FTX's Bankman-Fried Instructed Former Counsel to Justify $8B Gap, Witnesses Detail Collapse
Summary:
Former FTX general counsel Can Sun testified that he was asked by Sam Bankman-Fried to provide a legal explanation for an $8 billion discrepancy in Alameda Research's accounts. Sun, who testified as part of a non-prosecution agreement with the DOJ, resigned the next day after learning about Alameda's $65 billion line of credit with FTX. The trial has seen nine witnesses detailing the events leading to FTX's collapse, with additional testimonies expected. Bankman-Fried faces up to 115 years in prison if convicted on charges of fraud and conspiracy.
On October 19, court testimony from Can Sun, former chief legal officer for FTX, revealed that he was directed by Sam Bankman-Fried to find a plausible legal reason to account for an $8 billion discrepancy in Alameda Research's financial accounts. Sun, who was part of a non-prosecution agreement with the US Department of Justice, flew in from Japan to provide his testimony in the trial. He learned of the significant shortfall between the two companies on November 7, after being presented with a debt-illustrating spreadsheet, a detail that he admitted took him by surprise. The intent was for this spreadsheet to be shared with Apollo Capital, an asset management firm, as FTX sought new funding amid a liquidity crisis in early November. In answer to Apollo's queries on the financial shortcoming, Bankman-Fried asked Sun to find justifiable legal grounds.
Sun's testimony acknowledged that while he had explored various legal avenues, including dormancy fees and collateral liquidations during the market's low phase, the magnitude of the missing sums made addressing them unavoidable. Furthermore, FTX's Terms of Service stipulated that the funds in user accounts were owned exclusively by the users themselves:“None of the Digital Assets in your account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets un user's accounts as belonging to FTX Trading.” Bankman-Fried appeared unsurprised by the situation, Sun added, unlike Nishad Singh, the former director of engineering, who Sun described as being heavily impacted. That same evening, Singh informed Sun about Alameda's colossal $65 billion credit line from FTX. The following day, Sun resigned his position, which he had held for over a year. Throughout his tenure, Sun stated that he had relied on Bankman-Fried's reassurances that the funds were separate in order to draft FTX's legal documents and respond to regulatory inquiries.
This was just one of the developments in a busy week in the trial of Bankman-Fried, which witnessed testimonies from a total of nine witnesses detailing the events leading up to FTX's downfall. The prosecution is expected to conclude its case on October 26, following testimonies from two remaining witnesses. Bankman-Fried's defense has yet to announce whether it plans to present a case. Bankman-Fried faces seven charges of fraud and conspiracy to commit fraud against FTX's customers and investors and could face up to 115 years in prison if convicted.
Published At
10/20/2023 5:08:59 PM
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