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Sam Bankman-Fried asked FTX’s top in-house lawyer for “legal justification” that would explain how billions in customer funds from his cryptocurrency exchange ended up at his private trading firm Alameda Research, in the midst of a last-ditch attempt to save the private equity firm. Apollo appears from a statement in its criminal trial.

Can Sun, general counsel for FTX’s international business, took the witness stand Thursday in the New York federal trial of Bankman-Fried for defrauding customers, lenders and investors at FTX.

The FTX exchange collapsed last November because it did not have enough money to cover the rush of customer withdrawals. To fill the billion-dollar hole, Bankman-Fried launched a fundraising campaign that included contacting Apollo about an emergency investment.

Prosecutors walked Sun through FTX’s terms of service and other policy documents. He repeatedly testified that FTX had no right to issue or lend its customers’ funds and that he himself had no idea about the flow of money to Alameda until days before the exchange’s failure.

“There was no legal justification for taking the money,” Sun said.

Bankman-Fried pleaded not guilty and maintains his innocence.

Sun, who was granted immunity from prosecution, recalled that on November 7 last year he was involved in a conversation with Apollo involving FTX’s financial information. Sun then met senior FTX executives and Bankman-Fried’s father, Joe Bankman, at an apartment in the luxurious Bahamas complex where many FTX employees lived.

He was reviewing a financial spreadsheet that had been created for Apollo. It showed a $7 billion shortfall in customer funds and a list of assets that Alameda could potentially return to FTX.

Bankman-Fried said that after viewing the spreadsheet, Apollo asked him about the legal basis for customer funds held by Alameda, Sun testified. Bankman-Fried asked Sun to provide “legal justification.”

“It basically confirmed my suspicions that had been brewing throughout the day,” Sun said.

That evening, Sun and Bankman-Fried took a walk through the Bahamian grounds. Sun said he explained to Bankman-Fried possible legal justifications for loans to Alameda, including the exchange’s margin lending program.

Sun said he told Bankman-Fried that none of these statements matched the facts of FTX’s position. Alameda has taken out more loans from FTX than its margin lending system had ever offered.

“He said, ‘Yeah, yeah,’” Sun recalled.

Sun resigned the next morning after Nishad Singh, another FTX executive, explained to him how Alameda had siphoned off customer funds. FTX filed for bankruptcy a few days later after its fundraising efforts failed.

Prosecutors tried to show jurors that Bankman-Fried used the justifications he discussed with Sun when he tried to defend himself in the media, even though they were told they were invalid. They showed the jury an excerpt from Bankman-Fried’s interview on Good morning America newscast shortly after the bankruptcy in which he alluded to margin lending as a possible reason for the lack of client funds.

Judge Lewis Kaplan called for a “break” in the trial on Thursday. Prosecutors are expected to rest their case late next week, after which Bankman-Fried may take the stand in his own defense.

Video: FTX: The Legend of Sam Bankman-Fried | FT film

Source : www.ft.com

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