The third week of the SBF trial ended with testimony from FTX’s former general counsel, Can Sun, who flew all the way from Japan to New York to testify.
Sun told the court that he did not have insight into FTX’s structure, which allowed Alameda Research to borrow user funds without their permission. He said, I “never approved anything like that, and I would never have done it either.”
The former general counsel testified, signing a no-prosecution agreement with the Department of Justice a day before the testimony.
Soon after joining, he also found out that Alameda accounts were excluded from automatic liquidations and could go negative on their balances at FTX. While finding the misconduct, he talked to FTX leadership and pressed them to take appropriate action.
However, instead of getting away with the fuss, the FTX team enabled delayed liquidations for Alameda. This feature was to be made available for other institutional traders, and users were supposed to be made aware of it, but it never happened.
At FTX, Sun was responsible for documenting loans that were issued to Sam Bankman-Fried, Gary Wang, and Nishad Singh by Alameda Research. Sun clarified in court, citing that he was not aware that the loans were coming from FTX customer funds. At a point, Sun also took a loan of $2.3 million from Alameda to buy a house in the Bahamas, which felt wrong after he got to know it, he said.
What convinced Sun about everything being wrong was a call from Apollo Global Management, which asked for a copy of FTX’s financial reports and hinted at being interested in investing in November 2022.
This was the final plot where the counsel general found a big hole of $7 billion in the FTX balance sheet. While asking about the matter to FTX leadership, Sun did not receive proper answers.
According to Sun, FTX CEO Sam Bankman-Fried “was not surprised at all” when he was informed about the missing funds. At that moment, Sam pulled him aside and told him to put together a legal justification that would explain the situation, as Sun told the court.
Sun also talked to the engineering director, Nishad Singh, and another lead engineer on the same day and found out that the feature that disabled automatic liquidations for Alameda also allowed Alameda to borrow FTX’s customer funds. Sun was so fed up with all this that he resigned the very next day.
