The trial against Sam Bankman-Fried in Manhattan federal court continued on Thursday with testimonies from Can Sun, FTX’s former general counsel. Sun, who served as general counsel for FTX from August 2021 to November 2022, provided valuable insights into the inner workings of the exchange and its relationship with sister company Alameda Research.
The Allegations and Defense
During the trial, Sun claimed that he would have never knowingly approved of lending FTX customer money to Alameda Research. He believed FTX had taken necessary steps to safeguard and segregate customer funds to prevent any misappropriation. Sun referenced Bankman-Fried’s congressional testimonies and social media posts, suggesting that the “king of crypto” had been advocating for a regulated crypto industry.
Sun emphasized Bankman-Fried’s involvement in developing FTX’s key principles, which focused on market integrity and customer and investor protection. He stated that without express authority from the customers, FTX had no right to access funds, debunking the prosecution’s allegations of fund misuse.
The Terms of Service and the Collapse
The prosecution presented evidence of updated terms of service that Sun had worked on with the aim to comply with Bahamian regulators. These terms highlighted that customers retained ownership of their digital assets and that only nine of the assets would be loaned to FTX. However, Sun discovered that Alameda Research had special privileges, allowing their account to go “infinitely negative” on FTX’s exchange. Although he demanded the removal of this feature, it was ultimately replaced with a “delayed liquidation” feature, but it was not implemented before FTX collapsed in November.
Sun further testified that he was taken aback when he learned of FTX’s collapse and the significant shortfall of funds required to satisfy customer withdrawals. Bankman-Fried then requested Sun’s assistance in providing a legal justification to Apollo Capital regarding the missing funds, which only confirmed Sun’s suspicions of fund mismanagement.
After failing to provide a solution, Sun resigned the day after learning of the financial situation. He testified under a non-prosecution agreement, shedding light on the events leading up to FTX’s collapse.
