At a glance
- FTX’s former general counsel Can Sun testified to his own ongoing deception by Sam Bankman-Fried in 2021 and 2022.
- Bankman-Fried’s repeated explanations for the missing funds may have originated in “theoretical justifications” offered by the lawyer.
- Prosecutors also highlighted FTX terms of service clauses that clearly prohibited FTX use of customer funds.
Can Sun, former FTX general counsel, testified on Thursday that Sam Bankman-Fried repeatedly misled him about the nature of financial flows in the FTX empire.
Sun, a Yale Law graduate, joined FTX in August of 2021 and was given the task of revamping the exchange’s terms of service. He walked prosecutors through sections of those terms that clearly indicated that FTX would not move or borrow their funds without consent.
Sun also recounted multiple instances, including in something called FTX’s ‘Key Principles,’ when Bankman-Fried assured him customer funds were sacrosanct. Sun said he frequently told investors and others that Alameda Research and the FTX exchange were separate entities, “based on representations made to me by Sam [Bankman-Fried].”
But in mid-2022, Sun testified, he began to discover a variety of inconsistencies, which prosecutors walked him through. They included the undocumented transfer of millions of dollars to Bankman-Fried and former FTX executive Ryan Salame. Sun also described discovering, in August or September of 2022, that Alameda had special privileges on FTX.
“I was shocked. It went against everything we had told regulators,” Sun testified. “I asked for it to be removed.”
Sun stayed with FTX after his discovery because he thought Alameda’s margin exception was being changed — and because “I was told the … [Alameda] carveout had never been triggered.”
However, on November 7, 2022, Sun finally made a discovery he couldn’t ignore. FTX was attempting to raise emergency capital from Apollo Capital, amid serious worries about its stability. Apollo wanted financials, and Sun described seeing something like an accurate picture of the situation in a meeting with Bankman-Fried, Nishad Singh, Ramnik Arora, and Joe Bankman.
“I was shocked,” Sun testified. “It showed FTX was short $7 billion.” The documents also showed Alameda’s borrowing of FTX customer funds. When he asked about the revelations, Sun said he “did not get straight responses” from other senior executives.
Sun also described Nishad Singh as extremely distraught during the same meeting. “His entire face was pale, grey. It looked like his soul had been plucked away from him.”
On November 7, Bankman-Fried asked Sun “for a legal justification for why the funds were missing … [Sam] asked me to come up with a legal justification.”
But of course, Sun said, “there were no legal justifications for the money being taken.” But that night, Sun laid out to Bankman-Fried a few “theoretical arguments” that could explain the missing funds, including if they were a result of voluntary lending by margin traders. But, Sun made clear in testimony, these theoretical arguments were not supported by the facts of what actually happened.
The prosecution then played footage of a “Good Morning America” interview from December of 2022 in which Bankman-Fried blamed the shortfall on margin losses. The clear implication was that he’d been reciting one of Can Sun’s hypotheticals, not the truth.
Sun resigned from FTX on November 8, and hasn’t been charged with a crime, but did testify under an immunity grant.
Bankman-Fried’s team struggle to explain away Alameda loans
The defense, as usual, worked to undermine Sun’s version of events. They honed in on a $2.3 million loan and $3.5 million bonus Sun received from FTX, vaguely imputing Sun’s motives.
Also revealed were details about the involvement of credible outside legal and accounting teams in the structuring of large loans from Alameda Research to Gary Wang, Nishad Sing, and Bankman-Fried (Caroline Ellison’s name was notably absent from a tally of these loans shown as evidence). The loans, totaling more than $2 billion, have been consistently positioned as shady by the prosecution — for instance, in testimony by Nishad Singh that the money never touched his bank accounts.
But as Sun described it — and apparently in the eyes of firms including Fenwick & West — the loans were a valid legal means of structuring transfers from FTX’s international companies into, in one case, the FTX.US entity.
However, as Sun made clear both here and regarding the home loan he accepted, these loans were premised on the idea that they were funded entirely from Alameda’s profits. In reality, as Sun articulated during his testimony, the money had been taken from customers.
The trial will now be paused until Thursday, October 26. The prosecution is expected to wrap up its case that day with just a few more brief customer and investor witnesses. The defense will begin to make its case after lunch the same day, though their witness list remains undetermined. The defense has the option to request specific witnesses to attempt to rebut prosecution evidence.
But the big question is whether Bankman-Fried himself will take the stand in his own defense. If he chooses to, it seems possible that it could happen as soon as next Friday.