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Former FTX General Counsel Denies Approving Customer Fund Loans


Almost a year has passed, but the intrigue and secrecy shrouding FTX and its former employees continue to linger. Can Sun, who previously served as the general counsel for Sam Bankman-Fried’s FTX, recently testified in the SBF criminal trial. Can Sun held this role from August 2021 until the demise of the once-prominent crypto exchange giant in November 2022.

To give context and understanding, here is a summary of what has happened thus far. Sam Bankman-Fried is the founder and former CEO of FTX, a crypto exchange that greatly dominated the crypto space by offering innovative products and services including tokenized stocks and prediction markets along with Alameda Research, a sister company to FTX that mainly functioned as a qualitative cryptocurrency trading firm and liquidity provider, further being one of the most influential crypto trading firms in the world. He was one of the most influential and highly regarded personas within the digital asset industry due to his expertise and well of knowledge in digital asset trading along with his entrepreneurial achievements with FTX and Alameda Research, and his commitment to philanthropy and altruism. This empire came crashing down in November 2022 after FTX declared dissolution and filed for Chapter 11 bankruptcy protection in the US.

FTX faced dissolution after a wave of user withdrawals triggered by rising concerns about the company’s reported irregularities, pushing it into financial turmoil. Confidential financial records were exposed, revealing inconsistencies in the management of client funds and confirming the company’s outstanding debts. FTX’s bankruptcy document, spanning 23 pages, disclosed that the exchange had over 100,000 creditors, with assets and liabilities both ranging between $10 billion and $50 billion.

The catalyst behind the company’s crisis was an exposed financial statement showing that by June 30th, 2022, Alameda, the sibling company of FTX and Bankman-Fried’s trading entity, held $14.6 billion in assets against $8 billion in liabilities. These assets included $3.66 billion in accessible FTT tokens, with $2.16 billion marked as “FTT collateral” and another $3.37 billion labelled as “crypto held”. Additionally, the assets comprised $2 billion in equity securities, $863 million in restricted SOL tokens (Solana’s native token), $292 million in available SOL, and $41 million as SOL collateral. Notably, the firm’s liabilities were dominated by about $292 million in reserved FTT and a substantial $7.4 billion in loans.

To make matters worse, the situation took a turn for the worse on the evening of November 11th, when approximately $663 million in crypto vanished from FTX wallets. At the time, John Jay Ray had just assumed the role of CEO and confirmed the disconcerting news, stating that there had been “unauthorized access to specific assets”. According to Bitcoin Method reporters, it is believed that thieves absconded with around $477 million of the total missing sum, while FTX moved the remainder to cold storage for added security.

A little over a year later ongoing criminal trials are being held against SBF, with numerous people coming forward to testify, including Can Sun – the former general counsel who took the stand on day 12 of the criminal fraud trial. Can Sun testified under a non-prosecution agreement where he detailed and exclaimed that he was kept in the dark about many things that took place within the company, including company funds and how they were being handled.

During the trial, when questioned about authorising Alameda’s use of FTX customer funds, Mr. Sun firmly responded, “absolutely not”. He also stated his belief, based on discussions with Bankman-Fried, that FTX customer funds were separate from the company’s operational funds. Assistant U.S. Attorney Danielle Sassoon presented FTX’s terms of service and other public documents to Sun, reinforcing the Department of Justice’s stance that FTX misused customer funds. 

Mr. Sun stressed the importance of segregating FTX customer funds from company funds, referring to this as “ring-fenced.” He presented records of loans to FTX and Alameda executives, which conflicted with a DOJ document. He repeatedly clarified his lack of awareness that customer funds were used for these loans.

In spring 2022, he learned about Alameda’s North Dimension account, and by August 2022, he discovered Alameda’s special access to FTX, distinct from automated liquidation processes. Sun proposed changing Alameda’s “no-liquidation mechanism” to a “delayed-liquidation mechanism” for transparency but the idea was never implemented.

Sun later realised, through a conversation with Nishad Singh, that the no-liquidation policy allowed Alameda to access significant FTX funds. Initially, the idea of any FTX customer receiving preferential treatment was surprising to Sun, contradicting public statements by SBF.

In the course of the proceedings, Sun disclosed a critical meeting on November 7, 2022, just days before the company’s dissolution. This meeting, with Apollo Capital, aimed to address FTX’s liquidity concerns related to customer withdrawals. When Apollo requested financial data, Sun obtained the necessary documents from FTX executives, which revealed a staggering $7 billion deficit for customer withdrawals. Concerned, Sun sought explanations from Singh and SBF. Singh appeared deeply affected, and SBF eventually replied after sharing the concerning spreadsheet with Apollo.

In an attempt to seek clarity, Sun and Bankman-Fried discussed the matter during a walk. Sun expressed his doubts that any legal rationale justified the funds’ absence and Alameda’s involvement. Sun did present some potential explanations to the jury, such as a “dormancy fee” for inactive customers and the internal lending mechanism for margin traders, though he admitted these justifications were weak. During their conversation, Sun recalled SBF’s brief affirmations.

Sun’s testimony revealed that he was asked to find legal justifications, increasing his suspicion that FTX lacked the necessary funds for customer withdrawals, with signs pointing towards Alameda’s misappropriation of these funds. Prosecutors allege that Bankman-Fried diverted FTX customer funds to Alameda, and the hedge fund then loaned $2.2 billion to executives for various purposes.

While Sun documented these loans, he remained unaware of their origin from customer funds. Upon discovering the financial discrepancy, Sun sought clarification from both Bankman-Fried and FTX’s former engineering head, Nishad Singh, but received no satisfactory answers. Singh’s testimony against Bankman-Fried earlier in the week revealed the extent of financial impropriety and his emotional turmoil.

During cross-examination by Bankman-Fried’s attorney, Mark Cohen, Sun was questioned about FTX’s terms of service clause, which mentioned the potential “clawback” of users’ funds to offset others’ losses. Cohen also inquired about Sun’s decision to remain with FTX in 2022, especially after learning about Alameda’s exemption from an auto-liquidation rule for FTX customer positions. Sun stated he wasn’t aware of this exemption until Singh informed him on the evening of November 7th.

During the trial, George Stephanopoulos, the host, presented an interview from Good Morning America with SBF. He questioned SBF about FTX’s terms of service, which clearly stated that customer digital assets couldn’t be loaned to them, drawing parallels with Can Sun’s earlier arguments.

Stephanopoulos pressed on, asking if Alameda borrowing from FTX depositors crossed a clear boundary. SBF mentioned FTX’s borrow-lend feature, though he couldn’t pinpoint its exact location in the terms of service. Stephanopoulos pointed out that users needed to consent to such transactions, suggesting they hadn’t in this case.

Assistant U.S. Attorney Danielle Sassoon then questioned Sun, asking if he had discussed the borrow-lend facility with the defendant on November 7, 2022. Sun confirmed and stated that he believed it didn’t align with the evidence. SBF acknowledged Sun’s statement. Sassoon concluded her questions, addressing Judge Lewis Kaplan.


The SBF criminal fraud trial is one for the books within the world of crypto. With that said, it is important to note that evidently, the digital asset industry as a whole is functional and sustainable. However, issues tend to lie and arise with those who have lewd intentions and actions that bring the industry at large to disrepute. As the industry grows, given this large-scale trial surrounding FTX and SBF, we are bound to see stricter legal frameworks being established. The trial is set to proceed and conclude on the 26th of October 2023 where the prosecution will finalize their arguments. 

///ENDS





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