Sam Bankman-Fried, FTX's in-house legal counsel, will unveil the "legal rationale" behind how billions of customer funds from the crypto exchange made their way to the private trading firm Alameda Research as a last resort, as Apollo, a private equit

Sam Bankman-Fried, FTX's in-house legal counsel, will unveil the "legal rationale" behind how billions of customer funds from the crypto exchange made their way to the private trading firm Alameda Research as a last resort, as Apollo, a private equity group, testifies in the criminal case.

FTX's General Counsel for International Affairs, Can Sun, took the witness stand on Thursday in a New York federal trial against Bankman-Fried, who is accused of defrauding FTX customers, lenders, and investors.

FTX exchange faced a collapse last November due to not having enough funds to cover heavy customer withdrawals. To fill the multi-billion-dollar gap, Bankman-Fried initiated a fundraising campaign, including reaching out to Apollo for emergency investment.

Prosecutors questioned Sun about FTX's terms of service and other policy documents. He repeatedly emphasized that FTX customers had no right to spend or lend their funds, and he had no knowledge of fund flows to Alameda until days before the exchange's failure.

Sun stated, "There was no legal rationale for taking the money."

Bankman-Fried maintains his innocence.

Having gained immunity against prosecution, Sun recalled a meeting on November 7th last year where he was summoned to discuss financial information with Apollo concerning FTX. He later met with senior FTX executives and Joe Bankman, Bankman-Fried's father, at a luxury Bahamas complex where many FTX staff resided.

He reviewed the financial statement prepared for Apollo, which revealed a $7 billion customer fund deficit and the list of assets Alameda could potentially return to FTX.

According to Sun's testimony, Bankman-Fried asked him for a legal basis for having customer funds at Alameda. Bankman-Fried requested Sun to find "legal reasons."

Sun said, "Basically, it confirmed all my increasing suspicions."

That evening, Sun and Bankman-Fried took a walk in the Bahamas complex. Sun disclosed that he had been researching potential legal grounds for Alameda's loans, including FTX's margin lending program.

Sun said he told Bankman-Fried that none of these explanations matched the facts regarding FTX's position, and Alameda borrowed more than what the margin lending system offered.

Sun recalled, "'Yes, yes,' he said."

The next morning, Sun resigned after Nishad Singh, another FTX executive, explained how Alameda had siphoned customer funds. FTX filed for bankruptcy days after its fundraising efforts failed.

Prosecutors attempted to show the jury that Bankman-Fried used the reasons he argued with Sun, even though they were deemed invalid, while defending himself in the media. The jury was shown a clip from Bankman-Fried's Good Morning America interview shortly after the bankruptcy, in which he implied margin lending as a possible reason for the missing customer funds.

Judge Lewis Kaplan called for a "break" in the trial on Thursday. The prosecution is expected to rest its case over the coming weekends, after which the defense will present its side.