User deposits have been used for investments, actual property, political contributions and charity, the professor mentioned
The Sam Bankman-Fried trial is 11 days in and witnesses proceed to take the stand on behalf of the prosecution’s case. The defamed former co-founder of FTX and Alameda is on trial for seven felony costs associated to fraud and cash laundering.
On Wednesday, Peter Easton, an accounting professor at University of Notre Dame, testified relating to whether or not or not the FTX collapse was predicated on fraud. Easton additionally assisted authorities officers’ prosecution of prior scandals like Enron and WorldCom.
Easton was employed by the U.S. Department of Justice to hint the billions of {dollars} that flowed between Alameda and FTX, a lot of which have been customer funds. He offered evaluation by monitoring and compiling hundreds of pages of financial institution statements and inside paperwork from FTX. When prosecutors requested Easton if FTX ever spent consumer funds, he mentioned, “oh, yes.”
The deposits from FTX customers have been utilized by the change and its sister firm Alameda Research for investments, actual property, political contributions and charity, Easton added.
Earlier this week, former senior FTX government Nishad Singh testified alongside comparable traces. Singh mentioned Bankman-Fried and different FTX executives spent $8 billion value of customer funds on actual property, enterprise capital investments, marketing campaign donations, endorsement offers and even branding a sports activities stadium.
Singh, who has already pleaded responsible to fraud, cash laundering and violation of marketing campaign finance legal guidelines, mentioned Monday that he discovered of the large gap in Alameda’s books on account of a coding error that “prevented the correct accounting” of consumer deposits by round $8 billion. He additionally testified that Bankman-Fried was “in general the one making the final decision on investments and investment team decisions as a whole.”
Easton testified that in June 2022, FTX solely had $2 billion obtainable for withdrawals although about $11.3 billion had been deposited by customers.
At the time, FTX spent $228 million on actual property and about $195 million on “insiders,” or executives at FTX and Alameda, Easton testified. Prosecutors pulled up charts monitoring FTX customer funds’ inflows and outflows by varied avenues. The authorities additionally confirmed proof from firm Slack messages between Bankman-Fried and different workers indicating that they knew the place funds have been coming from and being allotted to.
The Bahamas-based hedge fund Modulo Capital, co-founded by considered one of Bankman-Fried’s exes — Xiaoyun “Lily” Zhang — obtained over $400 million in capital from Alameda that was sourced from FTX customer funds, Easton testified. During cross-examination, he acknowledged that he traced Modulo’s funding by the FTX database.
While the Modulo funding was a whopping quantity, it wasn’t the one such transaction that used customer funds — Easton testified that his investigation into FTX and Alameda discovered that customer funds have been used for a majority of FTX’s funding into corporations like Celsius, Anchorage, Anthony Scaramucci’s SkyBridge Capital in addition to bitcoin mining firm Genesis Digital Assets.
While some capital deployments have been absolutely funded by customer funds, different investments solely had “some” customer funds, Easton mentioned. The distinction does little to shake the image of fraud that the federal government is crafting.