Former FTX lawyer ‘shocked’ by missing $7B: SBF trial live updates
Can Sun, a former FTX lawyer, will take the stand this morning to kick off day 12 of the Sam Bankman-Fried trial
Artwork by Crystal Le
FTX co-founder Sam Bankman-Fried faces seven federal charges in a criminal trial taking place in Manhattan. The former crypto exchange exec is accused of misappropriating billions of dollars of customer funds for real estate, donations, political contributions and investments.
The current state of play: Former FTX attorney Can Sun is expected to take the stand today as one of the few remaining witnesses for the prosecution. On Wednesday, accounting professor Peter Easton gave the court insight into SBF’s — and his family’s — spending. Read more here.
2:45 pm ET: Terms of service come into focus
The cross-examination of former FTX attorney Can Sun was heavily focused on the terms of service of FTX Digital Markets. The defense has previously indicated that this could be a central element in its case.
The terms of service explicitly expressed FTX’s commitment to safeguarding customer assets and telling them that the assets they deposited were theirs and theirs alone. This aligns with the government’s claims that Alameda accessed and spent customer deposits sent to FTX.
SBF lawyer Mark Cohen attempted to knock down the theory by asking about the margin trading section of the terms. Through questioning, Cohen attempted to get the percentage of users that engaged in such trading. His goal might have been to get a sense of how many of the customers who lost money in the FTX collapse were engaging in riskier strategies from Sun.
However, Cohen moved on after Sun didn’t recall the numbers.
He then focused on a section about account liquidation on FTX, which said that customers may lose “all” of their assets in cases where backstop liquidity providers are unable to step in effectively. While Cohen read this section into the record, Sun didn’t have a response to the questions.
Cohen also had questions about Sun’s knowledge regarding Alameda’s exemption from auto-liquidation.
Sun testified during his direct examination with the prosecution that he found out about this in August or September of 2022.
“I asked for it to be removed,” Sun said, adding that Sam Bankman-Fried and FTX co-founder Gary Wang didn’t want to do so. Sun was also told around this time that this “carveout” for Alameda “had never been triggered.”
Cohen used this as a springboard to ask why he didn’t resign at the time. Sun, in response, said that he didn’t know that the special privilege that exempted Alameda from liquidation also allowed it to withdraw customer funds from FTX. He didn’t find out until Nishad Singh disclosed that to him on Nov. 7, 2022. Sun said he resigned the next day.
Cohen also briefly touched on the series of conversations Sun had with Bankman-Fried in the Bahamas regarding a possible Apollo investment, a $7 billion shortfall, and possible legal rationales to explain that shortfall. His line of questioning didn’t result in any new discoveries.
The next witness was Robert Boroujerdi, a managing director at asset manager Third Point.
Third Point ultimately invested $60 million in FTX International, an investment Boroujerdi now values at “zero.”
Prosecutor Thane Rehn asked Boroujerdi about his conversations with Bankman-Fried prior to Third Point’s first FTX investment of $35 million in July 2021.
No one from FTX — including Bankman-Fried — told Boroujerdi that Alameda was exempt from FTX’s risk engine. In other words, its trading accounts couldn’t be liquidated and could go negative infinitely.
This “speedy” risk engine, as described by Boroujerdi, was a major factor in Third Point’s eventual investment. When Rehn asked him how his investment strategy would have changed if he’d known of Alameda’s special privileges, Boroujerdi said Third Point would have backed out.
The firm also wouldn’t have participated if it had known that the $35 million would be funneled to Alameda or that Alameda could withdraw from customer money on FTX, according to Boroujerdi.
On cross, David Lisner repeatedly asked questions relating to Third Point’s due diligence on FTX. Most of his queries were slammed with immediate objections, which were sustained by Judge Kaplan. Rough.
After minutes passed with no further progress, Lisner relented and gave the courtroom permission to break. Judge Kaplan appeared quite happy with that outcome and adjourned the court until Thursday, Oct. 26.
12:00 pm ET: And a little bit of spice…
Former FTX General Counsel Can Sun didn’t hold back on Sam Bankman-Fried.
Sun testified under a non-prosecution agreement to protect himself because in his words: “I didn’t do anything wrong…I had no idea customer funds were being used.”
Sun worked on the FTX Digital Markets updated terms of service in May 2022, which included provisions that expressly enumerated the safeguarding of customer assets.
When FTX’s collapse began in early November 2022, Sun hopped on a call with private equity firm Apollo Global to try to secure an investment. This was done, he said on the stand, to satisfy the increased customer withdrawals at that time.
Apollo asked for a balance sheet and got one from either Bankman-Fried or former head of product at FTX, Ramnik Arora. Notably, Arora was floated as a government witness, but it’s unclear if he’s still set to take the stand before the prosecution rests next Thursday.
Sun was alarmed at the balance sheet he received from either SBF or Arora, but proceeded to share it with Apollo. He told the court he was “shocked” to find out that FTX was “$7 billion short” on its goal of meeting customer withdrawals.
But Apollo proceeded to say no dice to the former FTX attorney. Not before the company questioned SBF on the missing money and asked for “legal justifications” to explain the missing funds.
SBF asked Sun for “theoretical justifications” for where customer money had gone — other than it being siphoned away by Alameda Research, and then the two proceeded to take a walk with Bankman-Fried outside the luxurious Bahamian resort. None of the “theoretical justifications” were “supported by the facts,” Sun said.
The same day — November 7 — that Sun met with Apollo, he talked with Bankman-Fried and Nishad Singh in an Albany apartment about the situation and didn’t get “straight responses.” Sun added that “Joe” was in the apartment with both Singh and Bankman-Fried. However, it’s not clear if he meant Bankman-Fried’s father or just another (average) Joe.
SBF was apparently “typing away” on his keyboard and Singh was “pale.”
“There was no legal justification for the money being taken away,” Sun told the jury.
The most important one was the margin trading defense, because Bankman-Fried has fallen back on this in media interviews. Basically, there’s a portion of FTX’s terms of services that stipulates if you participate in trading on margin, you could lose your collateral if your account is liquidated.
Sun said he told Bankman-Fried that this alone didn’t come close to explaining the missing $7 billion of customer funds.
“Yup, yup,” Bankman-Fried acknowledged, Sun said.
After Sun relayed this story to the jury, the government showed Bankman-Fried’s Dec. 1, 2022 interview with George Stephanopolous.
In the interview, Stephanopolous brings up the FTX terms of service, pointing out to SBF that the terms say — point blank — that customer assets belonging to them are not to be loaned out. Bankman-Fried sidesteps his question, however, and points to another portion of the terms of service — the “borrow-lending facility,” also known as trading on margin.
Of course, this was something customers had to opt in to, and customers who hadn’t opted in also lost money in the FTX collapse.
After the clip was played, prosecutor Danielle Sassoon asked Sun if Bankman-Fried brought up the borrow-lending facility as a possible way to explain away misappropriated customer funds in their Nov. 7, 2022 conversation.
Sun said yes, and reminded the jury that Bankman-Fried acknowledged that that explanation wouldn’t work. Yet, he said it to Stephanopoulos less than a month later.
Sassoon had no further questions after that.
10:20 am ET: A few witnesses more
Former FTX attorney Can Sun is expected to take the stand today.
Other than discussing, you know, FTX, it’s not really clear what Sun will be asked by the prosecution.
Prosecutor Danielle Sassoon told the court yesterday that the prosecution’s “direct is not going to touch on anything that they’re asserting privilege over” and that the defense’s cross-examination will also avoid any touchy subjects (read: privileged subjects).
And back to scheduling…
The prosecution confirmed that they’re on track to “rest early in the day” on Thursday, October 26.
“I don’t think the witnesses we have on tap for that week…they’re going to be short, but I also think that they’re not so material that it would affect, you know, the decision to put on a defense case,” Sassoon told the court Wednesday.
So, basically, no surprises expected. Let’s hope for some smooth sailing…until the defense decides about presenting a case.
SBF lawyer Mark Cohen told the court that the defense would be ready to put on their own case starting next Thursday, if they pursue one. It’s still not totally clear if the defense plans to put on a case, or who would take the stand.
As stated in a filing, the possibility of SBF taking the stand rests on the outcome of the new Adderall dosage the court is testing.
In a discussion with the prosecution and Judge Lewis Kaplan, Cohen suggested that his team may give notice of witnesses on Oct. 24, two days before the defense’s case begins.
Kaplan pushed for the two to “negotiate a compromise” to which Cohen agreed to try.
“And if you can manage that, I’m going to send you to the Middle East,” Kaplan added.
“That’s above my pay rate, your Honor,” Cohen quipped in return.
As a reminder: Thursday marks the end of court for the week. The court won’t meet again until next Thursday, Oct. 26.
This is a developing story.
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