Cryptocurrency exchange FTX’s former top lawyer testified Thursday that its founder Sam Bankman-Fried asked him to present a “legal justification” for why it lost $7 billion in client funds four days before the company declared bankruptcy.
Can Sun, FTX’s former general counsel, testified at the Bankman-Fried fraud trial that the company on November 7, 2022, asked the Apollo investment fund for emergency capital to cover a wave of customer withdrawals.
After Apollo requested FTX’s financial statements, Sun testified, either Bankman-Fried or another executive sent him a spreadsheet showing the cryptocurrency exchange was short billions of dollars to meet customer withdrawals and was also owed billions of dollars by Bankman-Fried’s . Crypto-focused hedge fund Alameda Research.
“I was shocked,” said Sun, who testified under a non-prosecution agreement in 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 at the luxury Bahamas apartment complex where the 31-year-old former billionaire lived and told him Apollo had sought legal justification for the missing funds.
Former FTX lawyer Can Sun testified Sam Bankman-Fried or another executive sent him a spreadsheet showing the cryptocurrency exchange was short billions of dollars to meet customer withdrawals. Above, Bankman-Fried in court this week.REUTERS
“He asked me to present a legal justification,” Sun testified. “It basically confirmed my suspicions that had been growing throughout the day that FTX did not have the funds to meet customer withdrawals, and that they were being abused by Alameda.”
Sun said he told Bankman-Fried later that day that he could not identify any legal justification. FTX declared bankruptcy on November 11, 2022, costing customers billions of dollars in losses.
Apollo on Thursday declined to comment.
Sun’s testimony could complicate Bankman-Fried’s defense that she had an honest belief that Alameda’s use of FTX client funds was justified.
Sun testified that Bankman-Fried told him Apollo had requested legal justification for the missing funds.
Bankman-Fried is accused of looting billions of dollars in FTX client funds to make investments, donate to US political campaigns and support Alameda. Bankman-Fried has pleaded not guilty to two counts of fraud and five counts of conspiracy. He could spend decades in prison if convicted.
Prosecutors said Bankman-Fried funneled FTX client funds to Alameda. The hedge fund later loaned $2.2 billion to Bankman-Fried and other executives, according to documents shown at the hearing on Thursday. The executives used the loans to make venture investments, buy real estate and donate to political campaigns, according to prosecutors.
Sun also testified that Bankman-Fried told her that the company had kept her client funds safe and separate from her own assets, and that she had never approved the loan of FTX client funds to Alameda. Sun said he was involved in “documenting” loans from Alameda to Bankman-Fried and other executives, but he had no idea they came from client funds.
Bankman-Fried could spend decades in prison if convicted.REUTERS
Sun said that after learning of the shortcoming he questioned Bankman-Fried and former FTX engineering chief Nishad Singh about it, but did not receive straight answers. Sun said Bankman-Fried was “typing away on her computer” during the meeting, while Singh looked pale.
“It looked like his soul had been ripped out of him,” Sun said of Singh, who pleaded guilty to fraud and testified against Bankman-Fried on Monday and Tuesday.
Singh testified that Bankman-Fried maintained excessive political spending and venture investments for months after it became clear FTX was short billions of dollars.
Singh said he had killed himself around the time of the FTX collapse.
In cross-examination, Bankman-Fried attorney Mark Cohen asked Sun about a part of FTX’s terms of service that states that some users’ funds can be “grabbed back” to cover other users’ losses.
Cohen also pressed Sun about his decision not to quit in the summer of 2022, when he learned that Alameda was exempt from procedures that automatically liquidate FTX clients’ positions if their trades lose money.
Sun said he didn’t know it was the exemption that allowed Alameda to withdraw billions of dollars from FTX until Singh told him on the night of Nov. 7.
The trial is expected to resume on October 26, when the prosecution is expected to rest its case.
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Source: thtrangdai.edu.vn/en/
