Where Did The Money Come From and Where Did it Go? - Day 11 SBF on Trial

All right, everyone, it is day 11 of the Sam Bankman-Fried trial. I have been in court all day. And I'm ready to tell you what you need to know about the case today. We got five witnesses today, which means we moved much faster through witnesses today than we have on previous days.

But I really want to spend some time on one witness in particular: Peter Easton. We will talk about who he is, and what he showed us in a minute. But it was a big day of flowcharts. We got pie charts, flow charts, line graphs, everything you might have learned in a statistics class to talk to us about where all this money went, the many billions of dollars that went missing, and where this money came from.

I found this actually really interesting to see these charts up in court. Unfortunately, I can't show them to you here. I was hoping I was gonna be able to get the exhibits and the way the government had presented them, but I cannot. So I'm gonna have to talk to you a little bit about these. And hopefully you find it as interesting as I do.

But first I want to speed run us through some of the other witnesses we heard from today, because I see it as my job to tell you everything that went on. Any witness that takes that stand, I want you to know, but I won't belabour some of them because even Judge Kaplan, as he expressed today, felt that some of them were totally useless. Of course, I do need to say thank you so much to our sponsors: Web3Sense, OpenSea, and Ledger. They make this show possible. We'll be hearing from them a little bit more later, but just wanna shout them out here up at the top, you can go check out their links in the show notes below.

Alright, our first witness today was a woman named Eliora Katz. And she was like a lobbyist or policy person of some sort at FTX. She was very unhappy to be a witness. And it was very clear, she was a bit morose. She was a little bit grumpy. And everything she was asked, she made it clear that she was not actually at FTX at the time that whatever they were talking about happened. So she was at FTX, from April 2022 to November of 2022. And the judge later referred to her as a mannequin, not as an insult to her, but in the sense that he felt there had been no purpose to her testimony specifically. She basically seemed to be up on the stand to just read the statements that Sam had made in other contexts.

The point of all this was to say that Sam had committed commodities fraud. So some of the statements that Sam, that these blog posts contained, said things like Bitcoin and Ethereum are commodities. They were clearly just trying to get into the record moments where they could prove, "Hey, these are commodities. And this is why there's this commodities fraud charge." It just wasn't clear why they needed this witness up there to read these statements. It was quite odd. And Judge Kaplan seems to feel the same way. I'll talk about that in just a moment. But that was really all there was to her being up there on the stand. It's also FTX is not listed on her LinkedIn account. I looked her up later. And she is not bragging about her time at FTX at this point.

Okay. The next witness I want to talk about is Cory Gaddis. He is a Google records custodian, which as far as I could understand, basically means he just assists law enforcement and the government and whoever else needs it, with accessing records, Google Doc records, and Google Sheets records. And the reason he was on the stand today was to validate that the spreadsheets that we had seen previously, for example, like the balance sheets, we saw that Caroline Ellison had prepared and shared with Sam, allegedly, that those were real. We all thought that this testimony was going to be him validating that Sam had actually seen these spreadsheets. But no, he was just saying that these were valid spreadsheets.

So after his testimony, Judge Kaplan got quite mad, and he yelled at both the prosecution and the defense. He said, "What was the point of the testimony? Where did this guy come from?" Turns out he had flown in from Texas to be a witness in this case. And Judge Kaplan was like, "You flew this man from Texas, for what? What was the point of this? Like, what have we learned?" And I guess, basically, you do have to prove that the spreadsheets are valid, or the metadata of them is valid. But the lawyers weren't disagreeing about that, like the defense didn't seem to disagree that the metadata was valid. And so what could have happened was, without having to bring a witness in, they could have both stipulated? "Yes, we agree that this is part of the facts of the case. There's no problem here." And we could have moved on.

But instead, they flew this guy from Texas. And he sat there for literally a cumulative eight minutes of testimony, and then was presumably flown back to Texas. And Judge Kaplan was like, "We need to honour this guy's time and all of our time, and I take this very seriously." And then, because Judge Kaplan was on a roll and he was pissed about what just happened with the Google records guy, he was like, "And what was with that witness this morning? She was basically just a mannequin being asked to read statements that Sam had made that she knew nothing about. What was the point of that?" Those witnesses were apparently pointless, and I feel very validated because a lot of us were sitting there being like, "What is the point of any of this?" So then to have Judge Kaplan apparently similarly feel like there was no point to any of this made me feel less stupid.

Okay, the other two witnesses that I'm going to mention here because they took the stand today, one was Shamel Medrano. He's an investigative analyst with the District Attorney's office. And the only point of him being up there was essentially, the prosecution wanted to show the jurors the private DM conversation that had happened between Sam Beckman Freed and Kelsey Piper, the Vox reporter, also known as Kelsey to walk on Twitter. And I say the private DM conversation between them, but it really wasn't private. Because if anybody has been following this case closely, they know that Kelsey Piper published a Vox article that was pretty damning, revealing very strange things that Sam had said to her over Twitter DM. And then I think large swaths of the Twitter DMs with him had already been leaked, this was not really new information. But if you missed it, Sam had gotten into a Twitter DM conversation with this reporter, pretty shortly after FTX blew up, in which he made a lot of wild statements about how everything he would say publicly when he was running FTX was really just a PR game to make the woke left like him, and that we, these Westerners, play these crazy woke games to make ourselves likeable, but it's all bullshit. And all of the regulatory stuff he talked about was bullshit and PR, and none of it actually means anything.

And so it's not very flattering. It's not a very flattering portrayal of Sam. Well, I actually almost felt bad for him for a minute. And then you see the part of the conversation where, after the article has been published, he's like, "Shoot, I didn't mean for that all to be on the record. Can you take the article down?" which of course she doesn't. And it's honestly just so uncomfortable that this person, I guess, didn't realize they weren't friends, that she was a reporter.

In any case, the point of the testimony of this gentleman, Shamel Medrano, was really to show this particular dynamics change to the jury.

Okay, the final witness I want to talk about before we get to Professor Peter Easton, who is the star of today, is a woman named Paige Owens. She is a forensic accountant with the FBI. And she was basically just showing us money flows. She had been an auditor at PricewaterhouseCoopers. So she was just showing us, based on her reviewing of financial statements and other things, that money was flowing from companies: Alameda, FTX, companies, etc. They were then flowing to individuals like Sam Bankman-Fried, like Nishad Singh, saying like Ryan Salame, and then they were flowing from the accounts of those individuals to various causes, like the LGBTQ pride something and the Iowa Democratic Party and things we've kind of known about.

But now she's testifying to these money flows directly. And then we were simultaneously seeing email or, I think more often, it was like Slack threads, showing us the corresponding conversation saying, "Hey, we need to send another 20 million or we need to send $20,000 to the Iowa Democratic Party, you know, let's make that happen from the Nishad account," and then you would see the flows happen.

Okay. With that, I want to get us to Professor Peter Easton. But first, we do need to hear a word from our amazing sponsors: Web3Sense, OpenSea and Ledger. Thank you all so much for supporting the show. Let's hear it from them:

Let me introduce you to a brand new company that I could not be more excited about: Web3Sense: a web3 analytics platform that combines on-chain data with Social Media Insights to give you the deepest, most meaningful intelligence into any NFT community. I have tested other analytics platforms out there. But web three cents has the most comprehensive capabilities I've seen in the NFT ecosystem.

They apply sophisticated data science to wallet histories to determine behavioural patterns and help shape predictive analytics. In other words, they can tell you which Twitter accounts are actually the influencers in your space. And they can tell you what resonates most within a community by looking at what other communities token holders are involved in. The number of use cases here is virtually unlimited. So whether you're a trader, creator, institution, brand agency, I promise web three cents has data that you want to see with the deep and actionable insights that you need to build, analyze, grow, start, whatever you want to do within the NFT space, and in terms of building a business and a community.

Now, they are still in very early days, so they're eager to connect with the community. So if you're interested in learning more about what Web3Sense can do for you and your business, and you should be, go and fill out the very short form linked to in the show notes and someone from their team will reach out with more information and an opportunity for a product demo. Trust me, you won't regret it.

Y'all know the phrase, "not your keys, not your crypto." Well, in a world where too many people have had to learn that the hard way, Overpriced JPEGs is proud to partner with Ledger, the world leader in critical digital assets security.

---

Ledger's Nano S plus and Nano S hardware wallets paired with the Ledger Live App: Ledger's own software for setting up your Nano device and managing your crypto assets; is the easiest way to start your crypto journey while maintaining full control of your digital assets. You can use all your favourite Dapps with Ledger Live, accessing 15+ Web3 Dapps including 1inch, ParaSwap, Lido, and Zerion. So you can not only manage but also grow your portfolio. And Ledger Live is available on mobile and desktop.

Securing digital assets shouldn't be complicated. Ledger is as easy as it gets. Uncompromising security, effortless connectivity, full transparency; Ledger is your one-stop shop to trade and track crypto, grow your assets, and manage NFTs. Secure your future with ledger. Visit shop.ledger.com today or check out the link in the show notes.

Let me tell you about OpenSea Studio. Yes, you know OpenSea. Perhaps you use OpenSea. But did you know they launched OpenSea Studio? It's a one-stop shop for all creators to launch and manage their projects. Using OpenSea Studio, you can create and manage a drop end-to-end, including setting up allow lists, phases, uploading media and metadata which has helpful preview functionality, and building the drop page itself. You can also mint an NFT or collection where the creator owns the contract. OpenSea Studio lets you build on all blockchains compatible with OpenSea, and there are eight of them. Lets buyers mint an NFT from your collection using a credit or debit card, and there are no coding or technical skills required to do any of the above.

OpenSea will be adding more features and functionality to OpenSea Studio over the coming months, including revamped collection pages with new storytelling modules and more ways to leverage NFT technology, including redeemables, which you all know I'm a huge fan of, and analytics. I'm an OpenSea user because they have the best selection of NFTs and a truly inclusive view of the NFT ecosystem, supporting, as I said, eight chains in eight global languages. And because I trust the system they built to help keep the space safe, like copying and protection, malicious URL detection or removal, robust verification, and more. It is why they are the place to buy, sell, and now create NFTs. Check them out at the link below and you'll be supporting the show in the process.

Alright, we are back. The last witness I'm going to talk about today is Professor Easton. Professor Easton is an accounting professor at Notre Dame University. We then proceeded to spend another 10 or 20 minutes hearing all of his other credentials, which I don't feel the need to regale you with because, trust me, trusting them. He's an expert in accounting and financial statements, and that kind of thing. And that's really what he was there to be. He did work on the Enron case, which was kind of interesting. He worked on, apparently, the Ripple SEC case. So he had some familiarity with Blockchain, which they wanted to make sure the prosecution emphasized, to be like, "He knows how the blockchain works," even though he was a bit of an older guy.

And he basically was explaining where the money went and where the money came from. I actually really enjoyed this part of court today. It was super interesting. So let me break this down. We all know that when customers wanted to spend money on FTX, or put their money on FTX, there were two ways they could do it. They could do it via Fiat deposits, or they could do it via crypto. And so, Professor Easton analyzed both Fiat deposits and crypto deposits and where they went. If you were a customer, one of the things he showed, for example, was he looks over a period of time, day by day. And then he would create this line graph, where the line on the top was how much money had been deposited by customers. And then there was another line charting how much money was in Alameda and FTX bank accounts. And there was always a huge gap. I mean, these numbers should have been the same line. But instead, they were very much not the same line. And the amount of money that Alameda and FTX bank accounts held was always significantly less than how much customers had deposited. Again, this isn't a surprise, but to see it laid out like that by somebody who has been digging through the bank accounts was quite striking. At its peak, I believe there was like a $9 billion difference between the two.

But the most interesting piece was when he started to show flowcharts explaining exactly what money was used for which investments. So I'm not going to go through every single one here, but I'm gonna go through a few. So Modulo, we've talked about Modulo before, it was a trading firm founded by former Jane Street traders that Sam knew during his time when he was at Jane Street, and which he got sort of sweet on in 2022. And started to feel like Modulo was a better firm than Alameda. Sam invested pretty heavily into Modulo, he owned about 60-65% of the firm. And in the fall, like late summer and early fall of 2022, he started to send a lot of money to Modulo. In fact, he sold, he said, I believe 400 million something on the order of 400 million in total, to Modulo. And all of that money, it turns out, came from customer funds. And so we saw this again, Professor Easton was looking at the accounts and saying, "Alright, where's the money coming from? Where's the money going?" All of the money that went to invest in Modulo, which Caroline Ellison was very opposed to, which we have seen testified to both by Caroline but we've also seen it in some of the documents that Sam himself wrote back in the day. Caroline was not pleased by the Modulo investments. And Sam was the one who was pushing for these and all of it came from customer money.

The Skybridge investment, this one struck me. I'm calling this one out because this is Scaramucci's investment fund, VC fund that Sam personally invested in, as well as I believe FTX ventures, but all of that, not all of it; the majority of that money came from customer money, even the stuff that Sam was investing in Modulo seems like a $45 million investment in Modulo in total, I believe at one point that was that was an amount that was being invested. And at least $27 million of that came from customers, there was another 18 million that had been from other inflows, it could have been profits, could have been revenue, whatever it could have been from, like legitimate sources, but at least 25 million of that came from customers for Sam's, essentially personal investment in Anthony Scaramucci's VC fund.

And then we also looked at political contributions, charities, much of that money coming from customers, and then there was the real estate and I thought this was was interesting. The Orchid property, which we've heard a lot about, that's the penthouse apartment where all these kids lived. Customer money, I think it was 100% of that basically came from customer funds. And then the multimillion-dollar apartment or house that Sam's parents lived in, owned in the Bahamas, their names were on the deeds.

That came from investor money. So that was an interesting one where it actually wasn't customer money. In that case, they were able to trace that money directly to an investment that had been received by the company. So, investors were paying for Sam's parents to have a house in the Bahamas. And while I understand that Joe Bankman did some level of work for the company, it seems like he didn't do enough work to justify having a house in the Bahamas paid for by investors.

I'll say, I don't think it's necessarily a problem for a company to pay for housing if they're asking employees to move outside of their home, right? Like if you have to move across the country and a company is like, "Hey, you need to reside in the Bahamas for a period of time, we're going to have a company apartment for you there." I think there are justifications for that. Clearly, in this case, this was going well beyond that—super luxury apartments. And by the way, they didn't have the money for it, is the biggest one. That's such a poor use of investor funds. And of course, this is where they're able to nail Sam and the others on investor fraud and ultimately customer fraud.

We were shown a pie chart that showed $11 billion, which was at one point the amount customers had deposited to FTX, in both fiat and crypto. We were shown that about 2.7 billion of that remained in accounts to be paid out. About 3.1 billion of that was spent on other things, which this might be confusing in the way that I'm delivering this. But other than that, it meant things like crypto; they were, I believe, often more like liquid assets. And then half of it, or maybe even a little over half, was spent on these venture investments, real estate spending, charitable giving, political contributions, and then some legitimate things like payroll and other expenses. I say "legitimate things," but none of it was legitimate when it was coming from customer funds. And everything I just described was paid out from that $11 billion that customers had at some point deposited onto FTX.

Okay, finally, one of the most interesting points that got made during Professor Easton's testimony was that this money did not come from the spot margin program. This is something Sam has tried to claim in the past: that all of the spending that they did of customer money was within the bounds of the people who had opted into spot margin trading and thereby approved of having their money loaned out in various ways. What Peter Easton testified to hear is absolutely not. He showed us a chart, again, one of those comparative charts that show that even if every dollar that was in the spot margin program was used by Alameda, it still wouldn't come close to covering the amount of money that they used in total, so it's really not a viable excuse.

Okay, I will say we're almost at the end here. But in the cross-examination, the cross did actually score some points here. They were able to show that Professor Easton had muddied the waters a little bit. In one of his charts, for example, it showed the balances of Alameda, but what it was actually factoring in was how much money was held in both Alameda bank accounts and FTX bank accounts. So it was essentially amounted to a mislabeled chart that could have had broader implications. Because of the mislabeling, it was confusing in that it could have, if FTX had been in financially great shape, the way they labeled these charts could have obscured that fact. So the defense was trying to do a hand-wavy thing to imply that maybe FTX was fine, but Alameda wasn't, and Sam didn't know that Alameda wasn't fine. It's bullshit because Sam knew Alameda wasn't fine and FTX wasn't fine. So it doesn't really count as a huge point. But they did get Peter Easton on the stand to admit, "You're right, this was mislabeled," which I think, because there was enough hand-waving and confusion going on in general, it could make the jury think, "Okay, I should take these with a grain of salt because he did make a mistake."

Also, I will say the mannerisms of both the defense attorney who was cross-examining Peter Easton and Peter Easton himself seemed a bit defensive. Peter did seem like he was a little confused by certain things. The defense attorney, on the other hand, seemed to be building to something, so the dynamic between them seemed a little more powerful for the defense than we've seen before. So that was interesting. I'm not rooting for Sam by any means, but I am rooting for a real trial where we feel like there's some back and forth, and there's been so little of that where it's felt like the defense has been so weak in the past.

So that was it, folks. That was our day—a slightly nerdier day in court, I would say, with some time wasted but worthwhile nevertheless. And I cannot wait to see you all back here tomorrow, the last day of the week, and we are going to get Can Sun up there, who should provide quite interesting testimony. And we have one other witness coming to the stand tomorrow, but I think it's going to be an interesting day. So I will see you back here for the recap.