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


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

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The professor said user deposits were used for investments, real estate, political contributions and donations.

Sam Bankman-Fried There are 11 days left in the trial and witnesses will continue to testify for the prosecution. The disgraced former co-founder of FTX and Alameda is on trial on seven criminal charges related to fraud and money laundering.

On Wednesday, Peter Easton, an accounting professor at the University of Notre Dame, testified on whether the FTX collapse was based on fraud. Easton also assisted government officials in the prosecution of prior scandals such as Enron and WorldCom.

Easton was hired by the US Justice Department to trace billions of dollars flowing between Alameda and FTX, many of which were client funds. They provided analysis by tracking and compiling thousands of pages of bank statements and internal documents from FTX. When prosecutors asked Easton whether FTX ever spent user funds, he said, “Oh, yes.”

Easton said FTX users’ deposits were used by the exchange and its sister company Alameda Research for investments, real estate, political contributions and donations.

Earlier this week, former senior FTX executive Nishad Singh gave similar testimony. Singh said Bankman-Fried and other FTX executives spent $8 billion of client money on real estate, venture capital investments, campaign donations, advertising deals and even the branding of a sports stadium.

Singh, who has already pleaded guilty to fraud, money laundering and violating campaign finance laws, said on Monday that he became aware of the massive hole in Alameda’s books as a result of a coding error that exposed user deposits. Prevented correct accounting”. $8 billion. He also testified that Bankman-Fried “was generally the final decision-maker on investment decisions and the investment team as a whole.”

Easton testified that in June 2022, FTX had only $2 billion available for withdrawals, while approximately $11.3 billion had been deposited by users.

Easton testified that, at the time, FTX spent $228 million on real estate and about $195 million on “insiders” or executives of FTX and Alameda. Prosecutors extracted charts tracking the inflow and outflow of FTX customer funds through various routes. The government also showed evidence of company Slack messages between Bankman-Fried and other employees that showed they knew where the money was coming from and where it was being allocated.

Bahamas-based hedge fund Modulo Capital, co-founded by Xiaoyun “Lily” Zhang – one of Bankman-Fried’s former associates – and received more than $400 million of capital from Alameda, which was raised from FTX client funds, Easton said. Gave testimony. During cross-examination, he said that he traced Modulo’s investments through the FTX database.

While the Modulo investment was a large sum, it was not the only transaction in which client funds were used – Easton testified that his investigation into FTX and Alameda found that client funds were used at companies such as Celsius, Anchorage, and FTX. Most of it was for investment. Anthony Scaramucci’s SkyBridge Capital as well as Bitcoin mining company Genesis Digital Assets.

Easton said, while some capital deployments were funded entirely from client funds, other investments had only “some” client funds. This difference does nothing to shake the picture of fraud being painted by the government.


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