SBF case expert witness reveals details of FTX's $9 billion funding gap
Most of Alameda's investments were funded by FTX user funds.Author: Mary Liu, BitpushNews
Sam Bankman-Fried (SBF)'s criminal trial has entered its third week, with accounting expert witness and University of Notre Dame accounting professor Peter Easton revealing shocking details about the $9 billion missing from FTX customers and the connections with Alameda Research.
Professor Peter Easton was commissioned by the U.S. government to conduct a thorough review of FTX and its sister hedge fund Alameda's bank statements, loan documents, cryptocurrency holdings, and trading accounts. He assisted the government in investigating the Enron and WorldCom bankruptcy cases two decades ago.
When prosecutors asked Peter Easton whether his analysis of Alameda Research and FTX's books proved the misuse of customer funds, he gave a simple answer: "Yes." Throughout the criminal trial, SBF's parents remained mostly quiet, showing no intense reactions.
The professor testified that FTX user deposits were reinvested into businesses and real estate, repaying third-party loans, political donations, and charitable contributions. His testimony can be summarized in the following points:
- SBF's companies had too little liquidity to cover costs, so the only source of funds was likely customer assets.
- The expert cited examples of loan repayments, donations, venture capital guarantees, and real estate purchases, all of which were largely or entirely funded by customer money.
- Easton supplemented this evidence with email and Slack message records, as well as SBF's involvement in various transactions, which he believed required customer funds to complete.
FTX's Asset Balance Has Been Negative Since Q1 2021
Easton's analysis found that FTX had been experiencing cash shortages at least since Q1 2021, more than a year and a half before FTX's complete collapse.
A similar analysis of FTX's cryptocurrency wallets also revealed the same discrepancies. Since January 2021, the unpaid cryptocurrency debts in FTX's customer deposits appeared to exceed $3 billion. The largest gap between customer currency deposits and available funds occurred in June 2022, with Easton finding a gap of $11.3 billion.
Easton testified that even if Alameda used all available funds for FTX spot margin trading, it would not be enough to cover the company's unpaid debts to customers.
Most of Alameda's Investments Were Funded by FTX User Funds
After a deep dive into Alameda Research's bank statements, wire transfers, and other documents, Peter Easton provided explanations for some figures. Easton emphasized that Alameda Research should have held $11.3 billion of FTX customer funds, but in reality, its bank accounts contained only $2.3 billion.
It turned out that these funds were invested in other investment vehicles, including Anthony Scaramucci's SkyBridge Capital and Lily Zhang's Modulo Capital. Notably, the relationship between Modulo Capital, FTX, and Alameda Research was also mentioned during the testimony of SBF's ex-girlfriend Caroline Ellison.
Easton explained that just before FTX invested $400 million in Modulo Capital (a hedge fund founded by former Jane Street traders), funds were received from Alameda Research accounts and then transferred to Modulo.
He stated, "All acquisitions by Modulo Capital were made using customer funds."
Another chart showed the flow of FTX user funds into the bank account of Paper Bird, Inc. (an entity wholly owned by Bankman-Fried). Easton noted that Bankman-Fried made a $100 million investment in the mobile banking platform Dave, Inc., with "most" of it coming from FTX users.
Real Estate / Loans and Political Donations
While utilizing customer deposits, FTX also engaged in various other projects, including donations to political parties and their candidates, charities, real estate purchases, and even payments to celebrities. During his testimony on Monday, former FTX engineering director Nishad Singh revealed that FTX spent approximately $1.3 billion on celebrity promotions under Bankman-Fried's leadership.
Easton stated that as of June 2022, of the $11.3 billion that FTX should have held for its customers, $228 million was used for real estate purchases, including a $16.4 million property in the Bahamas registered under SBF's parents' names, and another $195.2 million flowed to what Easton referred to as "insiders," meaning executives from FTX and Alameda.
Another use of FTX customer deposits was for loan repayments. Easton indicated that at the peak in late November 2021, Alameda's total borrowing amounted to $15.4 billion, and by November 2022, 68% of the total third-party loan repayments were made using customer funds. When Alameda repaid funds borrowed from lenders such as BlockFi, Bitgo, Genesis, Abra, Maple Finance, Anchorage, Celsius, Nexo, Voyager, TrueFi, and Ledn, at least part of the expenditures came from FTX customer deposits.
FTX's political donations were similarly structured, but these contributions were funneled through accounts of FTX executives like Nishad Singh or Ryan Salame. This included donations to political action committees GMI, Mind the Gap (led by SBF's mother), and the advocacy organization "Guarding Against Pandemics," led by SBF's brother Gabriel Bankman-Fried.
Easton was one of the last government witnesses as the prosecution began to wrap up its case in the third week of the trial. Previous testimonies came from three members of SBF's inner circle—Caroline Ellison, Gary Wang, and Nishad Singh—who have all pleaded guilty and are cooperating with the U.S. government. Given all the testimonies against SBF since the criminal trial began, this once-celebrated crypto prodigy ultimately could not escape prison.
