Sam Bankman-Fried Sought ‘Justifications’ for Missing Funds, Lawyer Testifies

By Luc Cohen

NEW YORK – During a testimony at Sam Bankman-Fried’s fraud trial on Thursday, the cryptocurrency exchange FTX’s former top lawyer revealed that Bankman-Fried had instructed him to create "legal justifications" for the absence of $7 billion in customer funds, just four days before the company declared bankruptcy.

Can Sun, who formerly served as FTX’s general counsel, stated that on November 7, 2022, the company sought emergency capital from investment fund Apollo due to a surge in customer withdrawals. Following Apollo’s request for financial statements, Sun recounted how either Bankman-Fried or another executive provided a spreadsheet that revealed the exchange was billions of dollars short of meeting withdrawal demands. The document also indicated that FTX was owed significant sums by Bankman-Fried’s hedge fund, Alameda Research.

"I was shocked," he stated while testifying under a non-prosecution agreement in Manhattan federal court during the trial’s third week.

Sun informed jurors that after FTX shared the spreadsheet with Apollo, he was approached by Bankman-Fried at a luxury apartment complex in the Bahamas, who indicated that Apollo was looking for a legal rationale for the missing funds. "He asked me to come up with legal justifications," Sun testified, expressing that this further confirmed his growing concerns about FTX’s inability to fulfill customer withdrawal requests and that the funds had been misappropriated by Alameda.

Later that day, Sun conveyed to Bankman-Fried that he could not find any legal justifications for the situation. FTX ultimately declared bankruptcy on November 11, 2022, resulting in substantial losses for its customers.

Apollo representatives declined to comment on the matter.

Sun’s testimony may complicate Bankman-Fried’s defense, which is based on the argument that he believed Alameda’s handling of FTX customer funds was appropriate. He faces allegations of misappropriating billions of dollars from FTX customers to fund various investments, political donations, and to financially support Alameda. Bankman-Fried has pleaded not guilty to multiple fraud and conspiracy charges and could face decades in prison if convicted.

Prosecutors allege that Bankman-Fried directed FTX customer funds to Alameda, which then loaned $2.2 billion to him and other executives. These loans were reportedly used to make investments, acquire real estate, and make donations to political campaigns.

Sun also shared that Bankman-Fried had previously assured him that customer funds were kept separate and secure from the company’s assets, claiming that he never authorized the lending of these funds to Alameda. Although Sun was involved in documenting loans from Alameda to executives, he insisted he was unaware that those loans originated from customer funds.

Upon discovering the financial shortfall, Sun said he questioned both Bankman-Fried and former FTX engineering chief Nishad Singh about the situation, but did not receive clear answers. He described Bankman-Fried as being distracted during their discussion while Singh appeared visibly distressed.

"It looked like his soul had been plucked away from him," Sun recalled, referring to Singh, who has pleaded guilty to fraud and testified against Bankman-Fried earlier in the trial.

During cross-examination, Bankman-Fried’s attorney challenged Sun regarding a clause in FTX’s terms of service that allowed some users’ funds to be "clawed back" to cover losses for others. The defense also scrutinized Sun’s choice not to resign in the summer of 2022 after discovering that Alameda was exempt from a system that would automatically liquidate losing trades for FTX customers.

Sun stated that he was unaware that this exemption was the reason Alameda was able to withdraw billions from FTX until Singh disclosed that information on the evening of November 7.

The trial is set to continue on October 26, when the prosecution is anticipated to conclude its case.