On the 11th day of the trial of former FTX CEO Sam Bankman-Fried, a surprising and shocking turn of events occurred as a financial expert with a history of tracking cash flows disclosed critical information about the exchange’s operations. Peter Easton, a professor of accounting and auditing at the University of Notre Dame, renowned for his financial investigation work on high-profile bankruptcies such as Enron, Parmalat, and Worldcom, took the stand as a witness.
According to Easton, FTX had been facing a liquidity crisis as early as March 2021, with the situation worsening by June 2022 when the platform held only $2 billion in user assets out of a total of $11 billion deposited.
However, the most startling revelation was Easton’s testimony regarding the use of customer funds in private transactions. He listed a series of accounts and organizations where these funds were transferred:
- Modulo Capital, a $400 million private fund founded by Sam Bankman-Fried and former Jane Street employees.
- Genesis Digital Assets, the mining company that FTX has invested more than $1 billion in.
- SkyBridge Capital, the investment fund of former White House spokesman Anthony Scaramucci under President Trump.
- K5 Global, the influencer investment fund that Sam Bankman-Fried wanted access to.
- Investments in companies like AI Anthropic ($500 million), Robinhood (nearly $600 million), and Dave ($100 million).
- Shockingly, even the buyback of FTX shares from Binance in 2021 involved withdrawing over $1 billion from user assets to pay Binance.
- Real estate purchases by FTX in the Bahamas also showed signs of using customer funds for expenditure.
- Political contributions were similarly made using customer funds, except they were transferred in advance to the accounts of FTX managers like Nishad Singh and Ryan Salame to conceal the source.
- Easton also highlighted how Alameda used customer funds from FTX to partially repay loans obtained from notable lending platforms such as BlockFi, Bitgo, Genesis, Abra, Maple Finance, Anchorage, Celsius, Nexo, Voyager, TrueFi, and Ledn.
During cross-examination by Sam Bankman-Fried’s defense attorney, Easton firmly rejected the argument that his analysis might not have distinguished between principal and interest in loans or collateral assets, emphasizing that even if such distinctions were made, they all originated from FTX user funds.
In addition to Easton, the prosecution called two other witnesses: Eliora Katz, a former employee responsible for risk management at FTX, who testified that the claims made by former CEO Sam Bankman-Fried about the platform’s internal risk management and customer protection mechanisms were untrue, as the platform did not adhere to such practices. Katz, however, clarified that these practices may have changed after her tenure at FTX.
Another witness present in court was Cory Gaddis, a data specialist at Google, who answered questions regarding stored email data and metadata.
The presiding judge, Lewis Kaplan, had to remind both the prosecution and defense that the two witnesses were not to be treated as mere “window dressing.” He emphasized that both sides must agree that the submitted documents are authentic, rather than wasting time confirming that they occurred.
Next, the prosecution presented a series of exchanges between Sam Bankman-Fried and Vox journalist Kelsey Piper on November 16, 2022, just days after FTX’s collapse. These exchanges unveiled a shocking side of Sam Bankman-Fried who appeared to intentionally use PR tactics, including working with financial regulators, to build his and FTX’s image. In reality, he had a dismissive attitude toward regulatory authorities, viewing them as “irrelevant.” Furthermore, Sam admitted that the effective altruism philosophy he had publicly embraced was merely a tool to enhance his personal image.
Sam Bankman-Fried expressed regret for letting FTX go bankrupt, believing that he could have saved the platform by raising additional capital. However, he eventually succumbed to legal pressures.
The defense attorney for former CEO Sam Bankman-Fried objected to the use of these exchanges as evidence, arguing that his client believed he was having a private conversation with a presumed friend and was unaware that the entire conversation would be made public.
Report on the trial of former FTX CEO Sam Bankman-Fried:
- Day 1&2: Opening statements by the prosecutor and defense attorney
- Day 3: Crucial witnesses Adam Yetitia, Matt Huang
- Day 4: Former Chief Technology Officer of FTX Gary Wang
- Day 5&6: Former CEO of Alameda Research Caroline Ellison
- Day 7: Caroline Ellison and former Alameda Research programmer Christian Drappi
- Day 8: BlockFi CEO Zac Prince
- Day 9: Former FTX Technical Director Nishad Singh
- Day 10: SBF met with world leaders weeks before the collapse of the FTX exchange
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