On Thursday, the former general counsel at FTX, Can Sun appeared in court to testify in the ongoing criminal trial of Sam Bankman-Fried.
He revealed that the former CEO had asked him to come up with ‘legal justifications’ for explaining why customer funds worth billions of dollars were missing.
This happened last November when the doomed crypto exchange had been struggling to process customer withdrawals.
Sun’s response
As the exchange was collapsing, Bankman-Fried turned to Apollo, an investment fund, to raise money for staying afloat and satisfying customers who were rushing for the exit.
The problem was that Apollo wanted to know how the once popular exchange had a shortfall of about $7 billion.
Sun had informed the ex-CEO that there were no legal justifications that could support the facts. He had said so during a one-on-one chat they had had in the Bahamas.
The two had taken a stroll through the luxury resort called The Albany where FTX had its headquarters. Bankman-Fried had accepted that the possible explanations could not hold up.
Sun had explained that they could not justify why billions of dollars had been taken from dormant customer accounts.
The technicalities
Sun had also added that the terms of service of the crypto exchange, which he had helped update earlier last year, stated explicitly that they were not allowed to use customer assets.
The lawyer had become a part of FTX in August 2021 and had been working under the supervision of the former chief compliance officer of the exchange, Dan Friedberg, and Sam Bankman-Fried.
Under its new management, FTX took legal action against Friedberg earlier this year and alleged that he had worked as Bankman-Fried’s ‘fixer’ and had aided in fraud.
In writing, the only exception were the customers who were engaging in spot margin trading on the FTX exchange.
Sun disclosed that the exchange could use the collateral those customers were posting for taking positions.
Nonetheless, the lawyer explained in court that the facts did not support how the crypto exchange had a hole worth multi-billion dollars.
SBF’s demeanor
The former FTX lawyer said that Bankman-Fried had not been surprised at what he was being told and had given muted responses.
He also revealed that before taking the walk, his former boss had been taking calls and typing on his laptop and his demeanor had been in direct contrast with the other employees present at the resort.
He stated that the difference had been especially evident in the demeanor of the former head of engineering at FTX, Nishad Singh, who allegedly conspired with Bankman-Fried.
The lawyer asserted that Singh had appeared gray and pale, as if someone had pulled away his soul from his body.
He added that Nishad had disclosed to him later that night that Alameda Research, FTX’s sister trading firm, could pluck funds from the crypto exchange’s accounts.
The former general counsel said that he had given his resignation the next day. He said he had been shocked to discover back in August that it was not possible to liquidate Alameda’s trading positions on FTX.