40 years later, we are new retirees with the same wanderlust. We wondered: Could we recapture the thrill of winging it, enduring rough roads and cheap hotels?

We could and did, but for 2½ months instead of 12. We mapped out a route that would take us up Africa’s east coast and then—who knows where? Here’s how we rolled and five important lessons we learned on a 6,000-mile trip.

Kenya: Live large by day

Our first stop was the tiny, car-free island of Lamu, well-known for its high-profile visitors, from Kate Moss to the Obamas. This low-key getaway offered white-sand beaches, dhows — boats you can rent for day cruises and snorkelling — and lots of donkeys, the main mode of transport.

We considered the beachside Peponi Hotel in Shela, a hot spot since the 1960s (Mick Jagger bunked there). But room rates start at $250, far above our per-night budget of $70 or less. When contemplating almost 100 nights of travel, price matters.

So we chose a villa in the dunes called Amani Lamu, $61 per night for an en suite room with a private terrace and shared plunge pool.

We still had a cool Peponi moment come sunset: On the hotel’s whitewashed veranda, we sipped Pepotinis and plotted our next day’s interlude at the Majlis, Lamu’s fanciest resort (from $580).
With a $20 day pass, we could lounge around its pools and beach bars like proper resort habitués.

Lesson learned: Live like billionaires by day and frugal backpackers by night.
Must-go: Across the bay on Manda Island, bunk a night in a thatched-roof bungalow on stilts at Nyla’s Guest House and Kitchen (from $48 with breakfast).
After a dinner of doro wat, a spicy Ethiopian chicken stew and rice, the sound of waves will lull you asleep.

Egypt: Ask. Politely.

From Lamu, we flew to Aswan in Egypt. Our “plan”: Cruise down the Nile to Luxor, then take a train to Cairo, and venture to Giza’s pyramids.

Turns out it’s the kind of thing one really should book in advance. But at our Aswan hostel, the proprietor, who treated us like guests deserving white-glove service, secured a felucca, a vessel manned by a navigator and captain-cum-cook. Since we’d booked fewer than 24 hours in advance and there were no other takers, we were its sole passengers for the three-day trip.

One day, we stopped to tour ancient temples and visit a bustling camel fair, but otherwise, we remained on board watching the sunbaked desert slide by. We slept on futons on the deck under the stars. The cost: about $100 per night per person, including three meals.

Lesson learned: Ask for help. We found Egyptians kind and unfazed by our haplessness, especially when we greeted them respectfully with assalamu alaikum (“Peace to you”).
Must-go: For buys from carpets to kebabs, don’t miss Cairo’s massive Khan el-Khalili bazaar, in business since 1382. We loved the babouche, cute leather slippers, but resisted as our packs were full.

Turkey: Heed weather reports

Next stop Tunisia, via a cheap flight on EgyptAir. We loved Tunisia, but left after six days because the weather got chilly.

Fair enough, it was January. We hopped continents by plane and landed in Istanbul, where it snowed. Fortunately, two of Istanbul’s main pleasures involve hot water. We indulged in daily hammams, or Turkish baths, ranging from $30 to $60 for services that included, variously, a massage, a scrub-down and a soak.

Beneath soaring ceilings at the temple-like Kılıç Ali Paşa Halamı, brisk workers sternly wielded linen sacks to dowse my body in a cloud of hot foam.
In between visits to Ottoman-era mosques and the city’s spice markets, we staved off the chill by drinking fruity pomegranate tea and sampling Turkish delight and baklava at tea salons.

A favourite salon: Sekerci Cafer Erol in Kadıköy, a ferry-ride away on the “Asian” side of Istanbul, where the city adjoins Asia.

Lesson learned: Pay attention to the weather gods. We foolishly took the concept of travelling off-season too far.
Must-go: Don’t miss the Istanbul Modern, the Renzo Piano-designed art museum in the historic Beyoğlu district.

Cambodia: Chill out

After a long flight from Istanbul, we spent two weeks in Laos and then hopped another plane to Cambodia, specifically Koh Rong Sanloem, another car-free island.

Like vagabonds, we lolled by the warm, super-blue water of Sunset Beach, steps from our bungalow at Sleeping Trees (from $54 per night).
A caveat: You have to sweat to get to this island paradise. We took a bus, a ferry and then hiked for 40 minutes up and down a steep hill and through a jungle. You’ll find only a handful of “resorts”—simple bungalow complexes like ours. There’s nothing much to do. I’ll be back.

Lesson learned: Until our week in Cambodia, we’d been travelling too much and too fast, prioritising exploration over relaxation. This island taught us the pleasures of stasis.
Must-go: Spend one day in Cambodia’s capital city, Phnom Penh, to delve into its sobering history. Tour the Choeung Ek Genocidal Centre, site of a Killing Field, where nearly 9,000 Cambodians died.

Thailand: Be a frugal hedonist

We spent our last two weeks on the island of Ko Samui, where season three of “The White Lotus” was shot.

We went there for its astounding beauty, not the luxury resort experience that comes with too many boisterous lads on vacation, snake farms and traffic jams in town.

Truth be told, we flouted our budget rules to book an Airbnb with a pool (from $300) in the hills of Lipa Noi on the island’s quiet side. We joined the nearby Gravity Movement Gym to work out, but cooked our own meals to keep our final tabulation of expenses within reach.

Lesson learned: Pinching pennies feels restrictive, no matter how lush the surroundings. And it leads to bickering, as partners tally up who squandered how much on what.
With the end in sight, we splurged on the villa and even bought souvenirs, knowing we’d lug them for days, not weeks.
Must-go: Take the 30-minute ferry to sister island Ko Pha Ngan for its peace, love and yoga vibe and, once a month, full-moon parties.
Via Airbnb, we bunked at a Thai house called Baan Nuit, run by the Dear Phangan restaurant proprietors.

We sampled steamed dumplings, white fish in a Thai basil sauce and spicy noodles for a mere $15 apiece.
Hey, indulge in that “White Lotus” moment if you dare!