FTX co-founder Sam Bankman-Fried faces seven federal charges in a criminal trial taking place in Manhattan. The former crypto exchange exec is accused of misappropriating billions of dollars of customer funds for real estate, donations, political contributions and investments.
The current state of play: The prosecution only has a couple more witnesses lined up, and it’s not clear if the defense will make a case. A new witness, professor Peter Easton, is expected to take the stand today. Read more here.
1:10 pm ET: How FTX and Alameda used customer money
After the court took its 15-minute morning break from colored-coded flow charts, bank statements, and emails, accounting professor Peter Easton delved right back in.
While Easton is talking about spreadsheets, Sam Bankman-Fried is also looking at some spreadsheets on his laptop. Additionally, SBF was seen flipping through the government’s exhibits of Easton’s analysis.
The main takeaway: from January 2021 all the way up until FTX’s (and Alameda’s) collapse on Nov. 11, 2022, all of Alameda’s “allow negative”-enabled accounts on the exchange were massively in the red. And despite this woeful state of affairs, it didn’t stop Alameda from paying out billions to meet its obligations.
And where did those billions in fiat and crypto come from? Roos asked repeatedly.
“Customers,” was Easton’s reliable refrain.
In fact, 68% of Alameda’s third-party loans — worth around $4.5 billion — were paid with FTX customer money, according to Easton’s exhaustive analysis that was commissioned by the government (he’s billed prosecutors in excess of $100,000 so far).
Read more: The biggest winners from the FTX fiasco? The lawyers
Getting more specific, Alameda repaid roughly $3.5 billion to Genesis in loans. $1.7 billion of that was taken from FTX customers, Easton told the court.
Easton then went through the rest of Alameda’s loan repayments rapid fire.
BlockFi, Maple, Anchorage: All from customers.
A smattering of other loan repayments were mentioned, and for those, a significant portion came from deposits originally made on FTX.
Keep in mind, this was all done while Alameda’s various trading accounts on FTX had multi-billion dollar negative balances. At the time of the collapse on Nov. 11, 2022, the allow negative accounts had a combined negative balance of $12 billion, according to Easton.
Another tidbit: FTX also funded its $2.2 billion buyout of Binance’s stake in FTX with $1.2 billion from “customers on the FTX exchange,” Easton said.
Roos appeared to take a stab at preempting the defense’s strategy by asking Easton if Alameda borrowing from the spot margin program on FTX could have contributed largely to the $12 billion negative balance across its accounts.
“It cannot be explained” by that, Easton said at least twice.
And for the hungry jurors, Roos’s “no further questions” couldn’t have come at a better time.
After lunch, Bankman-Fried’s defense will cross-examine Easton. Proceedings will resume at 1:45 pm ET.
12:15 pm ET: The $9 billion hole that was never filled
Peter Easton, an accounting professor at Notre Dame took the stand Wednesday morning to explain the extent of the alleged theft of FTX customer and investor funds by Alameda Research.
But, as it happens when you call an accounting expert to the stand, there are a lot of government exhibits.
So, prosecutor Nicolas Roos was put in the awkward position of reading out the dozens of exhibits he wanted to publish for the witness and the jury.
Judge Kaplan stared at him with a hand on his cheek and a growing smile as the list grew longer. One juror even raised his hands in frustration, presumably wondering when Roos would quit rattling off numbers.
Don’t miss a thing from the courtroom. Follow along for all SBF trial coverage.
When Roos was finally done, the judge joked that Roos should read the exhibit numbers backward, eliciting laughs from all corners of the room.
Roos quipped that these were also his lotto numbers.
Now, back to Easton, who also delved into the extent of the commingling that occurred between dozens of Alameda and FTX bank accounts as well as Sam Bankman-Fried’s Paper Bird.
Roos first tackled FTX’s supposed investment in Modulo Capital in May 2022, another trading firm.
According to Easton, “$292 million of customer funds” were used in the investment.
But when Roos asked Easton if customer funds were spent by Alameda, the answer was easy.
“Oh yes,” Easton said.
According to Easton’s testimony, and as demonstrated by a dizzying number of flow charts, $1.1 billion of FTX customer deposits went to Alameda Research between January 4, 2022 and February 11, 2022.
Much of this was spent on political donations, real estate investments, venture investments and charitable contributions.
A similar story occurred around February 2022 with Genesis Digital Assets, a bitcoin mining company. Around $145 million worth of customer deposits originally in the North Dimension bank account were siphoned to Alameda Ltd, which then eventually landed with GDA, Easton said on the stand.
The total payment was $550 million and some of it “must have come” from customers, Easton told the jury.
In June 2022, the customer fiat liability hit $11.3 billion, while Alameda and FTX had roughly $2.3 billion for customers to withdraw. Meaning that there was a $9 billion gap in what Alameda and FTX could cover if every customer chose to withdraw their funds.
And then there’s the commingling of funds with enough bank accounts to make your head spin.
Prosecutors used exhibits to split the bank accounts into four quadrants to make it easier to understand. There were 1) Alameda bank accounts that did not have customer funds, 2) roughly 40 bank accounts that did hold customer funds, 3) FTX bank accounts and 4) SBF’s personal accounts.
10:15 am ET: New day, new witness
The prosecution only has a few more witnesses left on their docket, now that most of the big players have taken the stand. The court heard from FTX co-founder Gary Wang, former Alameda CEO Caroline Ellison, and FTX’s former head of engineering Nishad Singh.
Let’s talk about scheduling real quick.
The prosecution told the court that they’re slightly ahead of schedule and could rest their case as soon as next week (oh, and a fun note there: Court will end Thursday and won’t resume until the following Thursday).
It’s not clear what’s going to happen with the defense, however, or if SBF will even take the stand.
“We are still working through whether we are going to put a case on and, if so, of what nature. But I continue to believe that if we do put on a case, it won’t be more than a week, week and a half at the max,” Cohen told the judge and the prosecutors Tuesday.
Read more: Hot take: Someone at Alameda was actually good at their job
According to a filing from earlier this week, the defense is concerned about SBF’s Adderall.
“However, as we approach the defense case and the critical decision of whether Mr. Bankman-Fried will testify, the defense has a growing concern that because of Mr. Bankman-Fried’s lack of access to Adderall he has not been able to concentrate at the level he ordinarily would and that he will not be able to meaningfully participate in the presentation of the defense case,” lawyers for Bankman-Fried wrote.
Starting Thursday, SBF will be given an extended-release dose, and the defense will assess from there.
To end Tuesday, the prosecution brought out FBI Agent Richard Busick who used cell phone analysis to allegedly pinpoint SBF’s whereabouts throughout 2021 and 2022.
And now the prosecution is expected to bring out Professor Peter Easton, an expert in accounting, to, well, go over some numbers. Though, as we’ve seen before, last-minute witness changes happen.
It’s not totally clear what the prosecution plans to focus on with Easton, though — thanks to a discussion between Judge Lewis Kaplan, the prosecution and the defense — his “opinion” on the data he’s analyzed was disclosed.
“His opinion is going to be that the amount in FTX’s cryptocurrency wallets, there was a difference between what was in there and what was reflected in FTX’s database for customer deposits, so the black line meaning this is what the database said we had in customer deposits. What FTX was actually keeping in cryptocurrency balances was considerably smaller,” prosecutor Nicholas Roos told the judge and the defense yesterday.
As for Tuesday’s testimonies: The cross-examination of Singh handed Sam Bankman-Fried and his team a win yesterday. Through questioning, attorney Mark Cohen was able to get Singh to admit that the political donations made in his name were voluntary.
Blockworks reporter Casey Wagner wrote that SBF’s team “came on fairly strong” Tuesday.
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Source: https://blockworks.co/news/sam-bankman-fried-trial-day-11