FTX General Counsel Denies Approving Use of Customer Funds
The general counsel of FTX, Can Sun, testified in Sam Bankman-Fried’s criminal fraud trial, stating that he never authorized the lending of customer funds to Alameda Research. Sun traveled from Japan to New York to testify as part of a no-prosecution agreement with the Department of Justice. When asked about authorizing Alameda’s use of FTX customer cash, Sun firmly denied approving it.
Sun admitted that he was initially unaware of the weakness in FTX’s system that allowed Alameda Research to borrow customer funds without permission. He believed that client funds were kept separate from the company’s cash. Sun expressed his disbelief at the situation, stating that he would never have approved such actions.
Suspicion of FTX’s Activities
During his testimony, Sun revealed that he discovered Alameda was exempt from automatic liquidations and would have a negative balance at FTX. He discussed removing this function with FTX leadership but the necessary modifications were never implemented. Sun advocated for delayed liquidation instead of automatic liquidation, promising other market makers and regulators would be informed.
The $7 Billion Hole in Alameda Research Loans
Sun’s responsibility as general counsel included documenting loans issued by Alameda Research to individuals for FTX equity purchases. However, he was unaware that these loans were funded by user deposits. Sun also admitted taking a $2.3 million loan for personal use. The discovery of a $7 billion hole connected to Alameda on FTX’s financial statement shocked Sun and raised concerns about the missing money.
During a conversation with Nishad Singh, head of engineering at FTX, Sun learned that Alameda could borrow client cash using technology that allowed it to avoid involuntary liquidations. This revelation, combined with the lack of clear responses from FTX management, led Sun to submit his resignation.
Third Point Director’s Investment Turns to Zero
Robert Boroujerdi, a director at Third Point, testified that the company’s $60 million investment in FTX is now worth zero. Third Point had access to audited and unaudited financials but saw no return on their investment. The trial will resume next week with the DOJ’s final witnesses, followed by the defense presenting its case. Bankman-Fried has not yet confirmed whether he will testify in his own defense.
Hot Take: Lack of Accountability Raises Concerns
The ongoing trial surrounding Sam Bankman-Fried’s alleged criminal fraud activities raises serious concerns about the lack of accountability within FTX. Can Sun, the former general counsel, denies authorizing the use of customer funds for unauthorized purposes. His testimony highlights weaknesses in FTX’s system and management’s failure to address them.
Additionally, the revelation of a $7 billion hole in Alameda Research loans and the loss of a $60 million investment by Third Point further tarnish FTX’s reputation. Investors and users alike are left questioning the integrity of the platform and whether their funds are truly secure.
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