Can Sun, FTX’s former general counsel, testified in the third week of the fraud trial of Sam Bankman-Fried (SBF) that he was misled by the then-crypto billionaire, who had asked him to craft “legal justifications” for the billions of missing customer funds.
Bankman-Fried and some of his inner circle were under immense stress due to the billions of dollars missing from the FTX coffers a few months before the collapse in November last year. With the money gone, the only way to get out of the hellhole they were in was to raise funds.
But, last week, Sun, a Yale Law graduate, hired to revamp the terms of service of the exchange, guided the prosecutors through the terms of service sections to highlight that FTX would not touch customers’ funds without their consent.
Sun, aside from admitting that he had no idea about the flow of funds to Alameda Research, revealed in court that Bankman-Fried had asked him to create “legal justifications” to explain why there was a massive hole in FTX coffers supposedly keeping its customers’ funds.
At the time, FTX was already melting down and Bankman-Fried tried to raise funds from an investment from Apollo, an American private equity firm, which was supposedly his Hail Mary to save his empire.
Apollo was interested, but it wanted to know how a popular crypto derivatives exchange had a $7 billion shortfall. Then Sun told his boss while strolling through the Albany luxury resort that there were no legal justifications, supported by the facts with Bankman-Fried giving him a “yup, yup” response, noting that he knew several potential explanations did not just add up, and then reaffirming it by saying, “Got it.”
Sun said that the conversation with Bankman-Fried “basically confirmed my suspicions that had been rising all day.”
“I was shocked. It went against everything we had told regulators,” Sun said in court, adding, “I asked for it to be removed,” describing his feeling when he discovered that Alameda Research had special privileges on FTX.
Before the jury comes in:
SBF’s lawyer Cohen: We’d like to start any defense case on Oct 27.
Judge Kaplan: I’m going to hold you to the 26th.
Cohen: At least after lunch that day..
Jury enters. Witness: Can Sun.
AUSA Sassoon: Did you practice criminal law?
Sun: No— Inner City Press (@innercitypress) October 19, 2023
The lawyer, who disclosed that he started a myriad of inconsistencies in mid-2022, said his discoveries included the undocumented transfer of funds made by Bankman-Fried and former Alameda Research CEO Ryan Salame and the special privileges Alameda Research had on FTX.
When Apollo and other potential investors changed their minds, Bankman-Fried wasn’t able to raise funds for the hole in FTX’s balance sheet. Later, when customers rushed to withdraw their money in droves, the multi-billion dollar crypto empire came crashing down.
