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Expert witness reveals that FTX falsified its wallet balance

In this post:

  • An expert witness has revealed that the amount in FTX’s wallet was below what it reported.
  • Alameda connection surfaces as the SBF lawsuit moves forward.

In November 2021, the cryptocurrency market was riding high, with investors and traders believing they held roughly $20 billion in digital assets on the FTX exchange. However, an expert witness in the criminal trial of FTX’s founder, Sam Bankman-Fried, recently revealed that the reality was quite different. According to Notre Dame Alumni Professor of Accountancy, Peter Easton, who specializes in financial statement analysis, FTX’s digital wallets contained closer to $5 billion in crypto at the peak of the industry’s boom when Bitcoin’s price surged to $69,000.

FTX held only $5 billion during the BTC boom

Easton’s assessment, based on meticulous analysis, uncovered a significant gap between what customers believed they had in their FTX accounts and what the exchange’s digital wallets held. He emphasized the robustness of his assessment, attributing it to the wealth of “much finer data” recorded on the blockchain, which was more reliable than tracking the flow of FTX customers’ fiat deposits. The professor’s research was conducted at the request of prosecutors and drew from various sources, including bank statements, a massive FTX database, documents from lenders, and publicly available blockchain data.

His findings were presented in a Manhattan courthouse, providing crucial insights into the inner workings of FTX and Alameda Research. One of the key revelations in Easton’s presentation was the difference between on-chain balances for FTX’s “sweep” wallets and customer balances in the exchange’s database. He explained that each FTX customer had a digital wallet address associated with their account. When they deposited funds, these funds were swept to another wallet that pooled customer assets. Easton’s investigation revealed that since January 2021, the firm’s digital wallets consistently held billions of dollars less than what was indicated in customer accounts.

Alameda connection surfaces as SBF lawsuit moves forward

This discrepancy persisted through October 2022. To put this into perspective, less than a week before FTX faced a downfall, customer account balances appeared to total $11.4 billion. However, in reality, the exchange’s digital wallets held just over $1 billion in crypto assets, according to Easton’s analysis. The question that naturally arises is where did the missing billions go? Easton’s assessment strongly suggests that these funds must have been spent by Alameda Research, a significant player in the crypto space, which held a total of 57 accounts on the platform. These accounts frequently had negative balances, with Easton’s analysis revealing that Alameda’s accounts showed negative balances on FTX amounting to $12.6 billion in May 2022.

What sets Peter Easton apart in this high-profile trial is his decades-long expertise in deciphering financial statements. With nearly 40 years of experience, he has been researching and analyzing financial data longer than Sam Bankman-Fried and many other individuals involved in the case have been alive. Sam Bankman-Fried, the former crypto mogul, is currently facing seven charges of fraud and conspiracy related to the collapse of FTX last year. The accusations claim that Bankman-Fried misappropriated billions of dollars in cash and cryptocurrency from his now-defunct exchange through Alameda Research, using the funds at his discretion. He has maintained his innocence and pleaded not guilty to all charges.

As Easton introduced himself to the jury, he also highlighted his past involvement in unraveling the financial complexities of Enron after the energy giant’s notorious collapse in 2007. Interestingly, FTX’s current CEO, John Jay Ray III, took over leadership at Enron during its bankruptcy proceedings. Despite an attempt by Bankman-Fried’s defense team in September to exclude Easton’s testimony, it proved unsuccessful. U.S. District Judge Lewis Kaplan ruled that the accountant’s assessment of FTX and Alameda’s financial discrepancies was not “improper narration” but rather the result of specialized knowledge and a reliable methodology.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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