Sam Bankman-Fried’s criminal fraud trial was on its twelfth day when the general counsel of FTX claimed that he “never approved” the lending of customer funds to Alameda Research. The trial also included the stand of Third Point Director, who claims his $60M investment into FTX has turned zero.
Can Sun ‘Never Approved Anything Like That’
Can Sun, former general counsel of FTX and attorney at Fenwick and West, testified in the third week of Sam Bankman-Fried’s criminal trial. He traveled from Japan to New York to testify by a no-prosecution agreement signed with the Department of Justice on October 17.
When questioned if he authorized Alameda’s use of FTX customer cash on Thursday, Sun responded, “Absolutely not,” according to his testimony.
The general counsel for FTX, Sun, said in court that he initially was unaware of the serious weakness in FTX that allowed Alameda Research, a subsidiary trading company, to borrow customer cash without their permission.
“Never approved anything like that, and I would never have done it either,” Sun said. Based on talks he had with Bankman-Fried, Sun testified that he believed FTX clients’ monies were kept separate from the company’s cash.
He Was Suspicious of FTX’s Hindsight Activities
Sun discovered Alameda was excluded from automatic liquidations and would have a negative balance at FTX and discussed removing the function with FTX leadership.
In a conversation with Bankman-Fried, head of engineering Nishad Singh, and chief regulatory officer of FTX Dan Friedberg, Sun advocated for modifying Alameda’s FTX platform, which would allow delayed liquidation instead of automatic liquidation. He was promised this capability would be accessible to other institutional market makers on FTX, and users and regulators would be informed. However, these modifications were never implemented, according to Sun.
The $7B Hole in Alameda Research Loans
Sun was given a tour of FTX’s terms of service and other public statements that the Department of Justice claims prove that FTX stole money from its clients by Assistant U.S. Attorney Danielle Sassoon. However, Sun’s records of the loans did not quite align with one of the documents the DOJ gave him. He repeated throughout his testimony that he was unaware that the loans included consumer monies.
As the general counsel, Sun was responsible for documenting loans Alameda Research issues to Sam Bankman-Fried, Gary Wang, and Nishad Singh for FTX equity purchases. He was unaware the funds came from FTX user deposits. Sun also took a $2.3 million loan to buy a Bahamas house. In hindsight, those loans felt wrong to him, he admitted.
The last straw that convinced Sun something was wrong at FTX was a call with the asset manager Apollo Global Management in November 2022. Apollo requested a copy of the financial statement. Sun was “shocked” to see a $7 billion hole connected to Alameda on FTX’s financial sheet when the copy was prepared. Sun claimed that he asked FTX management about it on November 7, 2022, but got no clear responses.
In court, Sun claimed that Sam Bankman-Fried left the room to make calls while he was typing on his laptop. Bankman-Fried asked Sun to defend the missing money. Sun offered theoretical explanations, but none made sense.
He claimed that SBF was not at all surprised.
The next day, Sun spoke with Nishad Singh, head of engineering, who confirmed that Alameda could borrow client cash using the same technology that allowed it to evade involuntary liquidations.
Sun submitted his resignation the following day.
From $60 million to zero
Robert Boroujerdi, a director at Third Point, testified that his company invested $60 million in FTX, now worth zero. Third Point saw both audited and unaudited financials, said Boroujerdi, a veteran of Wall Street investment banking colossus Goldman Sachs.
The trial will resume next Thursday, October 26, with the DOJ’s final witnesses. The defense will present its case after lunch on October 26, and Bankman-Fried has not yet said whether he will testify in his defense.