FTX Case: Alameda’s Misappropriations and Sam Bankman-Fried’s Defense

In the proceedings over the collapsed FTX case and its founder Sam Bankman-Fried (SBF), Notre Dame’s accounting professor Peter Iston conducted an analysis of all of the exchange’s operations and its “daughter” Alameda Research. The story comes from Bloomberg.

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A Looming Hole

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Before Iston’s testimony, one of the prosecution’s latest witnesses clarified that he had previously interacted with cryptocurrency while working on the suit US Securities and Exchange Commission against Ripple Labs. 

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According to the expert, $11.3 billion of client funds at FTX should have been held on Alameda accounts, yet the company held only $2.3 billion. Meanwhile, much of venture investments and real estate in the Bahamas were paid for with the “missing” assets. 

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Alameda’s balance was negative throughout 2021 and 2022, Iston explained. 

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Before a $400 million investment for the Modulo Capital hedge fund into Alameda’s accounts, a similar amount flowed from FTX’s treasury, which was then sent to the partner firm. 

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The same pattern applied to political donations, though the professor added that they were made through former FTX executives Nishad Singh and Ryan Salame.

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Client funds from the Bankman-Fried company financed deals with the miner Genesis Digital Assets, the hedge fund SkyBridge Capital, the banking app Dave, the firm K5, the AI startup Anthropic, and the repurchase of FTX shares from Binance. 

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Alameda’s creditors were repaid with other people’s funds as well. According to Ist on, at least some payouts to BlockFi, BitGo, Genesis, Abra, Maple Finance, Anchorage, Celsius, Nexo, Voyager, TrueFi and Ledn came from the exchange’s custodial accounts. 

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The prosecution also contacted the former head of government and policy relations for the U.S. arm of FTX Eliora Katz. She read excerpts from SBF’s remarks before the U.S. Congress. 

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“In the digital-asset industry there are irresponsible players, and they attract headlines. FTX is not among them and effectively creates a durable, risk-reducing platform as a competitive advantage,” said the exchange’s founder in December 2021 during a hearing before the House Financial Services Committee.

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Next Step for the Defense

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After completing the questioning of witnesses, Judge Lewis Kaplan discussed procedural issues with representatives from both sides. Mark Cohen — Bankman-Fried’s lead attorney — gave a vague answer about how long the defense would take:

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“We’re still deciding whether to put on a case, and if so, what its nature will be”.

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According to Anthony Sabino, a law professor at St. John’s University, in this case the term “to put on a case” means calling one’s own witnesses to rebut the prosecution’s version. 

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The defense also argues that numerous objections from Kaplan and the prosecution have constrained the ability to argue an alternative version of the case. 

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For example, the judge denied all seven expert witnesses that SBF proposed to call.

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“They’re playing their cards close to the vest. It’s simply smart legal maneuvering behind the scenes, if you will. Do not give anything to the government until there is necessity,” the professor explained.

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Earlier in court, SBF associates appeared — former FTX Nishad Singh and former Alameda Caroline Ellison. 

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In October, the new management and creditors of FTX approved a plan to compensate clients. By mid-2024, users of the exchange could receive payouts on claims totaling $9.2 billion.