In November 2021, the crypto market had hit its peak and FTX customers were under the assumption that the total value of their crypto assets on the exchange was $20 billion.
However, an expert witness appeared in the trial of the former CEO of the FTX crypto exchange, Sam Bankman-Fried, on Wednesday.
The said expert revealed that the actual balance in the digital wallets of the exchange was only a quarter of that figure.
The witness
Peter Easton, the Professor of Accountancy, a Notre Dame Alumni, who is a specialist in financial statement analysis, discovered that FTX had crypto assets worth $5 billion in its wallets.
This was when the crypto industry had been booming and the price of Bitcoin had climbed to a whopping $69,000.
He said that the crypto wallets of the exchange had very less money than they should have had.
He added that rather than tracking the flow of the fiat deposits of FTX’s customers’ the data recorded on the blockchain was much finer and proved his findings were robust.
The prosecutors had reached out to the professor for conducting research into FTX and Alameda Research.
The data
Appearing in a Manhattan courthouse, Easton said that he had assessed bank statements, documents from lenders, a huge FTX database, and public information that was available on the blockchain.
On Wednesday morning, the jury was presented a number of charts, one of which was only focused on the customer deposits of the FTX crypto exchange.
The graphic showed a comparison of the customer balances in the database of the exchange with the on-chain balances of the ‘sweep’ wallets of the crypto exchange.
Easton described that when making crypto deposits, FTX accounts were credited and a digital address was given to each customer with their account.
He said that when customers deposited funds, they would be transferred to another wallet where customer funds were pooled.
Additional details
Since January 2021, there has not been a single instance when the funds in the digital wallets of the FTX exchange were aligned with the combined total of what had been mentioned in customer accounts.
Easton said that the data trailed by billions of dollars and had continued to do so until October last year, just before the collapse of the crypto exchange.
A week before the downfall of the FTX empire, the total account balances of customers stood at $11.4 billion.
But, Easton’s investigation showed that there was just $1 billion worth of crypto in the digital wallets of the exchange at that time.
His analysis found that it was likely customer funds that Alameda Research had used, as it had about 57 accounts on the exchange and they could rack up negative balances.
For instance, the negative balances of Alameda’s accounts in May last year stood at about $12.6 billion. The accounting expert revealed that he has been specializing in analyzing financial statements for almost 40 years.
This means that he has been doing it longer than Bankman-Fried or other co-defendants have been alive.