- Former FTX general counsel, Can Sun, testifies that Sam Bankman-Fried sought legal justifications for the $7 billion missing from customer funds just four days before the company’s bankruptcy.
- The missing funds, and subsequent legal turmoil, highlight significant operational failures within FTX and raise questions about the proper use and safety of customer assets in the world of cryptocurrency exchanges.
As the blockchain and cryptocurrency landscape remains ever-evolving and fraught with complexity, the recent testimony from Can Sun, former general counsel for FTX, provides a crucial glimpse into the internal turmoil that transpired in the days leading up to the company’s shocking bankruptcy. On November 7, 2022, amidst a flood of customer withdrawals, the company reached out to Apollo, an investment fund, in search of emergency capital.
The Shocking Revelation
Can Sun, standing before the court under a non-prosecution agreement, recounted how he was presented with a spreadsheet, either by Sam Bankman-Fried (SBF) or another executive, which laid bare the harsh reality: FTX was billions of dollars short and incapable of fulfilling customer withdrawals. Additionally, it was owed substantial sums by Alameda Research, a crypto-focused hedge fund closely linked to Bankman-Fried.
This revelation was nothing short of a bombshell.
“I was shocked,”
Sun admitted, encapsulating the gravity of the situation. The financial discrepancies were so large that they posed an existential threat to the stability of the exchange, and by extension, its users’ assets.
The Legal Justification Quandary
It was during a private moment in the opulent Bahamas luxury apartment complex, where Bankman-Fried resided, that he approached Sun, asking him to conjure up legal justifications for the missing funds. Apollo, evidently aware of the irregularities, had demanded explanations.
“He asked me to come up with legal justifications,”
“It basically confirmed my suspicion that had been rising all day that FTX did not have the funds to satisfy customer withdrawals, and that they had been misappropriated by Alameda.”
Sun, left in a state of disbelief, later communicated to Bankman-Fried that he could not identify any legal grounds to justify the financial discrepancies. A mere four days later, FTX would declare bankruptcy, leaving a trail of devastation and billions in customer losses.
Implications for Bankman-Fried’s Defense
This testimony is a severe blow to Bankman-Fried’s defense, which hinges on his assertion that he genuinely believed Alameda’s use of FTX customer funds was above board. Bankman-Fried stands accused of siphoning billions from FTX customer deposits for investments, political donations, and to prop up Alameda. He has pleaded not guilty to the charges, but if convicted, faces decades behind bars.
Sun’s revelations underscore a critical issue in the cryptocurrency world: the safety and proper handling of customer assets. His testimony serves as a stark reminder of the need for transparency, accountability, and robust operational safeguards to protect users on these platforms.
The trial is set to resume on October 26, where the prosecution is expected to wrap up its case, potentially bringing further revelations to light and inching closer to a resolution in this high-stakes legal battle.