Cryptocurrency exchange FTX’s former top lawyer testified on Thursday that its founder Sam Bankman-Fried asked him to provide you with “legal justifications” for why it was missing $7 billion in customer funds 4 days before the corporate declared bankruptcy.
Can Sun, FTX’s former general counsel, testified at Bankman-Fried’s fraud trial that the corporate on Nov. 7, 2022, asked investment fund Apollo for emergency capital to cover a wave of customer withdrawals.
After Apollo requested FTX’s financial statements, Sun testified, either Bankman-Fried or one other executive sent him a spreadsheet indicating the cryptocurrency exchange was billions of dollars in need of having the ability to satisfy customer withdrawals and that it also was owed billions of dollars by Bankman-Fried’s crypto-focused hedge fund Alameda Research.
“I used to be shocked,” said Sun, who testified under a non-prosecution agreement within the third week of the trial in Manhattan federal court.
Sun told jurors that after FTX shared the spreadsheet with Apollo, Bankman-Fried pulled him aside on the Bahamas luxury apartment complex where the 31-year-old former billionaire lived and told him Apollo had asked for a legal justification for the missing funds.
Former FTX lawyer Can Sun testified Sam Bankman-Fried or one other executive sent him a spreadsheet indicating the cryptocurrency exchange was billions of dollars in need of having the ability to satisfy customer withdrawals. Above, Bankman-Fried in court this week.REUTERS
“He asked me to provide you with legal justifications,” Sun testified. “It principally confirmed my suspicion that had been rising all day that FTX didn’t have the funds to satisfy customer withdrawals, and that they’d been misappropriated by Alameda.”
Sun said he told Bankman-Fried later that day that he couldn’t discover any legal justifications. FTX declared bankruptcy on Nov. 11, 2022, leaving customers with billions of dollars of losses.
Apollo on Thursday declined to comment.
Sun’s testimony could complicate Bankman-Fried’s defense that he had a good-faith belief that Alameda’s use of FTX customer funds was appropriate.
Sun testified that Bankman-Fried told him Apollo had asked for a legal justification for the missing funds.
Bankman-Fried stands accused of looting billions of dollars in FTX customer funds to make investments, donate to US political campaigns and prop up Alameda. Bankman-Fried has pleaded not guilty to 2 counts of fraud and five counts of conspiracy. He could spend a long time in prison if convicted.
Prosecutors have said Bankman-Fried funneled FTX customer funds to Alameda. The hedge fund then lent $2.2 billion to Bankman-Fried and other executives, in response to a document shown at trial on Thursday. The executives used those loans to make enterprise investments, buy real estate and donate to political campaigns, in response to prosecutors.
Sun also testified that Bankman-Fried told him that the corporate had kept its customer funds protected and separate from its own assets, and that he never approved the lending of FTX customer funds to Alameda. Sun said he was involved in “documenting” loans from Alameda to Bankman-Fried and the opposite executives, but he didn’t know they got here from customer funds.
Bankman-Fried could spend a long time in prison if convicted.REUTERS
Sun said that after learning of the shortfall he questioned Bankman-Fried and former FTX engineering chief Nishad Singh about it, but didn’t receive straight answers. Sun said Bankman-Fried was “typing away on his computer” in the course of the meeting, while Singh appeared pale.
“It looked like his soul had been plucked away from him,” Sun said of Singh, who pleaded guilty to fraud and testified against Bankman-Fried on Monday and Tuesday.
Singh testified that Bankman-Fried kept up profligate political spending and enterprise investing for months after it became clear FTX was short billions of dollars.
Singh said he had been suicidal across the time of FTX’s collapse.
In cross-examination, Bankman-Fried’s lawyer Mark Cohen asked Sun a couple of section of FTX’s terms of service stating that some users’ funds could possibly be “clawed back” to cover other users’ losses.
Cohen also pressed Sun on his decision to not quit in the summertime of 2022, when he learned that Alameda was exempt from a procedure that routinely liquidated FTX customers’ positions if their trades were losing money.
Sun said he didn’t know that exemption was what enabled Alameda to withdraw billions of dollars from FTX until Singh told him on the night of Nov. 7.
The trial is resulting from resume on Oct. 26, when the prosecution is anticipated to rest its case.
