FTX misused customer funds, accounting expert who assisted in Enron prosecution testifies

Person deposits had been used for investments, actual property, political contributions and charity, the professor mentioned

The Sam Bankman-Fried trial is 11 days in and witnesses proceed to take the stand on behalf of the prosecution’s case. The defamed former co-founder of FTX and Alameda is on trial for seven felony fees associated to fraud and cash laundering.

On Wednesday, Peter Easton, an accounting professor at College of Notre Dame, testified relating to whether or not or not the FTX collapse was predicated on fraud. Easton additionally assisted authorities officers’ prosecution of prior scandals like Enron and WorldCom.

Easton was employed by the U.S. Division of Justice to hint the billions of {dollars} that flowed between Alameda and FTX, a lot of which had been buyer funds. He supplied evaluation by monitoring and compiling 1000’s of pages of financial institution statements and inside paperwork from FTX. When prosecutors requested Easton if FTX ever spent person funds, he mentioned, “oh, sure.”

The deposits from FTX customers had been utilized by the change and its sister firm Alameda Analysis for investments, actual property, political contributions and charity, Easton added.

Earlier this week, former senior FTX govt Nishad Singh testified alongside comparable strains. Singh mentioned Bankman-Fried and different FTX executives spent $8 billion worth of customer funds on actual property, enterprise capital investments, marketing campaign donations, endorsement offers and even branding a sports activities stadium.

Singh, who has already pleaded responsible to fraud, cash laundering and violation of marketing campaign finance legal guidelines, mentioned Monday that he discovered of the huge gap in Alameda’s books on account of a coding error that “prevented the right accounting” of person deposits by round $8 billion. He additionally testified that Bankman-Fried was “generally the one making the ultimate resolution on investments and funding workforce choices as an entire.”

Easton testified that in June 2022, FTX solely had $2 billion obtainable for withdrawals although about $11.3 billion had been deposited by customers.

On the time, FTX spent $228 million on actual property and about $195 million on “insiders,” or executives at FTX and Alameda, Easton testified. Prosecutors pulled up charts monitoring FTX buyer funds’ inflows and outflows by way of numerous avenues. The federal government additionally confirmed proof from firm Slack messages between Bankman-Fried and different staff indicating that they knew the place funds had been coming from and being allotted to.

The Bahamas-based hedge fund Modulo Capital, co-founded by one in all Bankman-Fried’s exes — Xiaoyun “Lily” Zhang — acquired over $400 million in capital from Alameda that was sourced from FTX buyer funds, Easton testified. Throughout cross-examination, he said that he traced Modulo’s funding by way of the FTX database.

Whereas the Modulo funding was a whopping quantity, it wasn’t the one such transaction that used buyer funds — Easton testified that his investigation into FTX and Alameda discovered that buyer funds had been used for a majority of FTX’s funding into corporations like Celsius, Anchorage, Anthony Scaramucci’s SkyBridge Capital in addition to bitcoin mining firm Genesis Digital Belongings.

Whereas some capital deployments had been totally funded by buyer funds, different investments solely had “some” buyer funds, Easton mentioned. The excellence does little to shake the image of fraud that the federal government is crafting.