By Luc Cohen

NEW YORK (Reuters) – Former cryptocurrency manager Caroline Ellison was sentenced to two years in prison on Tuesday for her role in the theft of $8 billion in customer funds from the now-bankrupt FTX exchange by her ex-boyfriend Sam Bankman-Fried, with the judge praising her extensive cooperation with prosecutors.

US District Judge Lewis Kaplan said at a sentencing hearing in federal court in Manhattan that he could not support the idea that remorse and cooperation were a “free pass” in such a serious case. Prosecutors described Bankman-Fried's actions as one of the largest financial frauds in US history.

Ellison, 29, pleaded guilty to seven counts of fraud and conspiracy and testified as a prosecution witness in the trial of Bankman-Fried, who was convicted of fraud and other charges last year and is serving a 25-year prison sentence related to FTX's 2022 collapse.

The crimes she pleaded guilty to carry a maximum sentence of 110 years in prison. Her lawyers had argued against a prison sentence because of her cooperation. The prosecutors also asked for a lenient sentence.

Kaplan told Ellison that she bore “grave guilt in this fraud,” although her “remarkable cooperation” represented a “fundamental difference” between her and Bankman-Fried.

“I am convinced you will never do anything like this again,” the judge told Ellison. “But here's the point: This was, if not the greatest financial fraud ever committed in this country or anywhere else, then almost.”

Ellison folded her hands in her lap and looked at the defense table after the verdict was announced. She had previously turned to Kaplan, speaking at a rapid pace and reading a prepared statement.

“Not a day goes by that I don't think about all the people I've hurt,” said Ellison, a Stanford University graduate whose parents and two sisters were present in court. “My brain can't even really comprehend the extent of the suffering I've caused. But that doesn't mean I'm not trying.”

Ellison ran Alameda Research, a cryptocurrency-focused hedge fund that Bankman-Fried founded, from 2021 to 2022. Ellison said she often thought about leaving Alameda.

“Every time I thought about it, I heard Sam’s voice in my head,” Ellison told the judge.

“Ignoring that voice in my head and speaking up would have been brave,” Ellison said, beginning to swallow and sniffle. “I'm sorry I wasn't brave.”

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However, the U.S. Attorney's Office in Manhattan, which brought the charges, asked Kaplan to treat Ellison with leniency, but did not recommend a specific sentence.

“I cannot stress enough the importance of Ms. Ellison's testimony in the conviction of Sam Bankman-Fried,” said prosecutor Danielle Sassoon at the hearing.

Prosecutors said Ellison met with them about 20 times to help them reconstruct the dissolution of FTX and build their case against Bankman-Fried.

“Unlike Bankman-Fried, she is not cunning. There is no evidence that she was driven by greed or that risk-taking or lust for power was part of her nature,” Sassoon said.

“A POWERFUL MESSAGE”

Anjan Sahni, Ellison's lawyer, told the judge that sparing Ellison from prison would send “a strong message about the value of timely, honest and full cooperation with the government in financial crime cases.”

“She did not shy away from the details, as embarrassing as they were,” Sahni said, adding that Ellison's “honesty and candor” were crucial to the prosecution.

Kaplan said he would recommend that Ellison be incarcerated in a minimum-security prison and begin serving her sentence in November. Ellison could potentially be released a few months shy of two years if she is given credit for good behavior in prison.

Nishad Singh and Gary Wang, two other former FTX executives who cooperated with prosecutors, are scheduled to be sentenced on October 30 and November 20, respectively.

Bankman-Fried, 32, benefited from a boom in cryptocurrency prices during the COVID pandemic, reaching a net worth of $26 billion by October 2021, according to Forbes Magazine. He became known as a generous donor to charities and Democratic politicians.

His fortune disappeared when FTX collapsed in November 2022 amid a flood of customer withdrawals. Bankman-Fried was charged a month later with stealing FTX customer funds to offset losses at Alameda. Ellison pleaded guilty in December 2022.

Ellison testified for three days at Bankman-Fried's trial, saying he directed her and others to take money from FTX without the knowledge of customers. Bankman-Fried is appealing his conviction and sentence.

(Reporting by Luc Cohen in New York; Editing by Will Dunham)