The general counsel at FTX claimed to be unaware of SBF's misuse of client funds.

The general counsel at FTX claimed to be unaware of SBF's misuse of client funds.When former FTX lawyer Can Sun testified as the first witness of the day on the last day of Sam Bankman-Fried's (SBF) trial, more details about what went down...

The general counsel at FTX claimed to be unaware of SBF's misuse of client funds.

The general counsel at FTX claimed to be unaware of SBF's misuse of client funds.


When former FTX lawyer Can Sun testified as the first witness of the day on the last day of Sam Bankman-Fried's (SBF) trial, more details about what went down behind closed doors at the exchange became clear.


Sun's testimony centered on the terms of service of FTX Digital Markets and their crucial role in the ongoing legal proceedings. The terms of service have been openly used by SBF to defend some of the losses at FTX.


unaware of potential abuse.


The testimony of Can Sun, the former General Counsel of FTX, who was instrumental in the creation of the revised terms of service for FTX Digital Markets in May 2022, began with an unexpected statement.


As a means of self-defense, Sun entered into a non-prosecution agreement and claimed to have "no idea" that the exchange was misusing user money and to "didn't do anything wrong.".


Sun stated in his deposition that he spoke with Apollo Global, a private equity firm, during the early November 2022 collapse of FTX. With the huge spike in customer withdrawals, the call was made in an attempt to secure funding.


Sun informed the jurors that FTX was "shocked" to learn that it would need to pay a whopping "$7 billion shortfall" to satisfy customer withdrawal requests.


"Theoretical explanations".


According to Sun, after the call, Apollo asked for a balance sheet, which was given by Ramnik Arora, the former head of product at FTX, or SBF. The balance sheet presented a dismal image of FTX's financial status.


In response, Apollo declined the investment, but not before looking for answers regarding the missing money. According to Sun, he was instructed by SBF to offer "theoretical justifications" for the disappearance of customer funds.


Sun stressed throughout his testimony that there were no "theoretical justifications" backed up by concrete data. He went on to say that taking money out of customer accounts was not justified legally.


A crucial disclosure made by Sun during his testimony concerned the examination of FTX's defense against margin trading. A clause in FTX's terms of service that mentioned collateral loss in the event of account liquidation was a section that SBF regularly referred to.


Sun revealed that he had advised SBF that this explanation would not suffice to explain the shortfall and would not account for the $7 billion in missing customer funds. He continued by saying that while SBF was aware of this at the time, he still used it as an excuse in his interview with George Stephanopolous.


Prosecution played a Dec. to emphasize this point. SBF interview with George Stephanopolous, January 1, 2022. Stephanopolous brought up in the interview that FTX's terms of service made it clear that no customer assets would be lent out.


The "borrow-lending facility," also referred to as trading on margin, is another provision of the terms that Bankman-Fried used to sidestep this. It came to light that users had to voluntarily participate in this service, but even those who chose not to participate lost money when FTX collapsed.


exchange of questions.


The FTX Digital Markets terms of service were further examined during Sun's cross-examination. As previously stated, these terms may be crucial to the defense's case.


The terms of service made it very evident that FTX was dedicated to protecting client funds and guaranteeing that the money deposited by users belonged to them alone. This supported the claims made by the government that Alameda Research obtained and used client deposits that were sent to FTX.


Lead defense attorney Mark Cohen probed into the terms' section on margin trading during cross-examination. Cohen wanted to know what proportion of users were using riskier trading techniques.


How many customers who lost money in the FTX collapse had engaged in such trading may be revealed by this information. Sun was unable to provide precise figures, so Cohen had to change the subject to other parts of the terms.


Except for Alameda.


Cohen also looked into a section about account liquidation, in which clients were informed that if backstop liquidity providers could not successfully step in, they might lose "all" of their assets.


Questions about this section, however, were not answered by Sun.


Cohen further questioned Sun about its awareness of Alameda's exemption from auto-liquidation. Sun stated in his testimony that in August or September of 2022, he learned about this exemption.


He disclosed that SBF and FTX co-founder Gary Wang had objected to his request to have it removed. During that same period, Sun was also informed that this carveout for Alameda had never been activated.


When Cohen questioned Sun about why he had not resigned at that point, the attorney replied that he was not aware that Alameda was also able to withdraw client funds from FTX due to a special privilege that exempted the company from liquidation.


Sun stated that on November, he discovered that customer funds had been misused. It was revealed to him on July 7, 2022, by Nishad Singh, and the next day he tendered his resignation.


Investment made by Third Point.


The next witness to testify was Third Point asset manager Robert Boroujerdi, a managing director. His evidence provided the jury with insightful knowledge about the financial aspects of FTX and its operations.


Boroujerdi currently values Third Point's $60 million investment in FTX International as "zero.". ".


Prosecutor Thane Rehn probed into Boroujerdi's discussions with SBF prior to Third Point's original $35 million investment in FTX in July 2021 during his testimony.


Boroujerdi disclosed that FTX had failed to notify him that Alameda was not subject to FTX's risk engine, which meant that its trading accounts were not subject to liquidation and could experience infinite negative values. He continued by saying that the investment felt secure because of FTX's reputedly "speedy" risk engine.


Asking how his approach to investing would have been different if he had been aware of Alameda's unique advantages, Boroujerdi categorically replied that Third Point would never have moved forward with the investment.


Moreover, he made the argument that Third Point would not have taken part if they had known that Alameda would receive the $35 million or that Alameda could take money from FTX on behalf of its clients.


In his cross-examination of Robert Boroujerdi, David Lisner sought to delve into the Third Point's FTX due diligence. But the majority of his questions were immediately met with objections, which Judge Kaplan then upheld, so his line of questioning was only partially advanced.


Charges are being pursued.


With just a few more witnesses scheduled to testify at the upcoming hearing, the trial is still working through the intricate details surrounding FTX.


By October's next court date, the prosecution said it is on schedule to conclude its case. 26 following the presentation of its side's last witnesses.


The defense stated that after the prosecution has had some time to relax, it will make its case. It is unclear, though, whether the defense will make an argument or what witnesses they might call to testify.


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