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FTX Billion-Dollar Fraud: Expert Figures Out Where The Missing $9 Billion Went

The trial of the former CEO of the defunct crypto exchange FTX, Sam Bankman-Fried (SBF), continued on October 18 with the direct examination of the prosecution’s expert witness, Peter Easton, an Accounting Professor who works at the University of Notre Dame. 

Expert Testimony Shows Customers’ Funds Were Stolen

According to a report by Bloomberg, Easton explained that $9 billion in customers’ funds had already gone missing since June 2022, five months before FTX filed for bankruptcy. He specifically alluded to the customers’ deposits, which were made into Alameda Research’s bank accounts. 

Having laid a foundation that Bankman-Fried stole FTX’s customers’ funds through Alameda, the next step in the prosecution’s case was to show that these funds were indeed stolen, and that was the role of Easton, who has an expertise in “penetrating the details of financial statements.” 

He stated that based on deposits made by customers, Alameda was meant to have held $11.3 billion in FTX customers’ funds, but only $2.3 billion was actually in the trading firm’s bank accounts. According to him, these funds were ultimately used for several purposes.

FTX FTT Token price chart from Tradingview.com (Sam Bankman-Fried)

What The Stolen FTX Funds Were Used For

Easton further provided details as to where some of these funds went. He alleged that some of these funds were used to invest in companies like Anthony Scaramucci’s SkyBridge Capital, Lily Zhang’s Modulo Capital, Robinhood, Dave and Anthropic. 

Specifically, he stated that the investment in Modulo was 100% from customers’ funds, with him being able to trace the transaction from FTX’s database.

While giving her testimony, Alameda’s ex-CEO, Caroline Ellison, also revealed that Alameda, with SBF’s permission, used FTX’s customers’ funds to repay its lenders. Easton corroborated this statement as he mentioned that some of the missing funds were used to repay lenders like Celsius, Abra, Maple, and Anchorage. 

His testimony didn’t stop there, though, as, according to him, some of the funds were also used to fund political campaigns, charity foundations, and real estate purchases. Part of these political contributions included the $1 million that FTX’s Director of Engineering Nishad Singh had donated to Mind The Gap (MTG), a Political Action Committee (PAC) that SBF’s mum Barbara Fried co-founded. 

Additionally, $96 million of these customers’ funds is said to have been spent on real estate purchases, of which a property owned by SBF’s parents happens to be among them, going by the evidence tendered by the prosecution. 

The professor mentioned that all these discoveries were made following his analysis of Alameda’s statements, information from the FTX database, documents from lenders, and on-chain data.

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BlockFi CEO’s Key Testimony: Insights Into Alameda’s Financial Stability In FTX Trial

The trial against FTX co-founder Sam Bankman-Fried took an intriguing turn as Zac Prince, the CEO of defunct crypto lender BlockFi, provided testimony in a Manhattan federal courtroom. 

Prince’s appearance provided valuable insights into the intricate relationship between BlockFi, FTX, and Alameda Research.

BlockFi’s Bankruptcy Rooted In Alameda And FTX

According to a Bloomberg report, Prince revealed that BlockFi had substantial exposure to Alameda and FTX, estimated at around $1 billion, at the time of BlockFi’s failure in November 2022. 

Prince asserted that if the loans to Alameda were still in good standing and the funds on FTX were available, BlockFi would not have filed for bankruptcy. This statement suggests that BlockFi’s financial troubles were closely tied to the collapse of Alameda and FTX.

Prince’s testimony diverged significantly from Caroline Ellison, the government’s star witness, who portrayed Bankman-Fried as the mastermind behind a fraudulent scheme using FTX customer funds for speculative trading at Alameda. 

Prince’s account positioned BlockFi as a victim of Bankman-Fried’s alleged schemes, claiming that BlockFi made loans to Alameda based on misleading balance sheets. 

Defense lawyers sought to emphasize that BlockFi willingly provided the loans to Alameda, with knowledge of the associated risks.

Creditors Accuse BlockFi Of Inadequate Due Diligence

Prince discussed BlockFi’s due diligence process regarding Alameda’s collateral, comprised of tokens affiliated with FTX. The judge requested plainer terms during Prince’s explanation, prompting an analogy using car loans. 

Per the report, the prosecution questioned the adequacy of BlockFi’s due diligence, as creditors accused the company of failing to recognize warning signs before offering substantial loans to Alameda.

Prince’s testimony highlighted that providing “unaudited balance sheets” is an industry norm for borrowers seeking loans. The defense sought to establish that BlockFi knew the risks of lending to Alameda and acted within industry norms.

Zac Prince’s testimony in the trial against Sam Bankman-Fried provided a deeper understanding of the intertwined relationships within the crypto industry. BlockFi’s exposure to Alameda and FTX and its subsequent bankruptcy offered insights into the potential repercussions of alleged fraudulent activities. 

The differing narratives presented by the prosecution and defense underscore the complexities of the case. As the trial unfolds, the court will continue to examine the details surrounding BlockFi’s lending practices and the extent of Bankman-Fried’s involvement in the alleged schemes.

It is important to note that BlockFi can no longer be utilized for crypto-related activities, as the company declared bankruptcy and suspended withdrawals in November 2022. The bankruptcy filing indicates that BlockFi owes between $1 billion and $10 billion to over 100,000 creditors.

FTX

Featured image from NBC, chart from TradingView.com

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FTX Sam Bankman-Fried’s October Trial Date No Longer A Sure Thing

Disgraced FTX Founder Sam Bankman-Fried’s (SBF) trial is set to begin on October 3. However, a recent development suggests that his trial date could be pushed back. 

Judge Kaplan Could Delay FTX Founder Trial Date

According to a Reuters report, Judge Lewis Kaplan, the judge in charge of SBF’s case, said he could consider delaying the trial slated for October 3 to give SBF and his lawyers more time to review discovery documents and prepare their defense. 

Judge Kaplan told SBF’s lawyers they could ask for a postponement if they needed more time. However, he clarified that there is no guarantee that he would grant it as the defendant must prove there is “a need” to postpone the trial date. To prove this, they must go beyond just stating the number of discovery materials they need to review. According to the Judge, there has to be “more meat on those bones.”

A virtual hearing had taken place on August 30 to rule on the pending requests by the FTX founder’s lawyers. They had earlier asked that the government be precluded from using certain documents as evidence when the trial commences. 

The defense counsel had alleged the government had produced “an additional 4 million pages of discovery” on August 24, which they believe their client won’t be able to finish reviewing before his trial begins.

However, the judge denied this request, noting that the government had clarified that they would obtain information continuously. 

Interestingly, before his bail was revoked, SBF had access to the Google documents, which form part of the documents the defense asks to be precluded as evidence. The judge stated that the defense’s alleged “deluge of documents” was “seriously exaggerated.”

SBF and his lawyers will have to file a motion by the end of this week if they intend to ask for a postponement. The Judge also suggested that any postponement would likely move the trial date to March 11, 2024, subject to approval by the Bahamas government. 

FTX FTT token price chart from Tradingview.com (Sam Bankman-Fried)

Lawyers Ask For Temporary Release For Sam Bankman-Fried

During the hearing, SBF’s lawyers asked for a temporary release for their client, stating that they had no faith in the provisions the government had made for SBF.

Meanwhile, the prosecutors argued that they had made enough provisions for SBF as he had 70 hours a week to do discovery. Furthermore, his lawyers were allowed to visit him seven days a week, and they provided him with a laptop that he could use every day from about 8 AM to 7 PM

Judge Kaplan stated he wasn’t going to rule on the defendant’s application just yet and asked for a joint report to be presented to him by September 5 as to the “exact situation” at the Brooklyn Metropolitan Detention Center (MDC) where SBF is being held.