On October 19, Can Sun, former general counsel for FTX, testified during the criminal trial of Sam Bankman-Fried (SBF), revealing his unawareness that the exchange was mingling funds with Alameda Research. Sun stated that he only became aware of Alameda's exemption clearing engine system in August 2022, a system used to bypass liquidating losing trades.
Upon discovering this irregularity, Sun devised a plan to address the issue, which included implementing a delayed liquidation mechanism to replace the Alameda exemption. The plan was also intended to apply to other market makers on FTX, with notifications to clients and regulators in the works. However, Sun reported that the plan was abandoned by other FTX divisions and was never put into effect.
Sun further acknowledged his reliance on statements made by SBF regarding the segregation of client funds, which were incorporated into the company's terms of service and responses to regulatory inquiries. Interestingly, FTX's terms of service state that digital assets in user accounts are not the property of FTX Trading and are not available for loan to FTX Trading. This contrasts with the apparent commingling of funds between sister companies.
During his testimony, Sun also shared a spreadsheet he had used to track loans extended by Alameda to SBF, Gary Wang, Ryan Salame, and Nishad Singh. The spreadsheet revealed that Alameda had provided 35 loans amounting to $2.1 billion to these individuals to finance various FTX ventures. Although the lending process wasn't the most transparent means of investment, it was legally permissible at the time.
However, prosecutors pointed out that the spreadsheet did not account for millions of dollars transferred to Salame and Bankman-Fried, and Sun claimed he was unaware of this additional transaction. Sun had traveled from Japan to provide his testimony in court as part of a non-prosecution agreement with the Justice Department. The trial of Sam Bankman-Fried is set to continue on October 26, with prosecutors expecting to conclude their case on that date. It remains to be seen whether defense attorneys will file charges.
