Original author: Mary Liu, BitpushNews

The criminal trial of Sam Bankman-Fried (SBF) has entered its third week. The case’s accounting expert witness, University of Notre Dame accounting professor Peter Easton, today revealed details of the $9 billion missing from FTX clients and Alameda Research’s connection to it. People are shocked.

Professor Peter Easton was commissioned by the US government to conduct an in-depth review of the bank statements, loan documents, cryptocurrency holdings and trading accounts of FTX and its sister hedge fund Alameda. He helped the government investigate the bankruptcies of Enron and WorldCom two decades ago.

When prosecutors asked Peter Easton whether his analysis of Alameda Research and FTXs books proved misuse of client funds, he gave a simple answer: Yes. Throughout the criminal trial, SBFs parents sat quietly for almost the entirety of the proceedings and did not react violently.

The professor testified that FTX user deposits were reinvested in businesses and real estate, third-party loan repayments, political donations, charity donations, and more. His testimony can be summarized as follows:

Companies owned by SBF have too little liquidity to cover costs, so the only source of funding may be customer assets.

Experts cite examples of loan repayments, donations, guaranteed venture capital investments and real estate purchases, all of which came mostly or entirely from client funds.

Easton supplemented this evidence with email and Slack message records, as well as SBFs involvement in various transactions that, in his view, had to require client funds to be completed.

As of Q1 2021, asset balances on FTX are already negative

Easton’s analysis found that FTX has been short of cash since at least the first quarter of 2021, more than a year and a half before FTX completely collapsed.

A similar analysis of the FTX cryptocurrency wallet found the same disparity. As of January 2021, FTX appears to have exceeded $3 billion in outstanding cryptocurrency debt on customer deposits. The largest gap between customers currency deposits and funds on hand occurred in June 2022, with Easton finding a gap of $11.3 billion.

Easton testified that even if Alameda used all the funds available for FTX spot margin trading, it would not be enough to cover the companys outstanding debt to customers.

Most investments in Alameda are funded by FTX user funds

Peter Easton explains some of the numbers after digging into Alameda Researchs bank statements, wire transfers and other documents. Easton emphasized that Alameda Research should have held $11.3 billion in FTX client funds, but in fact only had $2.3 billion in its bank account.

It turns out the funds were put into other investment vehicles, including Anthony Scaramucci’s SkyBridge Capital and Lily Zhang’s Modulo Capital. It is worth noting that 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 a former Jane Street trader, the Alameda Research account received funds from the FTX account and then transferred them to Modulo.

All Modulo Capitals acquisitions are made using client funds, he said.

Another chart shows FTX user funds flowing into a bank account at Paper Bird, Inc., an entity wholly owned by Bankman-Fried. Easton said Bankman-Frieds $100 million investment in mobile banking platform Dave, Inc. through Paper Bird was mostly provided by FTX users.

Real Estate/Loans and Political Donations

FTX also runs a number of other projects while utilizing customer deposits, including donations to political parties and their candidates, charitable organizations, real estate purchases and even payments to celebrities. Testifying in court on Monday, former FTX director of engineering Nishad Singh revealed that FTX spent approximately $1.3 billion on celebrity promotions under Bankman-Frieds leadership.

Easton said that as of June 2022, of the $11.3 billion that FTX was supposed to hold for its clients, $228 million was used to acquire real estate, including a $16.4 million Bahamas property in the name of SBF’s parents, and another $195.2 million went to Eastons so-called insiders, executives at FTX and Alameda.

Another use of FTX customer deposits is loan repayments. At its peak in late November 2021, Alameda borrowed $15.4 billion, and by November 2022, 68% of total third-party loan repayments were paid using customer funds, Easton said. When Alameda repays funds borrowed from institutional lenders such as BlockFi, Bitgo, Genesis, Abra, Maple Finance, Anchorage, Celsius, Nexo, Voyager, TrueFi, and Ledn, at least part of the payout comes from FTX customer deposits.

The same goes for FTXs political donations, except that these donations go through the accounts of FTX executives such as Nishad Singh or Ryan Salame. These include donations to the political action committee GMI, Mind the Gap (led by SBFs mother), and the advocacy group Guarding Against Pandemics, led by SBF brother Gabriel Bankman-Fried.

Easton was one of the last government witnesses as prosecutors began wrapping up their case in the third week of the trial. Previous testimony came from three members of SBF’s inner circle, Caroline Ellison, Gary Wang, and Nishad Singh, who have pleaded guilty and are cooperating with the U.S. government. Considering all the testimony against SBF since the beginning of the criminal trial, the former encryption prodigy In the end, there was no way to escape jail.