Can Sun, the former general counsel of FTX, took the stand on Thursday as part of the prosecution’s case against Sam Bankman-Fried. Sun, who has a non-prosecution agreement in exchange for his cooperation, provided crucial testimony shedding light on the alleged misuse of customer funds and the collapse of the cryptocurrency exchange.
Key Takeaway
The testimony of Can Sun, former FTX general counsel, revealed alarming details about the alleged misuse of customer funds and misrepresentations made by Sam Bankman-Fried. Sun’s testimony raises serious questions about the management and practices at FTX, highlighting the need for stricter regulations in the cryptocurrency industry.
FTX’s Misrepresentation of Customer Assets
During his testimony, Sun revealed that he had been assured by Bankman-Fried that FTX customer deposits were safeguarded, segregated, and protected. However, prosecutors highlighted the exchange’s terms of service, which clearly stated that customer assets were not to be used by FTX for trading or any other purposes. Sun testified that he never approved the use of customer assets and believed that they were held in a separate account that didn’t include FTX’s own funds.
The Shocking Revelation about Alameda’s Auto Liquidation
Sun also divulged that he was shocked to discover that Alameda, a trading firm associated with FTX, was not exempt from auto liquidation. This meant that Alameda could go “infinitely negative” on FTX’s platform, which contradicted the representations made to regulators and users. Although Sun requested the removal of this exemption, he claimed that Bankman-Fried and the head of FTX engineering, Nishad Singh, refused to comply.
Loans and Personal Incentives
While at FTX, Sun was responsible for documenting loans made by Alameda to Bankman-Fried, Singh, and another co-founder, Gary Wang. The loans totaled over $2.17 billion, but Sun testified that he was not aware that customer funds were being used for these loans. Additionally, Sun received personal loans and a significant bonus as part of a management incentive program.
The Apollo Global Management Call
In November 2022, just days before FTX filed for bankruptcy, Sun participated in a call with Apollo Global Management and others to raise capital and address FTX’s liquidity problem. During this call, Sun discovered that FTX was short $7 billion. He received vague responses when questioning the calculation and noticed Bankman-Fried’s disengagement. Later, Bankman-Fried allegedly requested legal justification for the missing funds, but Sun could not provide any.
