As SBF’s trial continues, the truth on user funds is coming to light
Sam Bankman-Fried’s trial has been the talk of the town among crypto lovers these past few weeks. While the spotlight is on SBF and his cronies from FTX and Alameda Research, the court has brought in others to lend a helping hand.
On Wednesday, 18th October, Professor Peter Easton took to the stand. He is a professor at the acclaimed University of Notre Dame, teaching accounting. Being brought into the trial proved vital in answering where FTX user funds went.
Remember that $9 billion of user funds mysteriously disappeared as FTX collapsed in November 2022?
Easton managed to unveil more damning evidence against SBF. FTX’s sister company, Alameda Research, had nearly 70% of their loans serviced with FTX customer funds.
Hundreds of millions of dollars had been used by SBF and FTX to purchase companies and real estate in the Bahamas, where FTX was headquartered. Some companies even had ties to political figures, showing Sam’s reach and network.
While the trial takes a six day break let’s review the key developments.
More and more is being uncovered about Sam Bankman-Fried and his team of crooks, co-founder Gary Wang, Alameda Research CEO Caroline Ellison and FTX executive Nishad Singh.
They’ve been confident that SBF was the whole operation’s orchestrator, but this doesn’t excuse their involvement!
A Breakdown of the FTX Trial
By now, many reading this will know what has been happening with FTX and Sam Bankman-Fried.
Here’s a quick rundown of what happened for those who don’t.
In November of 2022, Sam Bankman-Fried was arrested in the Bahamas on seven different charges that included:
- Wire fraud
- Wire fraud (conspiracy to commit)
- Securities fraud
- Securities fraud (conspiracy to commit)
- Money laundering
- Wrongfully financing political campaigns
All of these charges came as a direct result of his involvement as CEO of FTX, which at the time was one of the world’s leading cryptocurrency exchanges and was the United States’ largest.
The catalyst for all this was Coindesk publishing an article which showed Alameda Research, a company associated with Sam, having a substantial holding of FTT, the native token of FTX. $5 billion was held, which helped to inflate the price.
Once brought to light, users began questioning the legitimacy of FTX and Sam. Despite Sam’s ties to key public figures and positive public image, users flocked to FTX to withdraw funds and sell off their FTT token, causing the collapse.
FTX was no laughing matter. A key driver of the business was aggressive and expensive marketing campaigns that allowed them to touch shoulders with heavyweights like Binance and Coinbase despite being a new entity.
Here are some FTX statistics from before their downfall:
- FTX’s highest 24-hour trade volume was $21 billion in 2021.
- Annual trading volume peaked at $385 billion in 2020.
- Between 2020 and 2021, their net income had a 2182% change.
- A total of 1.2 million users were registered by 2021.
What Has Been Uncovered in Court So Far?
These first two weeks have been nothing but a rollercoaster of a ride. Here are the biggest updates coming out of the New York courtroom!
A secret backdoor was confirmed
Alameda Research and FTX’s relationship came as a shock to many before the Coindesk article was released. After all, both companies were multi-billion dollar entities with a lot to lose if caught out.
SBF’s colleagues have come out in court and claimed they knew of a backdoor into Alameda in the backend code directly from FTX. Having this in place allowed Alameda to be in a negative balance up to $65 billion.
Adam Yedidia, a friend of Sam’s and a past developer at FTX, has taken the stand.
He stated to have left FTX when he heard about what had happened with Alameda and the feeling he may be in on committing heinous crimes.
He stated, “I was concerned that, as a developer for FTX, I may have unwittingly written code that contributed to a crime.”
SBF knew the downfall was coming
Despite his efforts to cover his name and save FTX through several Twitter campaigns, Sam Bankman-Fried was well aware of the imminent downfall of his crypto exchange.
Once SBF’s right-hand man, Gary Wang, told the court that when the numbers were presented to Sam, he seemed unfazed by the bad news.
Wang has stated in court SBF was unfazed, stating “that sounds correct” when presented with the bad news and had a “had a neutral demeanor” at the time.
While co-founder of Alameda and FTX, Gary Wang doesn’t seem to be taking up as much of the headlines as Sam. Is he just as much to blame for this whole saga?
Missing Funds Are Found Nearly 12 Months Later
The big headline that has come out of the courtroom this week has been at the forefront of people’s minds since this whole thing began.
Where did the missing funds go? $11 billion is hard to lose, especially when it’s other people’s money!
As soon as the FTX collapse had happened and the money was “missing”, there was already speculation and evidence that Alameda Research’s debts were being paid off. They were placing risky bets on crypto markets, which, of course, wouldn’t always be correct.
SBF and the team have claimed funds were misplaced due to an error in internal labeling. However, the funds were passed to Alameda, giving them unlimited capital.
Peter Easton plays detective
University of Notre Dame accounting professor, Peter Easton has been brought into the trial by the U.S. Department of Justice. So far, he’s done an excellent job at it.
FTX had a $2.1 billion stake in their competitor, Binance. Their CEO Changpeng Zhao said in a 2022 post that the company had received over $2.1 billion in Binance USD (BUSD) stablecoins and FTX’s FTT tokens as part of the repurchase.
Easton himself is adamant user funds have been spent by FTX, claiming that real estate was bought, along with political donations and business investments.
When asked about the funds used by FTX, Peter did not hesitate in answering to the jury.
“Over a billion dollars came from customer funds from FTX exchange,” Easton testified.
The evidence showed a widening gap between the FTX user deposits and their bank balance.
FTX’s fallout began in March 2021 when user deposits fell below their balance. This meant their money was essentially not there, according to Easton.
User deposits peaked in the summer of 2022, with $11 billion in user funds FTX had peaked. But they only seemed to have $2 billion to hand.
He explained that a Bahamas-based company, Modulo Capital, had been bought with user funds. Another company, owned by Donald Trump’s communications director, Anthony Scaramucci, called SkyBridge Capital.
“We can conclude all of the purchase of Modulo Capital was made using customer funds.”
A further $550 million was invested into a Bitcoin mining company called Genesis Digital Assets.
$100 million was siphoned into a bank account for Paper Bird Inc., an SBF-owned business. Through this, another company would be purchased called Dave, Inc.
SBF’s Hands Are Redder Than a Bearish Candle
Forensic accountant Peter Easton has done a mighty job of highlighting the severity of Sam Bankman-Fried’s crimes.
To us and probably our readers at home, SBF doesn’t have a leg to stand on as it is incredibly apparent the fraudulent activities that FTX and Alameda Research were committing over the years.
Sam has been adamant he has done nothing knowingly wrong, but all the signs show that he has been compulsively lying the whole time.
We’ll be covering all the latest revelations when the trial restarts on 25 October so make sure you follow Cryptology on Medium.
If you liked this article, check out our other crypto-related content!
