Can Sun, former FTX general counsel, took the stand on Thursday to testify on behalf of the prosecution’s case towards Sam Bankman-Fried. Sun has a non-prosecution settlement in alternate for his cooperation.
The Yale regulation college grad joined FTX on the finish of August 2021 and stayed till early November 2022 shortly after the crypto alternate collapsed. Before going in-house on the alternate, Sun labored for Fenwick & West, the place he additionally suggested FTX as exterior counsel.
Once in-house, Sun’s position consisted of assorted authorized capabilities, like acquiring regulatory licenses for the alternate and coping with how FTX handled customer property — or so he thought, he testified. Bankman-Fried had allegedly advised him that FTX customer deposits had been unequivocally “safeguarded, segregated and protected.”
When asked by prosecutors whether or not he ever accepted FTX’s use of customer property, Sun replied, “no, absolutely not” and mentioned he was advised the customer funds had been held in a separate account that didn’t embrace FTX’s personal proprietary funds, and he was not conscious Alameda was getting FTX customer deposits.
“In all my conversations with Sam, it was always said that customer assets were “safeguarded, segregated and protected,” Sun mentioned.
During Sun’s testimony, prosecutors highlighted the phrases of service, which didn’t allow the alternate to contact customer funds. (Sun testified he had labored on the TOS however that it was largely completed by the point he joined.) One provision said that “none of the digital assets in your accounts are the property of, or shall or may be loaned to FTX trading”; there was one other that mentioned clients “control the digital assets held in your account.”
Bankman-Fried wore a grey go well with that bunched up on his shoulders and neck as he sat. He spent many of the day typing on his laptop computer or passing notes to his authorized crew. His mother and father sat in the identical bench they’ve occupied because the begin of trial.
When the phrases of service had been introduced up in proof, Bankman-Fried’s mom, Barbara Fried, seemed up the ceiling, took notes, seemed on the monitor after which again at her son on rotation. She additionally put her head in her fingers and pressed her thumb to her temple, rubbed her eyes just a few occasions, and seemed again at Bankman-Fried in the course of the prosecution’s testimony.
Sun discovered in August or September 2022 that Alameda was not exempt from auto liquidation, which allowed the buying and selling agency to go “infinitely negative,” on FTX’s platform. “I was shocked … [it] went against everything we told regulators and users.” He added that he was advised that Alameda’s liquidation exemption had by no means been triggered — which different witnesses like FTX co-founder Gary Wang have testified to not be true. Regardless, Sun asked for it to be eliminated, and he was advised that Bankman-Fried and Nishad Singh, head of FTX engineering, mentioned “no.”
Instead, Sun testified that he bought the associated events to agree that it will be made clear to customers and regulators that the Alameda’s privileges can be modified to delayed liquid mechanisms. It was accepted by FTX’s authorized crew, however it by no means made it by means of the enterprise aspect on the time of FTX’s collapse in November, Sun mentioned.
During cross-examination, Sun mentioned he thought of resigning over the state of affairs, however he didn’t know on the time that it was the identical mechanism Alameda used to take FTX funds.
Documenting loans
During Sun’s time at FTX, he was additionally accountable for documenting loans for FTX. There had been over 30 loans he documented the place Alameda loaned cash to Bankman-Fried, Wang and Singh. He testified that he thought Alameda would make private loans to the three people and inject funds into FTX for capital. “I had no idea customer funds were being used,” Sun mentioned.
Sun created a spreadsheet that saved monitor of the greater than 30 loans made to Bankman-Fried, Wang and Singh; the loans totaled over $2.17 billion. “If they were not on my spreadsheet, I was not aware of them,” Sun mentioned.
Sun additionally acquired a private mortgage of $2.3 million as a part of a “management incentive program” to get him to transfer to the Bahamas from Hong Kong, shortly after he joined the corporate. He additionally bought a bonus of $3.5 million in January 2022, about 5 months after becoming a member of FTX.
November talks with Apollo
On November 7, 2022, 4 days earlier than FTX filed for chapter, Sun joined a name with Apollo Global Management, Ramnik Arora of FTX Ventures and others in an try to elevate capital from the agency and “help solve the liquidity problem that FTX had for customer withdrawals.”
After an preliminary name, Apollo asked for FTX’s monetary statements and Sun and associated events shared them. “I was shocked because it showed FTX was short $7 billion.”
Sun mentioned he asked questions on the way it was calculated — he mentioned the spreadsheet was messy — and he “did not get straight responses,” however as a substitute simply “vague answers” from Singh and Bankman-Fried. Looking again at that second, Sun remembers Bankman-Fried was there “typing away” on his laptop computer, barely talking. While Singh was “pale and gray” and seemed like his “soul [was] plucked away from him,” Sun mentioned.
After sharing the numbers with Apollo, Bankman-Fried advised Sun that the agency asked for authorized justification for lacking funds and allegedly asked Sun to provide you with one. Sun proposed three “theoretical arguments,” however “there were no legal justifications for funds missing.”
Sun testified he went on a stroll that evening with Bankman-Fried round an condo on the luxurious resort, The Albany, the place many FTX staff lived. During that dialog, Sun advised Bankman-Fried that not one of the theoretical arguments would justify why the FTX funds had been lacking; Sun testified that SBF replied “yup, yup” and “got it.”
During a dialog with Singh later that evening, Sun mentioned the previous engineer disclosed to him that Alameda’s “no liquidation” technique was how the agency withdrew the billions of {dollars} in customer deposits.
Sun resigned from the corporate the following day.