FTX misused buyer funds, accounting skilled who assisted in Enron prosecution testifies

Consumer deposits have been used for investments, actual property, political contributions and charity, the professor stated

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 legal costs associated to fraud and cash laundering.

On Wednesday, Peter Easton, an accounting professor at College of Notre Dame, testified concerning 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, lots of which have been buyer funds. He offered evaluation by monitoring and compiling hundreds of pages of financial institution statements and inside paperwork from FTX. When prosecutors requested Easton if FTX ever spent consumer funds, he stated, “oh, sure.”

The deposits from FTX customers have been utilized by the alternate 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 related traces. Singh stated Bankman-Fried and different FTX executives spent $8 billion value of buyer 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, stated Monday that he discovered of the huge gap in Alameda’s books because of a coding error that “prevented the proper accounting” of consumer deposits by round $8 billion. He additionally testified that Bankman-Fried was “usually the one making the ultimate choice on investments and funding workforce selections as an entire.”

Easton testified that in June 2022, FTX solely had $2 billion obtainable for withdrawals regardless that 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 workers indicating that they knew the place funds have been coming from and being allotted to.

The Bahamas-based hedge fund Modulo Capital, co-founded by one in every of 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 acknowledged 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 have 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 have been totally funded by buyer funds, different investments solely had “some” buyer funds, Easton stated. The excellence does little to shake the image of fraud that the federal government is crafting.