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FTX co-founder Sam Bankman-Fried faces seven federal charges in a criminal trial taking place in Manhattan. The former crypto exchange exec is accused of misappropriating billions of dollars of customer funds for real estate, donations, political contributions and investments.\u00a0<\/em><\/p>\n The current state of play: Former FTX attorney Can Sun is expected to take the stand today as one of the few remaining witnesses for the prosecution. On Wednesday, accounting professor Peter Easton gave the court insight into SBF\u2019s \u2014 and his family\u2019s \u2014 spending.<\/em> Read more here<\/em><\/a>.<\/em><\/p>\n The cross-examination of former FTX attorney Can Sun was heavily focused on the terms of service of FTX Digital Markets. The defense has previously indicated that this could be a central element in its case.<\/p>\n The terms of service explicitly expressed FTX<\/a>\u2019s commitment to safeguarding customer assets and telling them that the assets they deposited were theirs and theirs alone. This aligns with the government\u2019s claims that Alameda accessed and spent customer deposits sent to FTX.<\/p>\n SBF lawyer Mark Cohen attempted to knock down the theory by asking about the margin trading section of the terms. Through questioning, Cohen attempted to get the percentage of users that engaged in such trading. His goal might have been to get a sense of how many of the customers who lost money in the FTX collapse were engaging in riskier strategies from Sun.<\/p>\n However, Cohen moved on after Sun didn\u2019t recall the numbers.<\/p>\n He then focused on a section about account liquidation on FTX, which said that customers may lose \u201call\u201d of their assets in cases where backstop liquidity providers are unable to step in effectively. While Cohen read this section into the record, Sun didn\u2019t have a response to the questions.<\/p>\n Cohen also had questions about Sun\u2019s knowledge regarding Alameda\u2019s exemption from auto-liquidation.\u00a0<\/p>\n Read more:<\/strong> FTX customer money bought SBF\u2019s parents a $16.4M house in the Bahamas, expert says<\/a><\/p>\n Sun testified during his direct examination with the prosecution that he found out about this in August or September of 2022.<\/p>\n \u201cI asked for it to be removed,\u201d Sun said, adding that Sam Bankman-Fried<\/a> and FTX co-founder Gary Wang didn\u2019t want to do so. Sun was also told around this time that this \u201ccarveout\u201d for Alameda \u201chad never been triggered.\u201d<\/p>\n Cohen used this as a springboard to ask why he didn\u2019t resign at the time. Sun, in response, said that he didn\u2019t know that the special privilege that exempted Alameda from liquidation also allowed it to withdraw customer funds from FTX. He didn\u2019t find out until Nishad Singh disclosed that to him on Nov. 7, 2022. Sun said he resigned the next day.<\/p>\n Cohen also briefly touched on the series of conversations Sun had with Bankman-Fried in the Bahamas regarding a possible Apollo investment, a $7 billion shortfall, and possible legal rationales to explain that shortfall. His line of questioning didn\u2019t result in any new discoveries.<\/p>\n The next witness was Robert Boroujerdi, a managing director at asset manager Third Point.<\/p>\n Third Point ultimately invested $60 million in FTX International, an investment Boroujerdi now values at \u201czero.\u201d<\/p>\n Prosecutor Thane Rehn asked Boroujerdi about his conversations with Bankman-Fried prior to Third Point\u2019s first FTX investment of $35 million in July 2021.\u00a0<\/p>\n No one from FTX \u2014 including Bankman-Fried \u2014 told Boroujerdi that Alameda was exempt from FTX\u2019s risk engine. In other words, its trading accounts couldn\u2019t be liquidated and could go negative infinitely.\u00a0<\/p>\n This \u201cspeedy\u201d risk engine, as described by Boroujerdi, was a major factor in Third Point\u2019s eventual investment. When Rehn asked him how his investment strategy would have changed if he\u2019d known of Alameda\u2019s special privileges, Boroujerdi said Third Point would have backed out.<\/p>\n The firm also wouldn\u2019t have participated if it had known that the $35 million would be funneled to Alameda or that Alameda could withdraw from customer money on FTX<\/a>, according to Boroujerdi.<\/p>\n Read more:<\/strong> \u2018This is a joke,\u2019 Judge Kaplan scolds lawyers in SBF case<\/a><\/p>\n On cross, David Lisner repeatedly asked questions relating to Third Point\u2019s due diligence on FTX. Most of his queries were slammed with immediate objections, which were sustained by Judge Kaplan. Rough.<\/p>\n After minutes passed with no further progress, Lisner relented and gave the courtroom permission to break. Judge Kaplan appeared quite happy with that outcome and adjourned the court until Thursday, Oct. 26.<\/p>\n Former FTX General Counsel Can Sun didn\u2019t hold back on Sam Bankman-Fried.<\/p>\n Sun testified under a non-prosecution agreement to protect himself because in his words: \u201cI didn\u2019t do anything wrong\u2026I had no idea customer funds were being used.\u201d<\/p>\n Sun worked on the FTX Digital Markets updated terms of service in May 2022, which included provisions that expressly enumerated the safeguarding of customer assets.<\/p>\n When FTX\u2019s collapse began in early November 2022, Sun hopped on a call with private equity firm Apollo Global to try to secure an investment. This was done, he said on the stand, to satisfy the increased customer withdrawals at that time.\u00a0<\/p>\n Apollo asked for a balance sheet and got one from either Bankman-Fried or former head of product at FTX, Ramnik Arora. Notably, Arora was floated as a government witness, but it\u2019s unclear if he\u2019s still set to take the stand before the prosecution rests next Thursday.<\/p>\n Sun was alarmed at the balance sheet he received from either SBF or Arora, but proceeded to share it with Apollo. He told the court he was \u201cshocked\u201d to find out that FTX was \u201c$7 billion short\u201d on its goal of meeting customer withdrawals.\u00a0<\/p>\n But Apollo proceeded to say no dice to the former FTX attorney.<\/a> Not before the company questioned SBF on the missing money and asked for \u201clegal justifications\u201d to explain the missing funds.<\/p>\n SBF asked Sun for \u201ctheoretical justifications\u201d for where customer money had gone \u2014 other than it being siphoned away by Alameda Research, and then the two proceeded to take a walk with Bankman-Fried outside the luxurious Bahamian resort. None of the \u201ctheoretical justifications\u201d were \u201csupported by the facts,\u201d Sun said.<\/p>\n The same day \u2014 November 7 \u2014 that Sun met with Apollo, he talked with Bankman-Fried and Nishad Singh in an Albany apartment about the situation and didn\u2019t get \u201cstraight responses.\u201d Sun added that \u201cJoe\u201d was in the apartment with both Singh and Bankman-Fried. However, it\u2019s not clear if he meant Bankman-Fried\u2019s father or just another (average) Joe.<\/p>\n SBF was apparently \u201ctyping away\u201d on his keyboard and Singh was \u201cpale.\u201d<\/p>\n \u201cThere was no legal justification for the money being taken away,\u201d Sun told the jury.<\/p>\n The most important one was the margin trading defense, because Bankman-Fried has fallen back on this in media interviews. Basically, there\u2019s a portion of FTX\u2019s terms of services that stipulates if you participate in trading on margin, you could lose your collateral if your account is liquidated.\u00a0<\/p>\n Sun said he told Bankman-Fried that this alone didn\u2019t come close to explaining the missing $7 billion of customer funds.\u00a0<\/p>\n \u201cYup, yup,\u201d Bankman-Fried acknowledged, Sun said.<\/p>\n After Sun relayed this story to the jury, the government showed Bankman-Fried\u2019s Dec. 1, 2022 interview with George Stephanopolous.\u00a0<\/p>\n In the interview, Stephanopolous brings up the FTX terms of service, pointing out to SBF that the terms say \u2014 point blank \u2014 that customer assets belonging to them are not to be loaned out. Bankman-Fried sidesteps his question, however, and points to another portion of the terms of service \u2014 the \u201cborrow-lending facility,\u201d also known as trading on margin.\u00a0<\/p>\n Of course, this was something customers had to opt in to, and customers who hadn\u2019t opted in also lost money in the FTX collapse.<\/p>\n After the clip was played, prosecutor Danielle Sassoon asked Sun if Bankman-Fried brought up the borrow-lending facility as a possible way to explain away misappropriated customer funds in their Nov. 7, 2022 conversation.<\/p>\n Sun said yes, and reminded the jury that Bankman-Fried acknowledged that that explanation wouldn\u2019t work. Yet, he said it to Stephanopoulos less than a month later.<\/p>\n Sassoon had no further questions after that.<\/p>\n Former FTX attorney Can Sun is expected to take the stand today.\u00a0<\/p>\n Other than discussing, you know, FTX, it\u2019s not really clear what Sun will be asked by the prosecution.\u00a0<\/p>\n Prosecutor Danielle Sassoon told the court yesterday that the prosecution\u2019s \u201cdirect is not going to touch on anything that they\u2019re asserting privilege over\u201d and that the defense\u2019s cross-examination will also avoid any touchy subjects (read: privileged subjects).\u00a0<\/p>\n And back to scheduling\u2026<\/p>\n The prosecution confirmed that they\u2019re on track to \u201crest early in the day\u201d on Thursday, October 26.<\/p>\n \u201cI don\u2019t think the witnesses we have on tap for that week\u2026they\u2019re going to be short, but I also think that they\u2019re not so material that it would affect, you know, the decision to put on a defense case,\u201d Sassoon told the court Wednesday.<\/p>\n So, basically, no surprises expected. Let\u2019s hope for some smooth sailing\u2026until the defense decides about presenting a case.<\/p>\n SBF lawyer Mark Cohen told the court that the defense would be ready to put on their own case starting next Thursday, if they pursue one. It\u2019s still not totally clear if the defense plans to put on a case, or who would take the stand.\u00a0<\/p>\n As stated in a filing, the possibility of SBF taking the stand rests on the outcome of the new Adderall dosage the court is testing.<\/p>\n In a discussion with the prosecution and Judge Lewis Kaplan, Cohen suggested that his team may give notice of witnesses on Oct. 24, two days before the defense\u2019s case begins.\u00a0<\/p>\n Kaplan pushed for the two to \u201cnegotiate a compromise\u201d to which Cohen agreed to try.<\/p>\n \u201cAnd if you can manage that, I\u2019m going to send you to the Middle East,\u201d Kaplan added.\u00a0<\/p>\n \u201cThat\u2019s above my pay rate, your Honor,\u201d Cohen quipped in return.\u00a0<\/p>\n As a reminder: Thursday marks the end of court for the week. The court won\u2019t meet again until next Thursday, Oct. 26.<\/p>\n This is a developing story.<\/em><\/p>\n Don\u2019t miss the next big story \u2013 join our\u00a0free daily newsletter<\/a>.<\/strong><\/p>\n
\n2:45 pm ET: Terms of service come into focus<\/h2>\n
12:00 pm ET: And a little bit of spice\u2026<\/h2>\n
10:20 am ET: A few witnesses more<\/h2>\n
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