FTX former general counsel Can Sun testified on Thursday that Sam Bankman Fried asked him to craft legal justifications to explain why billions of dollars of customer funds were missing as the exchange struggled to process customer withdrawals last November. As FTX melted down, Bankman Fried thought the exchange could raise money from investment fund Apollo to stay afloat and satisfy customers rushing for the exit. The catch: Apollo wanted to know how a $7 billion shortfall could exist at the once popular exchange. Sun stated that there were no legal justifications that were supported by the facts, which he had conveyed to Bankman Fried during a conversation at The Albany, FTX's headquarters in the Bahamas.
The Need for Justifications
During their conversation at The Albany, Sun highlighted that it wouldn't be viable to claim that billions of funds were taken from dormant customer accounts, as the exchange's terms of service explicitly stated that customer assets were off-limits. Sun, who joined the firm in August 2021 and was supervised by Bankman Fried and Dan Friedberg, FTX's former chief compliance officer, also pointed out that the only exception to this rule, at least in writing, was for customers who enrolled in spot margin trading on the exchange. In that scenario, collateral posted by customers to take positions could be used by FTX. However, Sun stressed that the facts did not support a multi-billion dollar hole in Bankman Fried's exchange.
Bankman Fried's Response
Throughout the conversation, Sun noted that Bankman Fried did not seem surprised by this information and his responses were muted. In contrast to Bankman Fried's calm demeanor as he typed on a laptop and took calls, other employees present at the time appeared more visibly affected by the situation. This observation raises questions about Bankman Fried's knowledge and involvement in the missing funds issue.
It is crucial to note that earlier this year, FTX sued Dan Friedberg, alleging that he aided in fraud as Bankman Fried's "fixer." This legal action indicates that FTX's new management holds Friedberg accountable for his role in the exchange's troubled past.
Implications of Sun's Testimony
Can Sun's testimony provides valuable insight into the events surrounding the missing customer funds at FTX. His revelation that Bankman Fried asked him to craft legal justifications suggests a potentially troubling intent to mislead investors and stakeholders about the state of the exchange's finances. Moreover, Bankman Fried's seemingly nonchalant response during the conversation at The Albany raises further questions about his knowledge and involvement in the matter.
The court proceedings will continue to shed light on the actions and responsibilities of key individuals within FTX. As the legal case unfolds, it is essential to closely examine the evidence and testimonies presented to determine the extent of any wrongdoing and to hold those responsible accountable for their actions.
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