In the ongoing trial concerning missing funds from the cryptocurrency platform FTX, forensic accountant Peter Easton, an accounting professor from the University of Notre Dame, testified regarding the whereabouts of the lost $9 billion. According to Easton, the customer deposits had been reallocated into businesses, real estate, political contributions, and charitable donations.
Previously, in an interview with ABC, Sam Bankman-Fried (SBF), the founder of FTX, had denied any knowledge of misappropriation of client funds. However, records suggest discrepancies in the platform’s accounts, with a notable instance in June 2022 when, despite FTX claiming to have $11.3 billion in Alameda Research, only $2.3 billion was accounted for in the bank.
Easton’s investigation also highlighted investments of customer funds in firms such as SkyBridge Capital, Modulo Capital, and Genesis Digital Assets. Notably, Modulo Capital returned $404 million to FTX in March 2023, stating that these funds had been transferred erroneously.
The trial also revealed a list of political donations associated with SBF, which amounted to $133 million. The list comprised significant sums given to political super PACs and charities, along with a $10 million gift to SBF’s father, Joseph Bankman.
Nishad Singh, FTX’s Head of Engineering, testified feeling “betrayed” by SBF, implying that while SBF was the primary orchestrator of the fraud, he, Singh, should bear some responsibility. Singh only became aware of the fraudulent activities two months prior to public disclosure but remained with FTX in an effort to rectify the situation.
Further scrutiny of FTX’s financial dealings revealed a massive $100 million investment in Riot Games as a sponsorship deal before the November 2022 cryptocurrency market crash. These sponsorships, along with other significant deals with entities like TSM esport organization, are now under the spotlight, with suspicions that they were funded using customers’ money.
In the trial, Can Sun, FTX’s former attorney, was rigorously questioned regarding FTX Digital Markets’ terms of service, especially regarding the company’s commitment to safeguarding client assets. Key questions revolved around the company’s liquidation policies and Sun’s knowledge about Alameda’s exemption from auto-liquidation. Sun testified to being unaware of the exemption’s implications until it was made known to him in November 2022, leading him to resign immediately.
On the investment front, Robert Boroujerdi from Third Point disclosed a $60 million investment in FTX International, now worthless. Boroujerdi expressed that had they been aware of Alameda’s special privileges and the channeling of funds, the investment would never have been made.
As the trial progresses, prosecutors have urged the court to consider “effective altruism” – a philosophy emphasizing optimizing individual utility through actions – as an irrelevant defense.
The case, which has seen testimonies from SBF’s close associates alleging misuse of FTX customer funds, is nearing its conclusion. As it does, the issue of instructions for the jury has taken center stage. Both sides have presented their proposed instructions, leaving it up to Judge Lewis Kaplan to determine the final directive for the jury on the charges faced by Bankman-Fried. The trial’s conclusion will set a significant precedent in the crypto industry’s regulatory landscape.