2.Peter Douglas Easton — Direct/Cross/Redirect/Recross
1,203 linesDIRECT EXAMINATION BY MR. ROOS:
PETER DOUGLAS EASTON: Good morning.
PETER DOUGLAS EASTON: I work at the University of Notre Dame.
PETER DOUGLAS EASTON: I'm a professor of accounting.
PETER DOUGLAS EASTON: I cover accounting largely at the border of finance and accounting, valuation, financial statement analysis, those kinds of things.
PETER DOUGLAS EASTON: I did undergraduate schooling and some postgraduate schooling in Australia, then in the late '70s moved to University of California Berkeley, where I completed the Ph.D. in finance and accounting.
PETER DOUGLAS EASTON: My first appointment was at the University of Chicago. I continued to work at the University of Chicago until 2008 on and off. I also went back to Australia for five years, at Ohio State for eight years, and I've been 20 years at the University of Notre Dame.
PETER DOUGLAS EASTON: I've been director of a center for education and accounting and research and accounting. I have taught accounting classes, again on the border of finance and accounting.
PETER DOUGLAS EASTON: Yes, I am.
PETER DOUGLAS EASTON: The requirements are teaching, of course, but also publication in the very top academic journals.
PETER DOUGLAS EASTON: I teach essentially penetrating financial statements, understanding the financial statements and understanding their implications for security valuations or asset valuation of various kinds.
MR. ROOS: You mentioned, in addition to teaching, doing research. What are your areas of research?
PETER DOUGLAS EASTON: My areas of research for the entire 40 years of my research career have been based on penetrating the details of financial statements and understanding the implications of those financial statements for securities markets, securities prices, asset valuations in general.
PETER DOUGLAS EASTON: Yes. I published five books. I have published 50 articles in the top journals.
PETER DOUGLAS EASTON: My books are all on financial statement analysis, penetrating the financial statements, and the implications for valuation.
PETER DOUGLAS EASTON: They are all textbooks, yes.
PETER DOUGLAS EASTON: Right.
PETER DOUGLAS EASTON: Yes. I've been editor on all of the top four journals in the United States, on the top journal in Canada, top journal in Europe, and the top journal in the Asia Pacific area.
PETER DOUGLAS EASTON: I am, yes.
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: This has, again, been penetrating the financial statements, understanding issues in the accounting statements, things that may have been omitted or incorrectly stated, and the implications of that for valuation; generally, not always.
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: I have worked on three cases. These were cases in the early 2000s: Enron, WorldCom, and Parmalat.
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: I worked on the SEC v. Ripple case.
JUDGE KAPLAN: Not necessary. Received.
JUDGE KAPLAN: Yes, of course.
MR. ROOS: Professor Easton, I would like to ask you a few preliminary questions about your involvement in this case before we get to the substance.
To your knowledge, have you ever met any of the witnesses in the case?
PETER DOUGLAS EASTON: No, I have not.
PETER DOUGLAS EASTON: No, I have not.
MR. ROOS: Do you have any personal knowledge of the facts of the case other than what you have learned over the course of your work on the case?
PETER DOUGLAS EASTON: No, I do not.
PETER DOUGLAS EASTON: I've been assisted by a team from a litigation consulting firm called Brattle.
PETER DOUGLAS EASTON: Brattle did a lot of the investigation of the details of the data, programming, penetrating details, helping me to aggregate data together.
PETER DOUGLAS EASTON: Absolutely.
PETER DOUGLAS EASTON: Under mine.
PETER DOUGLAS EASTON: Yes, I was.
PETER DOUGLAS EASTON: I'm not sure, but in excess of 100,000.
PETER DOUGLAS EASTON: In excess of $100,000.
PETER DOUGLAS EASTON: Yes, I will.
PETER DOUGLAS EASTON: Yes, I have.
MR. ROOS: You said you work with Brattle. Are you compensated for the work that Brattle does in the case?
PETER DOUGLAS EASTON: No, I'm not.
PETER DOUGLAS EASTON: No, it is not.
PETER DOUGLAS EASTON: No, it is not.
MR. ROOS: In the binder in front of you there are a set of exhibits for your review. Professor Easton, if you would just flip through those and see if you're familiar with them.
For the record, the binder contains Government Exhibits 1001 to 1005, 1010, 1011, 1013, 1014, 1017 and its subparts, 1018, 1023-1033, 1035, 1039, 1040, 1041, 1044, 1045, 1050, 1051, and 3000 through 3016.
JUDGE KAPLAN: Mr. Roos, can you repeat those backwards.
JUDGE KAPLAN: Good luck.
MR. ROOS: Professor Easton, are you familiar with those exhibits that are marked for identification?
PETER DOUGLAS EASTON: Yes, I am.
PETER DOUGLAS EASTON: What is in the binder is a series of exhibits and backup prepared by me and my team.
PETER DOUGLAS EASTON: Yes, they do.
MR. ROOS: Do those charts and tables summarize voluminous quantities of data that you have looked at?
PETER DOUGLAS EASTON: Yes, they do.
JUDGE KAPLAN: A little slower.
JUDGE KAPLAN: I'm with you as far as 1010.
MR. ROOS: 1010, 1011, 1013, 1014, 1017, including its subparts, 1018, 1023 to 1033, 1035, 1039 through 1041, 1044, 1045, 1050, and 1051. The government also offers, pursuant to stipulation S-2003, Government Exhibits 30, 56, 89, 188, 201, 213, 308, 310, 314, 317, 327, 344, 506. The government offers, pursuant to stipulation S-2002, Government Exhibit 1735. And, finally, the government offers as demonstrative aids Exhibits 3000 to 3016.
MR. LISNER: No objections beyond the one we resolved yesterday for numbers 1017 through 1051.
JUDGE KAPLAN: They are all received.
(Government Exhibits 1001 to 1005, 1010, 1011, 1013, 1014, 1017, including its subparts, 1018, 1023-1033, 1035, 1039-1041, 1044, 1045, 1050, 1051, 30, 56, 89, 188, 201, 213, 308, 310, 314, 317, 327, 344, 506, 1735, 3000-3016 received in evidence)
JUDGE KAPLAN: Members of the jury, Exhibits 3000 through 3016 are what we call demonstratives. They are exhibits designed to illustrate for you other materials so that you can understand the testimony, but they are not themselves evidence. You won't have them in the jury room unless the parties agree otherwise.
Let's go.
MR. ROOS: Professor Easton, have you worked on financial analysis in preparation for your testimony here today?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: The topic of analysis was to understand the sources and uses of fiat and cryptocurrency by Alameda and FTX.
MR. ROOS: Before we talk about those findings further, I want to discuss what went into your financial analysis and the materials you considered. OK?
MR. ROOS: Let's start with the materials. Why don't you just list them for us. What types of records or data or information did you consider?
PETER DOUGLAS EASTON: There was a large amount of materials, but the easiest box to put them in is bank statements. The FTX database was a massive source of data, the Blockchain, and third-party bank statements.
MR. ROOS: Professor Easton, can you explain to the jury what we are looking at on page 1 of Government Exhibit 3000.
PETER DOUGLAS EASTON: Yes. These are bank statements of Alameda. On the left you will see a statement of deposits. Excuse me. Of withdrawals. So you will see these are withdrawals in late September. You will see the amount in the second column. Then you will see the identity of the individual who withdrew the amount.
On the right-hand side you will see a similar statement from the Silvergate and Alameda account, but in this case it is deposits.
PETER DOUGLAS EASTON: These statements were extraordinarily important in identifying when customer money was put into an Alameda account and when it was withdrawn from an Alameda account.
PETER DOUGLAS EASTON: Yes. Me and my team did. We identified individual customers. This was a very time-consuming task because individual customers could be labeled in very many ways. Peter Easton, for example, could be P. Easton or Mr. Easton or Peter Easton, so we set up a matching database so that we could tag each customer and identify them very carefully in the flows through the accounts.
PETER DOUGLAS EASTON: This is a snapshot of the FTX database. This is a gigantic database. You will see on the left-hand side tables. We only go from A to B in the tables. Tables go way down, of course. We access particular tables here. So this is all withdrawals, all the deposits, pricing data, all kinds of data that were required for the analysis.
MR. ROOS: You mentioned cryptocurrency Blockchain records. Can you explain what we are looking at?
PETER DOUGLAS EASTON: Here we are looking at a Blockchain record. The top is the unique identifier, 66 letters and digits. This uniquely identifies a particular transaction. We can see the initiator of that transaction also with a hashtag, and we can see the contract itself. What is this contract? This is for the transfer of -- you will see at the bottom, toward the bottom that this is the transfer of 4400 ether, near enough, and those are valued at $6.5 million.
JUDGE KAPLAN: Just a minute.
Professor, you used the word hashtag. Would you tell the jury what that is, please.
PETER DOUGLAS EASTON: These hashtags are unique identifiers on the Blockchain. You will see, I believe, that in the transaction there are 66 alphanumeric identifiers. Because there are so many combinations of these numbers and alphabetic codes, you can see this will surely be unique. So later, if we want to search for a particular transaction, we can uniquely identify on the Blockchain every transaction that has ever occurred.
JUDGE KAPLAN: Thank you.
Go ahead.
MR. ROOS: One moment, your Honor. Maybe there is a juror having an issue with one of the monitors.
JUDGE KAPLAN: Are we having a problem with the monitor?
JUROR: Yes.
JUDGE KAPLAN: If you can get that one fixed, maybe you can work on my PC.
We all set or not yet?
We are ready to go.
PETER DOUGLAS EASTON: So I have also examined bank statements from third-party lenders. In this case this is the beginning of a very long bank statement from Genesis, one of the lenders, and it just, in this particular snapshot, shows an invoice to Alameda Research for the interest that's accrued for the month of August 2022. In the left-hand column you will see the currencies: BNB, Bitcoin, Ether, Link, etc. In the middle column you will see the accrued interest on the cryptocurrency. And in the right hand column you will see the accrued interest. 3.6 million on the U.S. dollar.
MR. ROOS: How were documents like these statements from cryptocurrency lenders like Genesis incorporated into your overall analysis?
PETER DOUGLAS EASTON: Again, for these, it was largely understanding the source of funds to Alameda and FTX.
PETER DOUGLAS EASTON: Then I did both high-level analyses and analyses penetrating individual transactions.
PETER DOUGLAS EASTON: Yes, I have, some at a very high level and others at a very transactional level.
PETER DOUGLAS EASTON: These are the 30,000-feet, high-level conclusions.
First of all, the amount of customer fiat deposits -- and all analysis are broken into fiat versus crypto -- the amount of customer deposits held in Alameda Research and FTX.com accounts was way less than was owed to customers on FTX. And then the question, of course, is what happened to that money. Well, Alameda Research used it for their own expenditures.
Similarly, the amount of FTX hot and cold crypto wallets was far less -- the amount owed in those wallets was far less than the amount that was owed to FTX customers, and, again, Alameda Research used customer crypto funds to pay for the expenditures.
Also Alameda Research had the opportunity to borrow against FTX, and there was not sufficient borrowing to cover those expenditures.
(Continued on next page)
BY MR. ROOS:
PETER DOUGLAS EASTON: Through the spot margin program, yes, exactly.
MR. ROOS: All right. We're going to go through these conclusions, so why don't we take this down.
You mentioned some findings relating to fiat and some findings related to cryptocurrency, and before we go through the findings, I just want to talk about the differences there.
MR. ROOS: And starting on page 1, Professor Easton, can you explain to the jury what you mean by fiat currency.
PETER DOUGLAS EASTON: So by fiat currency, I mean the currency that we are all used to using. US currency is the fiat currency for the United States. We have a hundred dollar bill. The pound, of course, is the fiat currency for the UK. The euro is the fiat currency for Europe. The yen is the fiat currency for Japan. These are currencies we're used to seeing, and throughout my testimony, I will use color codes to remind us of what we're talking about. Fiat will always be shown as a green identity.
PETER DOUGLAS EASTON: The other side of the screen points out that we've got this alternative cryptocurrency. Cryptocurrency is recorded by unique hashtag, and you'll see an example in the bottom right-hand corner of this exhibit. Transactions are recorded on the blockchain. Every time we have sufficient transactions built up, a new block is created. The blocks are connected and will never disappear. So the blockchain exists forever. An example of three cryptocurrencies that will come up in the testimony, Bitcoin, Ether, and USDT. USDT is somewhat different to the others inasmuch as it is a stablecoin, meaning that it is tethered to, tied to, the US dollar. One stablecoin is essentially equal to one US dollar.
MR. ROOS: All right. With that background, I want to talk about your first two conclusions that we looked at, okay?
MR. ROOS: Now you mentioned just now fiat currency and fiat deposits, but what is a fiat deposit? What did you mean by that?
PETER DOUGLAS EASTON: A fiat deposit is just like you or I would take money from our wallet, our back-pocket wallet, and deposit at a bank.
PETER DOUGLAS EASTON: So if we look at the top part of this diagram, it shows a simple operation of a customer——you or I——putting a hundred dollars into a bank account. The bank accounts in question here are Alameda, North Dimension, and FTX. The lower part shows the accounting, how the accounting would occur. The accounting is a classic double-entry bookkeeping accounting method, which has been around for centuries, and essentially all the double-entry means is that we record the fact that we've got $100 of customer deposits in the green on the right-hand at the bottom, but we will record a corresponding liability. We've got that customer account of a hundred dollars in green, but we owe the customer a hundred dollars, so we've got a liability building up of a hundred dollars per unit.
MR. ROOS: And so just focusing here on the bottom section, for this, you see the account——the box that says fiat@ftx.com Bookkeeping Account?
PETER DOUGLAS EASTON: So this is the second entry or the negative entry to balance the positive entry. We could use the term debits and credits, but they are unnecessarily confusing.
MR. ROOS: So let's say a customer deposits a hundred dollars into one of these Alameda or North Dimension or FTX bank accounts. How is that recorded in the FTX database bookkeeping account?
PETER DOUGLAS EASTON: It should be recorded as a corresponding liability. In this case we've got a hundred dollars deposited, and there will be a corresponding amount owing against that deposit, a liability.
MR. ROOS: And how is it documented within the accounting system in terms of the customer account, so this last box here on the right?
PETER DOUGLAS EASTON: It's an increase in the customer account. So we increase by a hundred dollars a customer account, we increase the negative amount in the liability.
PETER DOUGLAS EASTON: So for fiat withdrawals, as you would expect, it's just the opposite. So the transaction between you and——the customer and the bank is at the top. At the bottom of this diagram is now we've taken a hundred dollars out of the customer account and in turn, in the fiat@ftx bookkeeping account, we no longer have that liability. We've paid the cash back to the customer.
MR. ROOS: And so just to be clear about the terms we're using, when Alameda or FTX received a fiat deposit, would that result in a positive or negative entry in that fiat@ftx bookkeeping account?
PETER DOUGLAS EASTON: When they received a deposit, it would result in a negative entry in the fiat account.
JUDGE KAPLAN: And again, just for clarification, you have the legend on the lower left side of the chart which reads Exchange Ledger Activity. "Exchange" refers to what exactly?
PETER DOUGLAS EASTON: FTX exchange.
JUDGE KAPLAN: And "ledger" in this context means what?
PETER DOUGLAS EASTON: This means the general ledger at FTX.
JUDGE KAPLAN: In other words, a bookkeeping record.
PETER DOUGLAS EASTON: Exactly.
JUDGE KAPLAN: And in this case it's an electronic record.
PETER DOUGLAS EASTON: Yes, it is.
JUDGE KAPLAN: All right. Let's go. Go ahead.
BY MR. ROOS:
MR. ROOS: And you used the term "fiat liability." So the balance of this account, I think you said, gets more negative with more deposits. What about the liability——when you refer to liability, what are you referring to?
PETER DOUGLAS EASTON: Well, the——the balance gets less negative——more negative, meaning that the liability increases.
MR. ROOS: All right. And so we're on withdrawals. And let me ask you: Did the balance of the fiat@ftx account change over time?
PETER DOUGLAS EASTON: Yes, it did.
PETER DOUGLAS EASTON: I traced the month-by-month balance in that fiat account at the time and it increased.
JUDGE KAPLAN: Yes.
PETER DOUGLAS EASTON: So just to orient us on the——the graph here, the x or horizontal axis denotes months, going from the beginning of January 2021 through November 11, 2022. You'll see the vertical axis, the y axis, is importantly billions of dollars. What I plot here is the monthly month-end balance in the fiat liability——in other words, the increase in the liability over time. And you will see that it increases steadily to a peak of 11.3 billion in June of 2022.
PETER DOUGLAS EASTON: What was the largest point?
PETER DOUGLAS EASTON: 11.3 billion.
PETER DOUGLAS EASTON: That would be expressed as a negative amount, a liability.
PETER DOUGLAS EASTON: Yes. Well, first of all, we have the liability that we just had on the previous account——previous exhibit; we've repeated it here. So the liability, the amount that should have been deposited to bank accounts, was 11.3 billion. The amount that was actually in those accounts is the greenish-blue line. You can see it's quite low, reaches around about 2 billion, 2.3 billion, at the time of the peak liability.
MR. ROOS: And so just so we're sure we understand, the black line, how, if at all, does that compare to the black line on the last exhibit?
PETER DOUGLAS EASTON: It's exactly the same line.
PETER DOUGLAS EASTON: The green line represents the actual bank balance of customer accounts, the amount of customer money that was really there, whereas the black line represents the amount that should have been there.
PETER DOUGLAS EASTON: The——the discrepancy, the difference between what was there and what should have been there at these two different points in time. One point in time is the end of June 2022, the other at the end of October 2022.
MR. ROOS: All right. So let's go back to the diagram we were looking at previously about fiat deposits, but use these June balance numbers.
PETER DOUGLAS EASTON: So now we're going back to——you'll see the accounting at the bottom of this slide. The accounting requires that every dollar a customer deposits has a corresponding amount in the fiat liability. So the fiat liability should have been 11——is 11.3 billion. Yet if we look at what was actually in these customer accounts to cover the fiat liability, it was just 2.3 billion, the amount at the top of this slide.
MR. ROOS: So let's talk about what happened with the money. And first, have you analyzed the movement of money between or among accounts?
PETER DOUGLAS EASTON: Yes, I have.
MR. ROOS: And let's walk through this exhibit.
Professor Easton, can you explain what we're looking at on the screen right now on the first page.
PETER DOUGLAS EASTON: Well, to help understand how all of these accounts were commingled——mixed together, in other words——I've separated the accounts out into four blocks: One, the accounts Alameda and FTX that were accepting customer deposits, I'll analyze those in the green box; to the left-hand side, in blue, Alameda Research bank accounts; and to the right are FTX bank accounts, not accepting customer funds——they're all in the green; and in the bottom right-hand corner you'll see another account, which is uniquely a Sam Bankman-Fried entity. This is the yellow box.
PETER DOUGLAS EASTON: The color green represents customer accounts; the color blue will always represent Alameda accounts, Alameda Research accounts; black will always represent FTX bank accounts; and yellow will always represent Paper Bird-SBF.
MR. ROOS: And just to be clear about the blue, those are Alameda Research accounts that do not receive customer funds.
PETER DOUGLAS EASTON: That is correct.
PETER DOUGLAS EASTON: So they were in fact 47 accounts that accepted customer funds that I could have put in this box. Of course it would have been unreadable, so what I've done is I've separated out the 11 biggest. We can all see of course there's 12, but there's a 12th, which is the customer withdrawals and deposits.
PETER DOUGLAS EASTON: Similarly, I've identified the main accounts in——the ones with the largest amount of funds in Alameda Research, in FTX on the right-hand side, and SBF on the bottom right-hand corner.
MR. ROOS: Now you mentioned receiving fiat deposits. I think earlier in your testimony you also mentioned stablecoins. To what extent do the accounts in green also receive stablecoin conversions?
PETER DOUGLAS EASTON: They do also receive stablecoin conversions.
MR. ROOS: Now let's go to the next page.
And can you explain what additional information has been added to the exhibit.
PETER DOUGLAS EASTON: So now what all of these arrows indicate is movement among the accounts that hold customer deposits. It doesn't describe all of the movements; it describes the biggest movements. A thick line means a lot of movement, a thin line means much less movement.
PETER DOUGLAS EASTON: It's important to notice that all of these lines on this exhibit, they still remain green; in other words, this is move——movement of customer funds. So this is now movement of customer funds out of these customer bank accounts to Alameda on the left-hand side, on your left-hand side of this chart, and FTX on the right-hand side of this chart.
PETER DOUGLAS EASTON: Now we see that there's movement in both directions, from Alameda Research to customer accounts, FTX bank to customer accounts——in other words, movement in both directions——but also movement from FTX accounts and customer accounts to Paper Bird, SBF's entity on the bottom right-hand corner.
PETER DOUGLAS EASTON: Well, there's another important actor in this——this whole sequence, and this is third-party investors who put money into FTX, so their funds also were part of the mix.
PETER DOUGLAS EASTON: So this——these purple lines now show the flow of investor funds, and you'll see that there's a flow of investor funds to SBF bank accounts, there's a flow to Paper Bird, the SBF entity, and there's a flow to North Dimension, which is the Alameda bank account accepting customer funds.
MR. ROOS: Focusing on those purple lines and the flow of them, have you been able to determine which investors' funds were transferred to the North Dimension Alameda accounts?
PETER DOUGLAS EASTON: Yes, I have.
MR. ROOS: Okay. And the list of investors that were——that make up those purple lines on the last slide?
PETER DOUGLAS EASTON: Exactly.
MR. ROOS: Okay. And what do——just so we understand, do you see where it says Settled Date of Sources of Funds, and then next to it, it says Source of Loaned Funds? What does Source of Loaned Funds refer to?
PETER DOUGLAS EASTON: The source of loaned funds refers to the entity that put the money in, that made the investment in FTX, the date of that investment is on the left-hand side.
MR. ROOS: So now let's talk about what happened to the customer funds that moved through these accounts. And was any of the customer money spent?
PETER DOUGLAS EASTON: Oh, yes.
PETER DOUGLAS EASTON: Yes. So this——this just is a schema that points out that customer funds were used in various ways, and four ways that I analyzed were: investment in businesses and financial funds——I'll show some examples; political contributions; charitable foundations; and in the purchase of real estate.
MR. ROOS: And focusing on investments in business and financial funds, what are you referring to?
PETER DOUGLAS EASTON: Here, it is investments by Alameda entities in businesses and other financial activities.
MR. ROOS: Now the top of your exhibit here says Uses of Customer Funds. Have you been able to trace customer funds from customer bank accounts to investments in businesses and financial funds?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: So this——again, the color coding is helpful, I hope. So on the left-hand side we have customer funds, which are in turn transferred through a bank that handles customer deposits to the right-hand side, where we have a purchase, in this case it's of Modulo Capital, which was a startup hedge fund in the Bahamas.
MR. ROOS: And I want to talk to you a little bit, before we go deeper into the actual tracing here, about the process of tracing, now that you've used the term. What are you referring to?
PETER DOUGLAS EASTON: So here, if we go from right to left——it's unusual, but we always go from right to left. So the investment is in Modulo Capital. I then can identify a transaction where the transfer occurred from the bank to Modulo Capital. Going back further to the left, I can see——if you look at the top line on the——June 27th, there was a transfer to Modulo; on the same day there was a transfer of customer funds to Alameda Research, traced in turn to the purchase of Modulo Capital.
MR. ROOS: So just focusing on this first transaction, I want to talk about what went into the tracing.
MR. ROOS: And can you walk us through the process of using the records and data in order to trace out this transaction.
PETER DOUGLAS EASTON: Yes. So a summary of the record is in the spreadsheet, a snapshot out of the spreadsheet that shows the tracing that we actually did. So if you look at the first line of this——maybe this first line could be highlighted?
PETER DOUGLAS EASTON: Okay. Next page, please?
Okay. So here we see a handshake that connects the bank to Modulo Capital. Since there's never been a transaction between these two before, this 1 dollar is sent to ensure the integrity of the transaction, which later will be $50 million. So it's the first step. So it goes from the green, Alameda Research bank, to the orange. This is the external entity in which there's an investment.
If we go to the next, we'll see then there's a transfer of customer funds via an intermediary, Circle Internet Financial, to Alameda. So now it's in the bank.
And then next we see the transfer from the bank to Modulo Capital.
All of these transfers are identified in the record, so we can go back and see every one of those transactions.
PETER DOUGLAS EASTON: Where possible, we used other information, and this is an example. This is an example of a Slack message, an internal email, if you like, between Sam Bankman-Fried——from Sam Bankman-Fried, and it says this $50 million which we've just traced is for Modulo Capital LP, we should send it via the Signet account, which is the Signet account labeled above, 9485, and then we see Jen says paid.
MR. ROOS: Now let's go back to the tracing slide. Let's go to page 8. And I want to focus on the bottom sequence as an example. And focusing on that bottom sequence. Let's go to the next page.
PETER DOUGLAS EASTON: Yes. So now this also involves Modulo Capital, and of course the handshake doesn't have to occur anymore because we've already established connection. So we'll see——if we go to next, we'll see a transfer of a hundred million dollars on——late on the 25th of September.
Then we see——if we go to the next, we'll see a further transfer of what totals $192 million. So we know that in the immediate vicinity of this transfer, large chunks of money totaling 292 million have been transferred from customer funds to the bank account holding the customer funds and in turn to Modulo Capital for the investment.
PETER DOUGLAS EASTON: I'm sorry. Yes, it does.
PETER DOUGLAS EASTON: So this then summarized, we've got a total of $292 million. We don't know exactly what customer this $292 million comes from, but we know it is only customer funds, it's not any other source of funds, and so $292 million of customer funds was used to purchase Modulo Capital.
PETER DOUGLAS EASTON: So now again we have internal email messages. First of all, we're putting an additional 250 million into Modulo. Would you be able to send over the funds to the same Signet address. It would be great if this done tonight, and ideally, 250 million tonight. Indeed, that's in——on September 26th at 5 p.m.——5 a.m. The money was transferred on the 26th, that same day.
MR. ROOS: And so now, now that we've gone through the exercise of tracing, what is your conclusion, expressed on Government Exhibit 1033?
PETER DOUGLAS EASTON: Okay. So we——we've looked in detail at the tracing of the top transfer and the bottom transfer on this page. We did similar analysis for the other two. So overall we can conclude that all of the purchase of Modulo Capital was made using customer funds.
PETER DOUGLAS EASTON: So this is a similar demonstration. Now a payment to Genesis Digital Assets, which was a crypto miner. It's a little more complicated because we get a flow through many Alameda accounts accepting customer deposits, and you'll see on the left-hand side we've got a flow into North Dimension at the top of this slide, mostly of customer funds, 145 million, but some other inflows, not identified as customer funds.
Similarly, at the bottom left-hand corner, you'll see flows into Alameda Research of 539 million customer funds, and other inflows during this period of time of 24.9 million. So some of the 100 million that eventually went to Genesis Digital may have come from customer funds, but you can see that the total of 32.6 million, the other inflows on the top and the 24.9 million, the other inflows at the bottom, does not sum to 100. And therefore, some must have come out of the customer funds. And given this disproportionate amount of funds that came from customers versus other inflows, it's likely that more than the 50-odd million came from customer funds.
PETER DOUGLAS EASTON: So again, if we focus on the right-hand side where we've got the expenditure of customer——of funds, on the left-hand side we have the source of those funds. Again, it gets a little more complicated because we've got more bank accounts that——through which the money is traced, but ultimately we'll see that there is customer funds totaling 1.1 million plus another .6 million, 1.7 million. And other inflows, just the sum of 9.4 million and 48 million. All of this has to fund 550.9 million. So a large amount of this 550 million must have come from customer funds.
PETER DOUGLAS EASTON: That is million.
MR. ROOS: And how are you able to conclude that it was customer funds and not these other inflows that funded this payment to Genesis Digital?
PETER DOUGLAS EASTON: I can conclude that the majority of the payment was customer funds because the total other funds is 9.4 plus 48 million, you have 57 million, and the total payment was 550 million, so it must have come——large portion must have come from customer funds.
MR. ROOS: And Professor Easton, directing your attention to the top, have you performed any analysis relating to an investment in Skybridge Capital in September 2022?
PETER DOUGLAS EASTON: So in this case there's a subscription agreement from Alameda, signed by Sam Bankman-Fried, an agreement to subscribe to buy, if you like, shares in Skybridge Capital, which is a venture capital fund in New York, run by Scaramucci. It's the purchase of 30 percent ownership in Skybridge.
MR. ROOS: And have you done any type of financial analysis or tracing relating to this investment in Skybridge Capital?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: Again, we got similar flows——customers on the top left-hand corner to Skybridge Capital on the bottom right. But importantly, we have an addition here. We've now got blue, Alameda Research. This is separate entity Alameda Research, except that, like the entire flow, you'll see it says 45 million on September 7th from Alameda Research, and that amount was in turn used on the next day to invest in Skybridge Capital.
PETER DOUGLAS EASTON: So at most——again, if we look from the left-hand side where we've got 18 million in other inflows, 438 in customer funds, the 45 million may have been funded by 18 million of other inflows.
MR. LISNER: Objection, your Honor.
JUDGE KAPLAN: Sorry. What's the objection?
MR. LISNER: Speculation, to the witness's conclusion using the words "may," "may have."
JUDGE KAPLAN: Overruled.
BY MR. ROOS:
PETER DOUGLAS EASTON: So you can see that other inflows are 18 million, so I think I really mean that 18 million may have come——of the 45 million may have come from other inflows, but it also could have come from customer funds. But at least 45 minus 18 must have come from customer funds.
MR. ROOS: Professor Easton, have you done any analysis relating to an investment in Dave Inc. in March 2022?
PETER DOUGLAS EASTON: Yes. So this was a purchase of a 100 million stake in Dave Inc. This again was a Alameda venture, signed by Bankman-Fried, and I traced this.
PETER DOUGLAS EASTON: So again, the pattern is the same as before. However, notice now that we have this entity called Paper Bird. Paper Bird is an entirely owned Bankman-Fried entity, and you'll see, if we go from the bank accounts, Alameda Research, the transfer among two of them, Alameda Research 9485 and Alameda Research 4061, these are customer depositories. Out of that customer depository, 105 million was transferred on the——March 22nd to Paper Bird, an entity outside of Alameda and FTX, and then on the next day was used by Paper Bird to purchase the investment in Dave.
PETER DOUGLAS EASTON: Yes. So if we trace all the way back to customers on the top left-hand corner, we can say——see that we can identify 113.8 million of customer funds, but at the same time 2.4 million of other inflows that may not have been customer funds. 2.4 million is a small part of 100 million, and therefore the majority of this payment for Paper Bird——by Paper Bird for Dave must have come from customer funds.
JUDGE KAPLAN: Professor, the figure you used in relation to the phrase "customer funds" was 113.8, not 130, yes?
PETER DOUGLAS EASTON: That is correct. I apologize.
MR. ROOS: Thank you. And Judge, I don't know if——I see you're standing, but if you want to take a break right now, I'm about to move to the next exhibit.
JUDGE KAPLAN: No, I just stand once in a while because I sit so long.
We can take our morning break, 15 minutes.
COURT CLERK: All rise.
(Recess)
(In open court; jury present)
JUDGE KAPLAN: Please be seated.
The defendant and the jurors are all present, as they have been throughout.
You may continue, Mr. Roos.
BY MR. ROOS:
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: This is an agreement between SBF——Sam Bankman-Fried——and K5 Global, which is a venture capital firm, to obtain a general partnership with K5.
MR. ROOS: And then I want to focus on the payment confirmation we have on the right side.
What's the date on this and what's the wire transfer amount?
PETER DOUGLAS EASTON: The date is April 14, 2022, and the wire transfer amount is $300 million.
PETER DOUGLAS EASTON: 6th of March 2022.
MR. ROOS: Have you conducted any form of financial analysis relating to the investment in K5 Global Holdings?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: So again, the flow is——is similar to the flows we've had before. On the bottom right-hand side is the entity K5 in which Sam Bankman-Fried, through Alameda Research Ventures, invested $300 million. I traced it back through several bank accounts, including Alameda Research 4016 and 9485, back to customer deposits of 765 million from customers and 127 million other.
MR. ROOS: And what was your conclusion about what funds were used to fund the K5 Global Holdings?
PETER DOUGLAS EASTON: So given that there was only 127 million to cover a possible 300 million, some of the investment in K5 Global must have come from customer funds.
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: So this is——first of all, in the middle, the big block is what was the investment in. It was an investment in a fundraising effort by Anthropic, which is an AI company. The Slack message indicates we have to wire——Sam Bankman-Fried suggests, we have to wire 500 million to Anthropic. This should come from an Alameda Research Ventures bank account.
MR. ROOS: And have you conducted any form of financial analysis relating to the source of funds used to make this investment?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: So again, similar to the analyses before, we have a transfer of customer funds through a series of Alameda Research customer depository accounts, through to an Alameda Research external account——in other words, this is an account that does not hold customer funds——of 500 million, and in turn, the bottom right-hand corner, a payment for the investment in Anthropic.
MR. ROOS: And how does the amount of the investment in Anthropic relate to the amount we saw on that Slack message on the last exhibit?
PETER DOUGLAS EASTON: It is that amount.
MR. ROOS: Professor Easton, starting on page 1 of this exhibit, can you explain what the exhibit shows.
PETER DOUGLAS EASTON: Yes. So this is a summary of a purchase by Alameda Research of Robinhood shares——here, a brokerage account called ED&F Man. Importantly, this exhibit shows that customer funds primarily were used to fund a transfer of 292 million out of customer funds——of customer funds out of customer depositories to Alameda Research to an account that already had 196 million worth of Robinhood shares. In turn, Alameda Research purchased another 292 million of Robinhood shares.
PETER DOUGLAS EASTON: These are shares in a trading firm called Robinhood.
PETER DOUGLAS EASTON: So in the first flow, the flow that we saw before we added this piece, I was trying to summarize essentially what happened. But in addition, Alameda Research——there was a transfer out of Alameda Research of 491 million to Sam Bankman-Fried and 54.6 million to Gary Wang. This amount was exactly equal to the amount that was used to purchase Robinhood shares.
PETER DOUGLAS EASTON: So this 468——400——$546 million——I apologize——is——this $546 million was then transferred to an entity wholly owned by Gary Wang and Sam Bankman-Fried called Emergent Fidelity Technologies. This is the yellow box, identified yellow because now it's a Bankman-Fried entity.
PETER DOUGLAS EASTON: Recall that the 546.1 million which went to Gary and Sam Bankman-Fried goes to Emergent Technologies but then was transferred back to Alameda Research, so there's a round-trip transaction, if you like, that makes Alameda Research whole.
MR. ROOS: And what then happened, if anything, in response to this $546.1 million transfer? And could we go to the next page.
PETER DOUGLAS EASTON: So in turn, Robinhood shares were transferred to this brokerage fund in the name of Bankman-Fried and Wang.
PETER DOUGLAS EASTON: So the end result of all of those transactions, which I've tried to summarize as clearly as possible——I hope it is clear——is that customer funds ultimately went through Alameda Research and did this big round-trip transaction so that they ended up in an account owned by Wang and Bankman-Fried, which then in turn purchased Robinhood shares.
MR. ROOS: And so just to be clear, we've looked at straight green lines previously. What do the sort of dashes indicate here? Was this actually the flow of funds?
PETER DOUGLAS EASTON: No. The dashes are there to indicate all of this——these transactions that occurred in the background.
MR. ROOS: Okay. We can take this exhibit down.
Let's put back up Government Exhibit 1044. And if we go to page 3.
MR. ROOS: Professor Easton, we've talked about a bunch of instances of payments or investments in businesses. Have you done any analysis relating to payments for political contributions?
PETER DOUGLAS EASTON: Yes, I have.
MR. ROOS: Now, Professor Easton, have you done any analysis relating to a political donation by Ryan Salame?
PETER DOUGLAS EASTON: Yes, I have.
MR. ROOS: I want to first direct your attention to the message on the left-hand side of the screen. Do you see where it says: The GMI PAC needs some more funding in order to support Senator Boozman in his primary. Spoke to Sam yesterday. Ryan, do you have any appetite for giving more to GMI.
You see that message?
PETER DOUGLAS EASTON: I do see it.
PETER DOUGLAS EASTON: Yes, I do.
MR. LISNER: Objection, your Honor. Can we ask for a sidebar, please?
JUDGE KAPLAN: Yes.
(Continued on next page)
(At sidebar)
JUDGE KAPLAN: Mr. Lisner.
MR. LISNER: I think Mr. Cohen is going to cover this one.
MR. COHEN: Your Honor, we have no objection to the tracing analysis that the witness is putting forward. But at least from the -- she is getting the exhibit -- from the exhibit there is also commentary about the nature of the political spending, the reasons for it. We would ask for a limiting instruction with respect to that.
JUDGE KAPLAN: What limiting instruction are you asking for?
MR. COHEN: Along the same lines you gave yesterday about, the defendant has not been charged in this case with political and campaign contribution violations. This is -- as I understand it, this is a flow-of-funds analysis that we are hearing and not commentary on the validity or invalidity of the contributions themselves.
MR. ROOS: There is a real difference here, which is that yesterday the limiting instruction came after the witness said he conspired with the defendant in committing a violation of the campaign finance laws, and your Honor appropriately gave an instruction right before he said we conspired with.
Here, as Ms. Sassoon has argued previously in sidebar and as we briefed, its spending on donations is direct evidence of the use of customer funds, so it's direct evidence of the wire fraud, it's direct evidence of the money laundering.
The reason I'm calling the witness' attention to these particular messages is, the next thing I am going to ask him is whether he did any tracing of $500,000 to a million dollars to the GMI PAC.
MR. COHEN: Can I just see it?
MR. COHEN: The first section in yellow is the point we are making. This is Mr. Wetjen commenting on needs more support in the primary. I don't think this witness is qualified to talk about the nature of the donations. I understand he's an accountant --
JUDGE KAPLAN: He's not talking about the nature of the donations.
MR. ROOS: I will definitely not ask whether his views on Boozman or the nature of the donations or anything. I am just going to ask him, did he trace this money.
MR. COHEN: With that limitation, that's fine.
(Continued on next page)
(In open court)
JUDGE KAPLAN: Let's proceed. Restate your question.
MR. ROOS: Just to pick up where we are, Professor Easton, the first highlighted message about GMI PAC, the second highlighted message about an amount, 500K to a million, and then a blue message that says: @Samuel Bankman-Fried, I can wrap more funds through my name.
Have you done any sort of analysis of the movement of funds relating to a payment for the GMI PAC in an amount of 500,000 to $1 million?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: Again, starting from the right, moving to the left, we see the transfer of the half a million dollars on June 3 from Ryan Salame's personal account to the GMI PAC. On the day -- a few days before, on the 25th of May, there was a transfer of 5.5 million into Ryan Salame's account. We can trace that 5.5 million to either 11 million in customer funds or .2 million in other inflows.
The bottom line of all of this is that we have got other inflows of .2 million funding, .5 million contribution to the GMI PAC, and, therefore, at least three-fifths of that contribution must have come from customer funds.
JUDGE KAPLAN: Yes.
MR. ROOS: Professor Easton, have you done any analysis relating to a political contribution by Nishad Singh?
PETER DOUGLAS EASTON: Yes, I have.
MR. ROOS: Directing your attention to the email excerpts we have up on the screen, do you see, first, the highlighted portion that says: Your $1 million pledge to our operating expenses. This is in the top email from Barbara Fried to Sam at Alameda Research and Nishad Singh.
Do you see the part where it says: Your $1 million pledge to our operating expenses?
PETER DOUGLAS EASTON: Yes, I do.
MR. ROOS: It says: Since this is going to our 527 and hence is disclosed, I'm assuming that Nishad would be the better person to have his name on it.
You see then the bottom email of a day later, April 22, 2021, from Nishad Singh: Sounds good. I am happy to pledge the 1 million for MTG operating, agreed on optics.
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: Similar to the previous exhibit, if we look to the right-hand side, we will see the transfer of the $1 million from Nishad Singh's personal bank account to mind the gap. That $1 million on the same day came from an Alameda Research bank account; in fact, transferred across two or at least two. This is something of a simplification of the transfers among the green Alameda Research accounts. The same day 1 point million came -- was transferred among Alameda accounts.
We then traced that back. And this is a case where it's very difficult, it was impossible to in fact trace the million directly to some customer funds. But what we know is, in the immediate vicinity of that transfer of a million, there was 1.5 billion of customer funds that were transferred into Alameda Research, 4456, and roughly half a billion of other inflows.
So this is a case where we cannot directly trace the money to customer funds, but it seems likely -- I'm purely looking at the numbers here -- it seems likely, given that we have got roughly two billion of customer funds and half a billion of other inflows, that it may have come from customer funds.
MR. ROOS: Professor Easton, have you done any analysis concerning the use of customer funds for charitable foundations?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: Yes, I have.
MR. ROOS: Now, do you recognize this as a Slack message between or among Delaney Ornelas, Fab, Jen, Lynn, Ryan Salame, and Sam Bankman-Fried?
PETER DOUGLAS EASTON: Yes, I do.
PETER DOUGLAS EASTON: From Delaney: Did we request another wire be sent out to Guarding Against Pandemics from Alameda. There is the 20 million wire that was sent out from Alameda Silvergate operating account last week on 10/01. Yeah. I got the message from Ryan Salame and, finally, from Ryan Salame, yes. It's a donation.
PETER DOUGLAS EASTON: Yes, I am.
PETER DOUGLAS EASTON: It's a charitable fund essentially guarding against pandemics.
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: Yes. Again, moving from the right to the left, the 20 million donation that we have just identified in the Slack messages went from Alameda Research 6056 on the 1st of October 2021. On that same day there was a transfer from another Alameda account to Silvergate, 6056. The amount going into the Alameda Research 4456 account in the immediate vicinity all came from customer funds. Therefore, the $20 million wire to Guarding Against Pandemics must have come from customer funds.
PETER DOUGLAS EASTON: This is a similar flow from customer funds to FTX foundation, which was a charitable foundation set up by FTX.
PETER DOUGLAS EASTON: The analysis shows that, on the 5th of October, starting from the right to the left, there was five wires totaling $20 million from North Dimension to the FTX foundation. That same day, there was a transfer from an Alameda account to another Alameda account, both depositories of customer funds. And on the day before, the customer funds going into Alameda Research totaled 25 million, all customer funds, no other deposits. In other words, the 20 million donation to FTX foundation must have come from customer funds.
MR. ROOS: Focus on the last category now, have you done any analysis relating to use of customer funds to purchase properties?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: This is a list of real estate purchased in the Bahamas.
PETER DOUGLAS EASTON: This exhibit is drawn from a spreadsheet that is in fact Government Exhibit 3 that indicates all of the purchases. It's a much more detailed spreadsheet than this summary.
PETER DOUGLAS EASTON: In the Bahamas.
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: So this shows a purchase of a number of pieces of real estate in the Bahamas, again going to the right-hand side of this chart, for a total of 96.5 million between December 29 and March 16, 2022. The payment for those Bahamian properties go from FTX digital markets. A fund, black, owned by FTX does not hold, should not hold customer funds.
On the 29th of December there is a transfer from another FTX account to FTX digital markets. Now, tracing back to the customers, the customer funds were traced from an FTX depository trading account 9964 on the 12th of December -- 24th of December, on that same day, a transfer from another Alameda account, and, in turn, in the preceding days, all of the funds were coming from customers into Alameda 9485. Therefore, the hundred million -- excuse me -- the 96.5 ultimately paid for the properties must have come from customer funds.
MR. ROOS: Why don't we put up next to Government Exhibit 1026 Government Exhibit 3012 and go to page 2.
MR. ROOS: Focusing on the Bahamas real estate properties in the orange box, were you able to determine some of the properties that were paid for using those customer funds?
PETER DOUGLAS EASTON: Yes. Some, but not all. There is -- the total on the right-hand side is less than 96.5.
PETER DOUGLAS EASTON: This is a subset of the properties that were purchased with the $96.5 million.
PETER DOUGLAS EASTON: $30 million.
PETER DOUGLAS EASTON: Yes, it is.
PETER DOUGLAS EASTON: Yes, I did.
MR. ROOS: Professor Easton, how, if at all, is this exhibit different from the last one we were looking at?
PETER DOUGLAS EASTON: Now you will notice another purple color hits the diagram, and this is now investor funds. This is investor funds put into FTX, in turn transferred within FTX to FTX digital markets, and then used to purchase Bahamian properties. In other words, in this case we have got to invest the funds, to which I can trace the purchase of 70.5 million in property in the Bahamas.
MR. ROOS: Have you been able to determine some of the properties that were paid for by the investor funds?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: It shows some of the properties that were included in the purchase of 79.5 million in real estate in the Bahamas.
PETER DOUGLAS EASTON: This is in fact the deed of ownership of the property at Old Fort Bay Real Estate.
PETER DOUGLAS EASTON: The price was 1.64 million -- 16.4 million, plus value added tax of 1.64 million.
PETER DOUGLAS EASTON: The deed is to Alan Joseph Bankman and Barbara Helen Fried.
MR. ROOS: Professor Easton, directing your attention to this period in June of 2022, what was the difference between the amount of fiat and the amount reflected in FTX's database?
PETER DOUGLAS EASTON: $9 billion.
PETER DOUGLAS EASTON: Yes, I have.
MR. ROOS: Starting on page 1 of Government Exhibit 1045, can you show what -- can you explain what this represents.
PETER DOUGLAS EASTON: This is a whole pie of the amount of money that should be available to cover customer funds, $11.3 billion.
PETER DOUGLAS EASTON: This is as of June 30, 2022.
PETER DOUGLAS EASTON: This is the slice of the pie that still exists in Alameda bank accounts. This is the amount that is in fact present to cover the funds, the 11.6 billion. The whole chart should be green, but it's not.
MR. ROOS: Let's put them side by side, Government Exhibit 1004 and Government Exhibit 1045, page 2.
MR. ROOS: How, if at all, do the colors on Government Exhibit 1004 relate to the colors on Government Exhibit 1045?
PETER DOUGLAS EASTON: So the black piece of the pie, so to speak, represents the black line or the total liability for customer funds. The green slice out of the pie represents the green line. And this pie is a diagram as at June 30, the time when the peak liability, 11.3, exists and the associated customer deposits, 2.3.
PETER DOUGLAS EASTON: Much of it, yes.
PETER DOUGLAS EASTON: So this shows the pieces of this pie that had been used for various purposes. I will point out just some of them. But some of these things are familiar.
Genesis, we traced 50 and 650 million largely back to customers. Similarly, the investment in K5 we have talked about. Similarly, the investment in Anthropic, the investment in Dave, the investment in Modulo. The Modulo analysis was for a related time period, so there's only 50 of the 450 taken out of this pie. Other ventures we haven't traced I did trace, another 1.4 billion. Paper Bird we have seen, 430 million. Then we have another big chunk, brokerage and outflows, almost a billion, 970.7 million. We have real estate, some of which we have analyzed. We have other expenses, 305 million. And we have got the two charitable donations that I've indicated.
MR. ROOS: Just a few follow-up questions on this.
The outflows to insiders, what's that a reference to?
PETER DOUGLAS EASTON: The outflows to insiders are the payments to, how can I say, the inner circle of FTX and Alameda.
MR. ROOS: Now, the expenses category, it's not something we have traced in the past slides you've gone through. Give us an example what type of thing falls into that category.
PETER DOUGLAS EASTON: This is going to be payment for equipment, rent on property, payment of salaries, those kinds of things.
MR. ROOS: And then you have this large other category. Just give us an example or two of things that would fall within the other category.
PETER DOUGLAS EASTON: I really haven't analyzed that. There was a limit to the resources we have to analyze this material, but a lot of this was in fact investing -- investment in crypto.
MR. ROOS: At the beginning of your testimony this morning you had a few conclusions relating to fiat deposits and then I think two relating to cryptocurrency.
Do you remember that?
PETER DOUGLAS EASTON: Yes, I do.
MR. ROOS: Professor Easton, I just want to start first by talking about the process.
Can you explain what Government Exhibit 3013 shows.
PETER DOUGLAS EASTON: So you know how this describes a deposit in fact occurs in practice, a crypto deposit occurs. So I may have -- it would be great if I did, but I may have a 100 Bitcoins in my own personal wallet, and I might put those -- would put those in FTX. I might choose to put it in FTX. It would go into an FTX crypto wallet with my name on it, but then it is transferred to a sweep wallet within FTX that includes my deposit and everyone else's.
PETER DOUGLAS EASTON: Sweep, yes.
PETER DOUGLAS EASTON: Yes, it is.
PETER DOUGLAS EASTON: Then the withdrawal bypasses the individual account. It has already been mingled into this sweep wallet. I would withdraw my 100 Bitcoins back out. It gets transferred from the sweep wallet back to my personal wallet.
MR. ROOS: Earlier in your testimony you described analysis comparing the balances within FTX's ledger or database to the amount of fiat deposits in bank accounts. Have you done a similar exercise comparing the database to what was in these crypto wallets?
PETER DOUGLAS EASTON: Yes, I have.
MR. LISNER: Hold on. Objection, your Honor. This relates to the exhibit that we talked about yesterday. I believe your Honor reserved at the time.
JUDGE KAPLAN: Overruled.
PETER DOUGLAS EASTON: So this is similar to the chart that I put up for fiat currency, but now we are looking at crypto. We have got much finer data which we can get off the Blockchain. So you will see the black line. The black line represents the customer deposits of crypto on the FTX exchange. So this is the amount of crypto that should have been held in FTX.com in order to cover yours and my deposits.
The orange line or yellow line, however it is appearing, represents the actual balances that were in the FTX crypto wallets. In short, you can see that there is a huge deficiency. There is a big difference. There is much less money in the crypto wallets than there should have been.
MR. ROOS: Just to be clear, what is the yellow -- what sort of balances does the yellow line represent?
PETER DOUGLAS EASTON: This is the balance of -- in fact, this whole diagram reflects just -- the nine biggest cryptocurrencies are the ones that we investigated. It shows the amount of those nine currencies that were in fact held on the Blockchain.
MR. ROOS: If you included more currencies, like every currency, would that change the size of the difference over time?
PETER DOUGLAS EASTON: It could. It can only increase the difference. Inasmuch as if there is another cryptocurrency, which we didn't analyze, the best-case scenario would be that the black line and the orange line coincide.
MR. ROOS: Just to then focus on an example of the difference, you have got a marker here for October 31, 2022. What was the difference between the amount listed on FTX.com's customer balances and what was actually in the crypto wallets?
PETER DOUGLAS EASTON: The difference was $11.3 billion.
PETER DOUGLAS EASTON: I'm sorry. The amount that should have been in the wallets was 11.4 billion. The amount that was in the wallets was 1.1., so there is a difference of 10.3 billion.
MR. ROOS: Let me ask you, have you analyzed accounts within the FTX database -- sorry. Withdrawn.
Let me start by just asking you about the difference and what caused it. OK?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: Yes. First of all, this comes out of the big FTX database. And what it represents, going from left to right, the blocks that I have highlighted, ID number is an Alameda account, which was a much-used Alameda account. You can see that it's indeed identified as an Alameda account under user name info@AlamedaResearch.com.
If we go to the next -- fifth column, you will see borrowed. This says that there was a borrowing limit on this account of a bit more than $65 billion. The check in the next chart says that account 9 is permitted to withdraw, become negative.
MR. ROOS: Have you done any analysis relating to the number of accounts that had this allow-negative box checked?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: This shows the accounts that were permitted to go into the red, so to speak, go to negative. You will see account 9, the account that I have just referred to, and a whole bunch of other Alameda Research accounts. You will also note that no other customer accounts outside of Alameda were permitted to go negative.
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: Yes, I have.
MR. ROOS: And before I ask you about those balances over time, I just want to ask you a few questions about how you got the balance data. OK.
PETER DOUGLAS EASTON: This is, again, from the FTX database. In this particular case you will see, on the 2nd of November 2022, going from left to right, account ID 9 and a balance which is not particularly readable. But if we go to the right-hand side, where we will see a lot of detailed data, you will see that it might be useful -- can we expand the green section.
MR. ROOS: Can we zoom in on the four red boxes in the green section. A. You will see dollars, U.S. dollars, are coded 1. You will see that there is a negative balance of 67 million, almost 68 million U.S. dollars in this account. It is allowed to go negative and it has gone negative to the tune of 67 million.
PETER DOUGLAS EASTON: Have I missed a comma? I'm sorry. 676 million, not 67 million.
PETER DOUGLAS EASTON: Then the code for Bitcoin is 43, so there is 69,111 Bitcoins borrowed by Alameda. This is a negative to the tune of 65,000 Bitcoins. Tether, the stablecoin, is coded 44, and again, you see a large negative number, 157 million. Finally, 45 is Ether, and you will see 605,000 Ethers negative.
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: I focused on these four: Dollars, Bitcoin, Tether, and Ether.
PETER DOUGLAS EASTON: Because they are the most used.
PETER DOUGLAS EASTON: Yes, I was.
PETER DOUGLAS EASTON: Again, let me just orient the graph. So the X axis is the same going from January '21 through November 11, 2022. The vertical axis is still in billions of dollars, but notice it's going more negative as we go -- less negative as we go up the chart. So the X axis is in fact at the top of the chart, indicating that at all times over this period the balance in these allow negative accounts was indeed negative going up to around about 12 billion at the end of the period.
PETER DOUGLAS EASTON: Exactly. Increasing to a more negative number of 12 billion.
PETER DOUGLAS EASTON: Yes, I have.
MR. ROOS: Professor Easton, at the top of the screen it says: Buyback of FTX stock from Binance.
Have you analyzed a transaction relating to a buyback of FTX's stock from Binance?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: The material on the left-hand side shows that share transfer agreement of the repurchase of Binance stock back to FTX. On the right-hand side you will see the purchase amount and you will see -- again, I have to get the commas right. So we have 1 billion BNB, we have 500 million BUSD, which is the Bitcoin stablecoin, and in fact you will see also some FTT indicated on the bottom of the left-hand side.
PETER DOUGLAS EASTON: The email is from Samuel Bankman-Fried.
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: Yes. This shows that of the 2.2 billion that are buyout -- buyback of Binance stock, 1.2 billion, or a little more than half of that 2.2 billion, came from customer funds on the FTX exchange.
MR. ROOS: Professor Easton, we looked at some of these tracing slides previously for bank accounts, and they had green colors on them.
How if at all, are these slides different?
PETER DOUGLAS EASTON: The big difference is, now we are tracing cryptocurrency, not fiat.
JUDGE KAPLAN: Excuse me. So the customer funds indicated on this chart reflect customer deposits not of fiat but of Bitcoin and other cryptocurrencies, is that correct?
PETER DOUGLAS EASTON: Yes, that's correct.
JUDGE KAPLAN: Thank you.
MR. ROOS: Now, the red box that's appeared, focusing on the source of the customer funds, what was that?
PETER DOUGLAS EASTON: The account was account number 9, the account we have seen a few times already.
PETER DOUGLAS EASTON: That's right.
PETER DOUGLAS EASTON: On the day of the first part of that buyout, it was negative 1.8 billion, meaning that a payment out of that account must have made it more negative.
PETER DOUGLAS EASTON: Your Honor, I felt as if I should elaborate on my answer.
JUDGE KAPLAN: Go ahead.
PETER DOUGLAS EASTON: So the tracing is for every type of cryptocurrency that was used to pay, so the tracing is at each individual crypto level.
JUDGE KAPLAN: Thank you.
MR. ROOS: Professor Easton, you're referring to Judge Kaplan's question about -- focusing on Bitcoin, you're elaborating that it's for all the cryptocurrencies.
PETER DOUGLAS EASTON: Yes. Individually considered.
MR. ROOS: In addition to the spending on the Binance buyout, have you analyzed any other spending using cryptocurrency?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: Spending to pay off third-party lenders.
PETER DOUGLAS EASTON: To repay loans, yes.
PETER DOUGLAS EASTON: Lenders to FTX.
PETER DOUGLAS EASTON: To Alameda. I beg your pardon.
MR. ROOS: So let's talk about just the borrowing and lending before we talk about the use of funds.
PETER DOUGLAS EASTON: So Alameda also borrowed funds from other -- from third-party lenders outside of the firm.
PETER DOUGLAS EASTON: For example.
PETER DOUGLAS EASTON: This is, again, a daily chart. The Y axis is, again, billions. You can see the amount borrowed increased over time through the end of November 2021 to a max of 15.4 billion and then declined over time.
MR. ROOS: Do you see that this marker that was added on May 12, 2022, it says Terra Luna (Luna collapse)?
PETER DOUGLAS EASTON: Terra Luna -- the Terra Luna collapse introduced a lot of uncertainty to the market and crypto prices collapsed.
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: This is simply saying that, in the month of May 2022, there were a total of three payments of $1.3 billion to third-party lenders.
PETER DOUGLAS EASTON: So in June, a further 2.9 billion.
PETER DOUGLAS EASTON: July, almost three-quarters of a billion repayments.
MR. ROOS: During this period, have you been able to determine whether any new loans were made to Alameda?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: From the beginning of May through the end of FTX, 1111.
PETER DOUGLAS EASTON: So this just points out that at the end of FTX, or at least on 1111, the loans still unrepaid were $1.3 billion.
PETER DOUGLAS EASTON: This is the zoom in, so it shows the repayments in May, it shows the repayments in June, the repayments in July, and -- excuse me -- in July, and, finally, an amount outstanding of 1.3 billion. And during this time period we had new loans of 1.7 billion.
MR. ROOS: Focusing on this period that we zoomed in on that's in gray, does the red line continue to show the total amount of loans during those periods?
PETER DOUGLAS EASTON: Yes, it does.
MR. ROOS: Now, have you analyzed the source of funds used to repay these third-party lenders at Alameda?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: This shows that of the repayment to the crypto lender Genesis of 3.5 billion, 1.7 of that came out of customer crypto funds on the FTX exchange.
PETER DOUGLAS EASTON: Again, it was account 9, which had a negative balance of 7.2 billion at the time that the first payment was made.
PETER DOUGLAS EASTON: This is a similar exhibit. It shows a payment to BlockFi, the third-party lender. The entire one point million payment came out of customer funds.
PETER DOUGLAS EASTON: It came out of account number 9, which had a negative balance at the time that the billion was paid. In other words, the negative balance went to 2 billion from 1 billion negative.
MR. ROOS: Professor Easton, have you done a similar type of tracing and analysis for other lenders?
PETER DOUGLAS EASTON: Yes, I have, many of them.
MR. ROOS: Many of them. OK.
To keep us moving, what I am going to do is, we will just put up the exhibit, we will ask you to name the lender and then describe what the source of funds were rather than walk you through the whole thing. OK?
MR. ROOS: Do why don't we put up Government Exhibit 1017C. A. This describes the lender Voyager. You can see that the majority of the funds to pay Voyager came from customers.
MR. ROOS: Can we put up 1016D. A. Similarly to Celsius, roughly four-fifths of the payment came from customer funds.
MR. ROOS: Can we please put up 1017G. A. Payment to TrueFi was roughly two-thirds from customer funds.
MR. ROOS: Can we please publish 1017I. A. Payment to Ledn. Roughly, again, two-thirds from customer funds.
MR. ROOS: Finally, 1017K. A. Payment to BitGo, only about a fifth from customer funds, but still some customer funds.
PETER DOUGLAS EASTON: Every one of them came out of account 9.
PETER DOUGLAS EASTON: It was negative.
PETER DOUGLAS EASTON: So this pie chart again is -- demonstrates the entire analyses of all of the repayments to third-party lenders. And to summarize 68 percent of the payments to third-party lenders, repayments to third-party lenders came from customer funds. Only 32 percent came from other funds.
PETER DOUGLAS EASTON: $4.5 billion.
MR. ROOS: Let's put back up Government Exhibit 1002, please, which was Alameda's negative accounts. Can we zoom in on this period of May 2022 to the end of the calendar.
MR. ROOS: Professor Easton, can you describe what happened to Alameda's balances in its allow-negative accounts over the period it was repaying those letters?
PETER DOUGLAS EASTON: It started at roughly 6-- 6 billion negative, increased a little bit, in other words, became slightly less negative, but then you can see continued to become quite negative, to the tune of eventually something like 12 billion negative.
MR. ROOS: Professor Easton, you've been focusing on these accounts with this allow-negative feature enabled. Have you also done analysis of all of the Alameda accounts?
PETER DOUGLAS EASTON: Yes, I have.
PETER DOUGLAS EASTON: This is all accounts now, not just those that were allow negative that did go negative. There were some that did not have allow negative and, obviously, therefore, they didn't go negative. So you will see that this chart, which is almost always in the red, so to speak, that's very negative. It's slightly less negative than the previous chart.
MR. ROOS: Just to call out a few points in time in 2022, first, what was the balance on May 12, 2022 across all the accounts?
PETER DOUGLAS EASTON: A negative $12.6 billion.
PETER DOUGLAS EASTON: Still very negative, $10.9 billion.
PETER DOUGLAS EASTON: Negative $9.2 billion.
PETER DOUGLAS EASTON: This is all of Alameda bank accounts, yes, on FTX.
MR. ROOS: Let me ask you, have you analyzed whether Alameda's negative balance here can be explained through borrowing in the spot-margin program?
PETER DOUGLAS EASTON: Yes, I can.
PETER DOUGLAS EASTON: First of all, the red line is the same red line as we were seeing before, so this is a negative balance. I chose to put it as a positive chart because we are going to compare it -- I am going to compare it to the actual borrowing.
So the Alameda balance reached the peak that we have seen before of 12.6 billion. The actual Alameda borrowing on this spot-margin program was far less than the amount needed to cover this negative balance. So you can see from the bluish line, bluish green line, that the amount was way, way less than the amount that would have had to be borrowed to cover this negative balance. For example, on May 12, the deficiency or the deficit, the negative amount, the difference between what we would have needed and what we did have is 10.8 billion.
MR. ROOS: What's your conclusion as to whether Alameda's negative balance can be explained by its own borrowing in the spot-margin program?
PETER DOUGLAS EASTON: It cannot be explained.
MR. ROOS: Let's say Alameda borrowed every dollar in every crypto available in the spot-margin program.
Could that explain its negative balance?
PETER DOUGLAS EASTON: No, it could not.
PETER DOUGLAS EASTON: The difference between this chart and the one we have just seen is that the bluish green line shows the total borrowing on the spot margin. Clearly, it's not enough to cover the Alameda negative amount.
MR. ROOS: What's your conclusion as to whether Alameda's negative balance on FTX can be explained by all the borrowing through the spot margin?
PETER DOUGLAS EASTON: It cannot be.
MR. ROOS: What's your conclusion as to the source of the money that was used when Alameda incurred a negative balance?
PETER DOUGLAS EASTON: It must have been customer funds.
JUDGE KAPLAN: Thank you. Why don't we take our lunch break a little early and come back at 1:45.
(Luncheon recess)
AFTERNOON SESSION 1:49 p.m.
(In open court; jury not present)
MS. SASSOON: Your Honor?
JUDGE KAPLAN: Yes.
MS. SASSOON: Two very quick things. For a later witness this afternoon, the defense has a few objections to exhibits that perhaps we could take up at the beginning or end of the afternoon break.
JUDGE KAPLAN: Okay.
MS. SASSOON: And second, in an absent-minded moment, I walked into the wrong room, which was the jurors' room. I walked right out but not before they all laughed at me. And I told the defense, but I also wanted to put it on the record.
JUDGE KAPLAN: Mr. Cohen, do you want me to do anything else about this?
MR. COHEN: No. We just asked that it be put on the record, your Honor.
JUDGE KAPLAN: Okay. That's fine.
And before we call the jury, I just want to put on the record, with respect to the objection to Exhibit 1051 this morning, it was overruled because I regard the disclosure as having been adequate and in any case find no substantial prejudice to the defense.
All right. Let's get the jury.
(Jury present)
JUDGE KAPLAN: Be seated, please.
The record will reflect that the defendant and the jurors all are present.
Professor Easton, you're still under oath.
You may cross-examine, Mr. Lisner.
CROSS EXAMINATION BY MR. LISNER:
MR. LISNER: Good afternoon, Professor Easton.
PETER DOUGLAS EASTON: Good afternoon.
MR. LISNER: I want to go through some of the things you testified earlier this morning about.
Do you recall testifying about a number of acquisitions from your analysis FTX or Alameda relied on customer funds to pay for?
PETER DOUGLAS EASTON: I do.
MR. LISNER: And your analysis was based on reviewing the accounts from which the entity receiving the funds received them, correct?
PETER DOUGLAS EASTON: That is correct.
MR. LISNER: And that in turn brought you to an Alameda account, and I believe your opinion was that customer money was going into the account, and then you followed that through to the investment, which would cause you to conclude customer funds were used.
PETER DOUGLAS EASTON: Several Alameda accounts, yes.
MR. LISNER: Can we bring up GX 1033, Brian. This is in evidence. It's one of Professor Easton's demonstratives.
MR. LISNER: And this is the Modulo demonstrative, correct?
PETER DOUGLAS EASTON: Yes, it is.
MR. LISNER: And here what you're indicating, if I have this right, all the green boxes down the middle indicate that——or on the left, sorry, those green boxes indicate that 100 percent of the funds came from customer assets, true?
PETER DOUGLAS EASTON: True.
MR. LISNER: Can we jump to the second to last page, Brian.
MR. LISNER: Okay. And here, I'm looking at the green I guess in the one, two, three——in the fifth column. These are the customers Circle Internet Financial and TrueCoin, right?
PETER DOUGLAS EASTON: No, they're not the customers. What they are is an intermediary that transfers customer stablecoins into dollars.
MR. LISNER: I believe you testified earlier that all the funds came from customer assets. Where on this——in this analysis are the customers?
PETER DOUGLAS EASTON: The customers' funds are transferred——and I traced this——to Circle Internet, and there at Circle Internet were changed from a stablecoin to dollars, but it was customer funds that are in the background of this transaction, and I traced them back to the original bank statements.
MR. LISNER: And how did you trace those, sir?
PETER DOUGLAS EASTON: Through the FTX database and bank statements.
MR. LISNER: If we could jump to GX 1030, Brian. That's the flow chart with respect to K5.
Now how do I delete the——there we go.
MR. LISNER: Okay. And here you're showing that customer funds flowing in were at 765 million and other inflows approximately 127 million, correct?
PETER DOUGLAS EASTON: Correct.
MR. LISNER: And what I want to do is go to your spreadsheet backup on this to trace that through.
PETER DOUGLAS EASTON: Okay.
MR. LISNER: Brian, are you able to bring up——this is a spreadsheet for GX 1030. It's No. 3574.
MR. ROOS: Objection. So the document he's pulling up is not in evidence, and I'm not sure there is——what the question is that precedes going to the 35——looking to a document not in evidence.
JUDGE KAPLAN: Well, it can be shown to the witness——
MR. LISNER: Just for the witness.
JUDGE KAPLAN: ——and we'll see where it goes from there. But I don't know whose Exhibit 3574 it's supposed to be.
MR. LISNER: Yes. Can you pull up only for the witness, Brian, spreadsheet 3574-431.
JUDGE KAPLAN: Is that defendant's exhibit or government exhibit?
MR. LISNER: It's neither. It's 3500 material.
JUDGE KAPLAN: All of which are GX exhibits, right? Or am I missing something?
MR. LISNER: We can identify it as GX.
JUDGE KAPLAN: No, I need to know what it is. That's not a hard question, is it?
MR. ROOS: It's 3500 material produced by the government. It's neither marked as a defense nor as a government exhibit.
JUDGE KAPLAN: All right. So let's mark it as a defense exhibit now.
MR. LISNER: We'll mark it as DX 3574-431.
JUDGE KAPLAN: Okay.
MR. LISNER: All right. Can you bring that up just for the witness and myself.
BY MR. LISNER:
MR. LISNER: Now this is the backup for your chart at GX 1030, the investment in K5?
MR. LISNER: Got it. And same issue here. In green, there are a number of sources of customer——of claimed customers in green that are stablecoin issuers, true?
JUDGE KAPLAN: Sustained as to form.
MR. LISNER: Okay. We can move on.
You can take that off the screen, Brian.
Okay. Let's move to GX 1018.
MR. LISNER: I want to ask you some questions about your analysis of repayments by Alameda made to Genesis——well, made to third-party lenders.
Does this chart reflect your conclusions about the amount of customer funds versus other assets that were repaid to third-party lenders in the period May through November?
PETER DOUGLAS EASTON: Yes, it does.
MR. LISNER: Okay. And one of those lenders was Genesis?
MR. LISNER: Okay. Can we pull up just quickly, Brian, GX 1017A.
MR. LISNER: Okay. And that's your analysis from this morning about repayments to Genesis?
PETER DOUGLAS EASTON: It's the summary, yes.
MR. LISNER: Okay. And these payments, do they reflect only principal repayments or do these payments include any collateral repayments as well?
PETER DOUGLAS EASTON: They reflect crypto-by-crypto payments for loans from Genesis.
MR. LISNER: Okay. So there wouldn't be any collateral postings based on this payment.
PETER DOUGLAS EASTON: I don't understand the question. Sorry.
MR. LISNER: The 3.5 billion that was paid to Genesis, is your testimony that this entire amount was made of principal repayment?
PETER DOUGLAS EASTON: I'm not certain of that.
MR. LISNER: You're not certain of that?
PETER DOUGLAS EASTON: It is payment of an amount owing to the third party, Genesis. Whether it's payment of owed interest as well as principal, I'm not sure as I sit here now.
MR. LISNER: Okay. Well, let's see if we can show you some things to refresh your recollection. Is that fair?
PETER DOUGLAS EASTON: Yeah.
MR. LISNER: Brian, for the witness only, could we please bring up——this is in the backup to GX 1017 and 18. There's a spreadsheet labeled 3574-424D.
JUDGE KAPLAN: Which will be marked Defendant's Exhibit 3574-424D.
MR. LISNER: Yes. Thank you, your Honor.
And can you go to the bottom, the tab for returned loans. And you see column E, there's a return date? If you could sort by return date. Just sort the oldest to newest, and then let's jump to May 11th.
BY MR. LISNER:
MR. LISNER: Okay. What I want to do is point out three transactions here. And for May 11th, there is a 90,000 Ethereum payment made on May 11th. Do you see that?
JUDGE KAPLAN: What is the objection?
MR. ROOS: I believe up here it says he was trying to refresh his recollection, so the form of the question.
JUDGE KAPLAN: Certainly. Sustained.
MR. LISNER: Do you recall, Professor Easton, specific payments made by Alameda to Genesis on or about May 11th, 12th, and 13th?
PETER DOUGLAS EASTON: I recall seeing this document at some point, and yes, I can see those two payments.
MR. LISNER: Okay. And does it refresh your recollection whether a 90,000 Ethereum payment was made on May 11th?
PETER DOUGLAS EASTON: That's what it says here, yes.
MR. LISNER: 155,000——
JUDGE KAPLAN: Yes. The answer is stricken. The question is: Does it refresh your recollection? The answer is not, I'm reading this document back to you. That's inappropriate. And let's not do that.
MR. LISNER: Understood, your Honor.
BY MR. LISNER:
MR. LISNER: Okay. Can I ask you to keep in mind, Professor Easton, the payments made on May 11th, May 12th, and May 13th in Ethereum.
JUDGE KAPLAN: He's been asked to have that in mind. Do you have another question?
MR. LISNER: I do. I'm going to go between spreadsheets that were used.
JUDGE KAPLAN: Ask your questions, please.
MR. LISNER: Understood.
Okay. Can we go——you could take this down, Brian. Can you please bring up GX 1235.
My understanding is this is in evidence as a third-party business record under the government's stipulation.
JUDGE KAPLAN: If it's in evidence, it's in evidence. Does everybody agree that it's in evidence?
JUDGE KAPLAN: That confirms what I see.
MR. LISNER: Okay. Can you bring up, just for the witness, Brian, GX 1235.
BY MR. LISNER:
MR. LISNER: Do you recognize this document as Genesis's loan repayments?
PETER DOUGLAS EASTON: Yes, I do.
MR. LISNER: Okay. And Brian, same thing. If you'd sort the return dates and jump to May 11th, May 12th, May 13th, 2022.
Okay. Leave that place, and if you could just take that down, Brian.
MR. LISNER: I'm going to ask you a question without the need for that. Do you recall if those loan payments we discussed a minute ago were repaid for principal repayments?
PETER DOUGLAS EASTON: I don't recall seeing that on the document that I just looked at.
JUDGE KAPLAN: The question is whether, in your memory, you remember that or you don't remember that. He's not asking you what you may have read on the screen.
PETER DOUGLAS EASTON: I apologize. A. No, I don't recall.
MR. LISNER: Okay. Would it refresh your recollection to look at Genesis's loan repayment summary?
PETER DOUGLAS EASTON: It may.
MR. LISNER: Brian, could you please bring up 1235 to the same place we were, GX 1235.
MR. LISNER: Does this refresh your recollection whether those Ethereum payments we discussed were repaid as loan principal?
PETER DOUGLAS EASTON: No, it does not.
MR. LISNER: Okay. You could take that down.
MR. LISNER: And do you recall whether those loan repayments——let me rephrase.
Do you recall whether those payments we discussed were paid to Genesis as collateral for borrowings by Alameda?
MR. LISNER: Okay. Would it refresh your recollection to look at a collateral summary produced by Genesis?
PETER DOUGLAS EASTON: Possibly.
MR. LISNER: Brian, could you please bring up GX 1238.
Okay. Can you scroll down to rows 185 through 187.
MR. LISNER: Does this refresh your recollection whether the payments we discussed were collateral postings on Genesis by Alameda?
PETER DOUGLAS EASTON: No, it does not.
MR. LISNER: Does not.
MR. LISNER: Okay. You can take that down.
MR. LISNER: All right. Let's switch topics.
You testified on direct that Alameda used customer funds to repay third-party lenders between May and July 2022, correct?
PETER DOUGLAS EASTON: Correct.
MR. LISNER: And just kind of rounding out the numbers, I believe you testified in May it was approximately 1.3 billion. Sound right?
PETER DOUGLAS EASTON: Sounds right.
MR. LISNER: 2.9 billion in June?
PETER DOUGLAS EASTON: Sounds right.
MR. LISNER: And approximately 750 million in July.
MR. LISNER: Okay. And I think you testified on direct that if a payment was made, you would expect the account balance, Alameda's account balance to become more negative.
PETER DOUGLAS EASTON: Correct.
MR. LISNER: Okay. Can we bring up GX 1002, which is in evidence.
MR. LISNER: So focusing here on the period we just talked about, May through approximately July——let me rephrase.
In your direct, Mr. Roos asked you to look at the downward-trending line from about May until the end of the year, May 2022 to I guess November 2022. Do you recall that?
PETER DOUGLAS EASTON: I do.
MR. LISNER: Okay. But if we focus on the period only between approximately May——and I'll do my best to draw a line——and what appears to be approximately June, July, the line is sloping upwards, correct?
PETER DOUGLAS EASTON: That was my testimony, yes.
MR. LISNER: And during this period, approximately, we just talked——we just mentioned——rephrase.
During this period, approximately 5 billion in loans were repaid?
MR. LISNER: And if there was a payment, you testified you'd expect the numbers to get more negative, but here it's doing the opposite, true?
MR. LISNER: Okay. You could take that down, Brian. And if you could put up GX 1005, which is also in evidence.
MR. LISNER: Same question. If I focus on the period between——I'll do my best to draw the line——May 2022 through approximately June-July, the line is sloping upwards as well, correct?
MR. LISNER: And if there were payments remade from the Alameda account, you'd expect that to go down, true?
PETER DOUGLAS EASTON: No. Incorrect.
MR. LISNER: Incorrect. Why is that incorrect?
PETER DOUGLAS EASTON: The payment in and of itself would make the line go down, but other things are happening during this time period.
MR. LISNER: Okay. What else is happening?
PETER DOUGLAS EASTON: Changes in the——
MR. LISNER: You could take this down, Brian. A. There were new loans for that time period, for example.
MR. LISNER: There were new loans? Do you know when those were taken out?
PETER DOUGLAS EASTON: Not specifically as I sit here now, no.
MR. LISNER: So new loans from third-party lenders. So you're meaning that more funds would flow into Alameda and it would go up instead of down.
PETER DOUGLAS EASTON: Right.
MR. LISNER: Right. You didn't testify to any of that in your direct, did you?
JUDGE KAPLAN: Sustained.
MR. LISNER: Okay. A clarification on 1002 versus 1005. 2?
MR. LISNER: Can you bring up, Brian, side by side, 1002 and 1005.
MR. LISNER: Now you testified on direct that these were different, and if I recall correct, 1002 is a limited set of accounts for a limited set of currencies, correct?
PETER DOUGLAS EASTON: Correct.
MR. LISNER: And the limited accounts were Alameda's "Allow Negative" accounts, true?
PETER DOUGLAS EASTON: Correct.
MR. LISNER: And for currencies, the US dollar, USDT, which is a stablecoin, Bitcoin, and Ethereum, correct?
PETER DOUGLAS EASTON: Correct.
MR. LISNER: And then 1005 was meant to reflect all Alameda balances in all currencies.
PETER DOUGLAS EASTON: Correct.
MR. LISNER: Does that include fiat as well?
MR. LISNER: Okay. So if we look at the period that is approximately April 2nd——April 1st, April 2nd, 2022——again, I'll do my best to draw it——but on 1002, in April 2022, it looks like it's about here——that appears to be approximately 7½ billion? I'll try to draw the line. Forgive the shaky finger. Does that appear to be approximately negative 7½ billion?
MR. LISNER: Okay. And if we compare that with the line on GX 1005, same date, April 1, 2022, it's zero, correct?
PETER DOUGLAS EASTON: Right.
MR. LISNER: So your summaries of the Alameda account balance on the same day is different by $7 billion depending on the variables you chose to include.
MR. LISNER: Let's talk about some of those variables.
MR. LISNER: Brian, you could take those down.
MR. LISNER: For the specific accounts, how did you select the "Allow Negative" accounts?
PETER DOUGLAS EASTON: All of those that were allowed to turn negative.
MR. LISNER: And how did you identify them as associated with Alameda?
PETER DOUGLAS EASTON: I——I knew which accounts were Alameda and which accounts were not.
MR. LISNER: Are there any accounts——
MR. LISNER: Well, let's bring up 1001. I think that's the account listings.
MR. LISNER: Is it your understanding that all of these accounts are associated with the Alameda Research user name——user ID?
MR. LISNER: Okay. And if there are accounts here that weren't associated with the Alameda account ID, they shouldn't have been included, true?
PETER DOUGLAS EASTON: True.
MR. LISNER: Okay. I'll ask this to set up the next question, your Honor.
MR. LISNER: Do you recall whether any accounts are included on this 1001 exhibit in the Alameda account column that are not associated with the Alameda user ID?
PETER DOUGLAS EASTON: I do not recall such an account.
MR. LISNER: Okay. Can we pull up for the witness only GX 1702.
MR. LISNER: Does this appear to be the list of accounts, list of Alameda accounts that you used as a basis to select the accounts in 1001?
PETER DOUGLAS EASTON: I believe so, yes.
MR. LISNER: Okay. Brian, if I could ask you, in column——well, first, in the first row, if you could put the filters on, and then I'll ask you to show only "Allow Negative" where it's true in column J.
Your Honor, request to publish this to the jury as something that Professor Easton relied on, not for its truth but for material Professor Easton relied on.
JUDGE KAPLAN: I don't understand.
MR. LISNER: I think we're entitled to ask Professor Easton about the bases for his conclusions.
JUDGE KAPLAN: I don't understand the question.
MR. LISNER: Well, I didn't ask——I don't have a pending question to the witness. The question to your Honor was whether we could publish this to the jury.
JUDGE KAPLAN: I don't even know if it's in evidence.
JUDGE KAPLAN: I believe it is not.
MR. LISNER: It's not. So the request is——
JUDGE KAPLAN: Therefore, you're not going to show it to the jury.
MR. LISNER: Understood, your Honor.
BY MR. LISNER:
MR. LISNER: Okay. Column J, we've sorted this so it only shows "Allow Negative" accounts.
JUDGE KAPLAN: Sustained.
MR. LISNER: Does this refresh your recollection to the accounts that are included in your Exhibit 1001?
JUDGE KAPLAN: Sustained. There's been no failure of recollection.
MR. LISNER: Okay. You could take that down.
JUDGE KAPLAN: The only thing we know about this document up to now is that it appears to be a list of accounts that he used in listing accounts on 1001. That is 100 percent——unless I'm missing something——of the information known about this exhibit, apart from the fact that it's not in evidence.
MR. LISNER: Yes, your Honor.
JUDGE KAPLAN: So if you want it in evidence, you have to have a foundation. If you want to read it to the jury or show it to the jury, you've got to get it into evidence.
MR. LISNER: Okay. Let's put that back up, Brian.
BY MR. LISNER:
MR. LISNER: Can you tell us what this document is, Professor Easton.
PETER DOUGLAS EASTON: This is a document from which I originally determined the accounts with the "Allow Negative" flag.
MR. LISNER: Does this appear to be a document maintained in the ordinary course by FTX?
JUDGE KAPLAN: Sustained.
MR. LISNER: All right. We'll move on. We'll move on.
Sticking with loan repayments, Brian, if you could please bring up 1017J, GX 1017J, which is in evidence.
BY MR. LISNER:
MR. LISNER: I think you testified earlier that the 1017 series reflects the loan repayments made by Alameda from its account 9 to third-party lenders; is that right?
PETER DOUGLAS EASTON: That is correct.
MR. LISNER: Okay. And looking at this one, J, you testified that at the bottom came from account 9 and then there was the balance——I'll circle here——in account 9 on the day before the transfer was made, or right before the transfer was made.
PETER DOUGLAS EASTON: The first transfer, yes.
MR. LISNER: Okay. So then after the transfer was made this number should become more negative, true?
PETER DOUGLAS EASTON: Immediately, at that instant, yes.
MR. LISNER: Okay. So here we're looking at May 1 in GX 1017J, and it reflects account 9 had a balance of 7.3 billion, correct?
PETER DOUGLAS EASTON: Correct.
MR. LISNER: Okay. And I'm going to go through these quickly just to get through the numbers.
MR. LISNER: Could we get to 1017C, Brian.
MR. LISNER: This is eight days later, on May 9th. And there's an account balance of minus 6.42 billion, correct?
PETER DOUGLAS EASTON: Correct.
MR. LISNER: And that's approximately 900 million less negative than May 1st.
MR. LISNER: And during that period significant loan repayments were made out of the account?
MR. LISNER: Okay. And then we could skip a few days just to cut to the chase.
MR. LISNER: If we could pull up 1017G.
MR. LISNER: And this reflects that on June 17th, minus 5 billion or 500 million remains in the account, correct?
PETER DOUGLAS EASTON: Correct.
MR. LISNER: That's almost a $7 billion increase in the balance of account No. 9 when you testified significant loan payments were made.
PETER DOUGLAS EASTON: This is balance in crypto. Crypto balances can fluctuate all the time.
MR. LISNER: Could I have my question read back, please.
JUDGE KAPLAN: Yes.
(Record read)
MR. LISNER: Can you answer that yes or no, sir?
MR. LISNER: Thank you.
MR. LISNER: Okay. You can take that down.
MR. LISNER: Let's switch gears to fiat.
MR. LISNER: If you could bring up GX 1004, Brian.
MR. LISNER: Okay. And I think you testified——correct me if I'm wrong——on direct that here what we have on the top is the fiat@ balance in the black line——I'm sure everyone here has heard more about the fiat@ account than they'd like to——and then the bottom, the bank balance such that the difference represents the gap of what Alameda would have spent.
PETER DOUGLAS EASTON: Correct.
MR. LISNER: Okay. So the bigger the gap means there's more spending by Alameda, and the smaller gap means that there would be less.
PETER DOUGLAS EASTON: Correct.
MR. LISNER: One clarifying question: How was it that this line is negative in the beginning period, in January 2021? It appears that it's only a little bit, but the fiat line is below zero.
PETER DOUGLAS EASTON: This was associated with, as best I understand it, where there were deposits of crypto and of fiat, and the exchange between crypto and fiat result in a slight positive difference.
MR. LISNER: Got it. Got it. Okay. So same concept that we discussed earlier. If I look at the period between May, which is where your maximum point is, 11.3 billion, thereafter, in May, June, and July, it looks like the gap either remains the same or decreases, correct?
PETER DOUGLAS EASTON: Correct.
MR. LISNER: And that's the period when 5 billion in loans was paid.
PETER DOUGLAS EASTON: Correct.
MR. LISNER: Okay. Now at the bottom here——let me clear this line——the green line in the legend indicates that this is the balance in Alameda, North Dimension, and FTX bank accounts. Is it your understanding that FTX, over different periods of time, relied on different accounts?
MR. LISNER: And is it fair to say that the amount of fiat kept in the FTX account should not appear as a liability for Alameda?
PETER DOUGLAS EASTON: I don't know what FTX account you're referring to, sir.
MR. LISNER: The one reflected on your graph here. So FTX bank accounts.
PETER DOUGLAS EASTON: Would you repeat the question, please.
MR. LISNER: Is it fair to say that fiat customer deposits received in FTX bank accounts should not be treated as a liability of Alameda's?
PETER DOUGLAS EASTON: I'm not sure I understand the question, but if fiat deposits have been included in an FTX bank account that includes customer deposits, they should be included as a liability.
MR. LISNER: For FTX.
PETER DOUGLAS EASTON: For FTX.
MR. LISNER: Not Alameda.
PETER DOUGLAS EASTON: Not Alameda.
MR. LISNER: Okay. If you could take that down.
Brian, if you could put up GX 1005.
MR. LISNER: This we talked about briefly earlier. This reflects all of Alameda's balances across all currencies, including fiat@ liability, true?
PETER DOUGLAS EASTON: Correct.
MR. LISNER: And is it your understanding that this graph includes the fiat line that we just looked at across all bank accounts?
MR. LISNER: Okay. But if that includes an FTX liability and not an Alameda liability, fair to say the FTX portion should not be included in this 1005?
PETER DOUGLAS EASTON: This is the balance in the accounts that accepted customer deposits.
MR. LISNER: So this includes the full fiat@ subaccount entry.
PETER DOUGLAS EASTON: Yes, it does.
MR. LISNER: Okay. Does the subaccount entry for fiat@ include customer deposits regardless if they were made in an Alameda account, a North Dimension account, and an FTX account?
MR. LISNER: Okay. Should the portion in the FTX account be included in the fiat@ liability attributed to Alameda?
MR. LISNER: Okay. Did you exclude that in this graph?
PETER DOUGLAS EASTON: No, I did not.
MR. LISNER: Okay. You're, by the way, not offering any opinion on what information or aspects of the fiat account that Mr. Bankman-Fried did or did not see over the years.
JUDGE KAPLAN: Sustained.
MR. LISNER: Okay. Let's take that down, Brian.
MR. LISNER: Let's stick with the fiat for a moment.
MR. LISNER: If you could pull up GX 3003.
MR. LISNER: This was your demonstrative about the basic mechanics of how customers would deposit fiat onto FTX, correct?
PETER DOUGLAS EASTON: Correct.
MR. LISNER: Okay. And here you list the numbers. I know they're for illustrative purposes, but it's listed in USD, so the customer account in FTX here has a positive 100 US dollars, correct?
PETER DOUGLAS EASTON: Correct.
MR. LISNER: Okay. Do you have an understanding that credits on FTX, credits on a customer account on FTX don't reflect actual cash or legal tender?
JUDGE KAPLAN: Sustained.
MR. LISNER: Is it your understanding that the $100 entry there reflects legal tender?
JUDGE KAPLAN: Sustained.
MR. LISNER: Okay. Can we bring up, only for the witness, Brian, DX 1022.
Okay. These are the May 2022——
JUDGE KAPLAN: Yes.
(Continued on next page)
(At the sidebar)
MR. ROOS: The objection is that the document he was about to announce the name of is the FTX terms of service. It's not a basis for his opinion. It's not in evidence. I can't imagine how this witness can lay a foundation for it, particularly given——I'm not saying it won't come in ever, but there are hearsay questions about the circumstances in which it can be offered——is it for its truth, is it for the effect on the listener——and ultimately if it is shown to him, it's a legal document, and we all know the expert witness is the last person who should be opining on legal obligations, given his role in the case.
MR. LISNER: Your Honor, I don't think the foundation objection is an issue because there's a stipulation on authenticity as to this document. This is a document that the expert reviewed, and we think it's admissible as a nonhearsay document. It's a contract. It's a verbal act. It's in the materials he relied on. I want to ask him about how——
JUDGE KAPLAN: How do you know it's in the materials he relied on?
MR. LISNER: The government produced 3500 material that the expert relied on, and this is one of them.
JUDGE KAPLAN: Relied on or saw?
MR. LISNER: So I could ask. I don't know. We have not had access to the witness before.
MR. ROOS: I guess if he wants to show it without saying what the document is and ask him if it's something he relied on in reaching his opinion, then if the answer is yes, he can ask another question; if the answer is no, that's the end of it.
JUDGE KAPLAN: You can do that much anyway.
(Continued on next page)
(In open court)
MR. LISNER: Okay. Thank you, your Honor.
Could you bring up for the witness only, Brian, DX 1022.
BY MR. LISNER:
MR. LISNER: Just yes or no, two questions: Did you——do you recognize this document?
MR. LISNER: Okay. You can take that down, Brian.
MR. LISNER: Do you agree with the statement that the net asset valuation model is commonly applied when valuing privately held companies?
MR. LISNER: And your presentation this morning relied exclusively on Alameda balances held on the FTX platform, true?
JUDGE KAPLAN: Well, he can say.
MR. LISNER: It's a question.
MR. LISNER: Okay. Do you understand that Alameda traded on multiple exchanges in addition to FTX?
MR. LISNER: Held assets on those exchanges?
PETER DOUGLAS EASTON: Excuse me?
MR. LISNER: That it held assets on those exchanges?
MR. LISNER: And Alameda held significant assets in venture capital?
MR. LISNER: And Alameda was required to post collateral for the loans it received?
JUDGE KAPLAN: Sustained.
MR. LISNER: You didn't perform a net asset value analysis in this case, did you?
PETER DOUGLAS EASTON: No, I did not.
MR. LISNER: Okay. If we could bring up GX 1039, which is in evidence.
MR. LISNER: I believe you testified earlier this morning that this reflects a flow of funds in connection with the donation made by Ryan Salame, true?
MR. LISNER: Now if you look in the upper left here, there's two sources of funds, customer funds from customer bank accounts and other inflows, and there's a date window for each of them, May 23rd to May 25th. How did you pick what window to use for your analysis?
PETER DOUGLAS EASTON: So I went back in time, recognizing that the data is daily data, not time-stamped data, until I found sufficient funds to cover 5.5 million in this example.
MR. LISNER: Okay. And if you bring up——take that down and bring up GX 1041.
MR. LISNER: Which is another example of your flow chart analysis. Here there is only one date window here. Why are there different windows across different analyses?
PETER DOUGLAS EASTON: Because in this example, unlike a previous example where I had to go back two days to find sufficient funds, I found sufficient funds to cover 540 in just one day.
MR. LISNER: Would your conclusion about which assets were used be affected if you used longer or shorter date windows?
PETER DOUGLAS EASTON: Absolutely not, and I've checked that out.
MR. LISNER: Okay. You didn't present any of that analysis today?
MR. LISNER: You understand that FTX had significant positive revenues, true?
MR. LISNER: I'll rephrase. I'll rephrase. Sorry.
MR. LISNER: Do you have an understanding of whether FTX generated positive revenue?
PETER DOUGLAS EASTON: I haven't analyzed the generation of revenue by FTX.
MR. LISNER: In the documents you reviewed, have you seen any evidence that FTX generated positive revenue?
JUDGE KAPLAN: Ground?
JUDGE KAPLAN: I'll allow the question.
PETER DOUGLAS EASTON: Would you repeat the question, please.
MR. LISNER: Have you seen evidence in your work on this case of FTX generating positive revenue?
MR. LISNER: Just one moment, your Honor.
MR. LISNER: Switching topics, approximately how many people at the Brattle Group assisted you in your analysis?
PETER DOUGLAS EASTON: Ten to twelve.
MR. LISNER: And you testified how much you billed on this matter. Do you know how much the Brattle Group earned——billed in this matter?
MR. LISNER: Did you originate this matter for the Brattle Group?
MR. LISNER: Do you receive any compensation from the Brattle Group other than your hourly rate for this matter?
MR. LISNER: Just one moment.
No further questions, your Honor.
JUDGE KAPLAN: Thank you.
Any redirect?
REDIRECT EXAMINATION BY MR. ROOS:
MR. ROOS: Professor Easton, you were asked some questions about whether this was loan principal or loan interest. Regardless of whether it was loan principal or loan interest, what did you determine was the source of the funds that paid Genesis?
MR. LISNER: Objection. Mischaracterizes the question.
JUDGE KAPLAN: I didn't hear him characterizing it.
Well, no, sustained. Rephrase it.
PETER DOUGLAS EASTON: Yes, I do.
MR. ROOS: Irrespective of whether loan interest or loan principal was repaid, what was the source of the funds?
PETER DOUGLAS EASTON: The source of funds for either payment was either customer flows or other inflows. That was my focus.
MR. ROOS: Now I want to just ask you——you were shown several——several points in times and several negative balances. Do you remember that?
MR. ROOS: And I think you testified about the balances, the negative balance account going up and down over time; is that right?
MR. ROOS: And at some points I think Mr. Lisner asked you about where the number wasn't as negative; is that right?
PETER DOUGLAS EASTON: That is correct.
MR. ROOS: Okay. Now throughout all those instances Mr. Lisner asked you about, was the number still negative?
PETER DOUGLAS EASTON: Yes, it was.
MR. ROOS: And what are some of the reasons why the balance can change besides the repayment of loans?
PETER DOUGLAS EASTON: Well, in crypto it's very obvious that cryptocurrencies fluctuate a great deal up and down.
MR. ROOS: And besides the cryptocurrency fluctuations, were there other inflows and outflows of these accounts at the times looked at?
PETER DOUGLAS EASTON: Yes. In the last few months there was 1.7 billion of inflows.
JUDGE KAPLAN: Thank you.
Any recross?
RECROSS EXAMINATION BY MR. LISNER:
MR. LISNER: You were just asked about this. I want to understand your methodology on this. If Alameda deposited——let me set up a hypothetical.
If Alameda set up——deposited one Bitcoin before this payment was made and then immediately transferred it to Genesis from its account, so it took a off-chain Bitcoin, took a Bitcoin off the platform, put it into account No. 9, and then used account No. 9 to pay Genesis, how would that Bitcoin be reflected in your analysis as coming from a customer fund or an other inflow?
JUDGE KAPLAN: I'll allow it.
PETER DOUGLAS EASTON: So I think the easiest way or most straightforward way to answer your question is to say what I would have done if the one Bitcoin resulted in a positive balance in Alameda account 9. The payment would be seen as an other flow. If the balance was negative, that would mean it would be dipping into customer funds.
MR. LISNER: Just let me make sure I understand the test. The test is if when the payments were made the full amount came from a negative balance; is that right?
PETER DOUGLAS EASTON: I'm not sure what the question is. I'm sorry.
MR. LISNER: I'm trying to make sure I understand the test you applied for determining whether customer funds were used to pay a third-party lender. And you said——correct me if I'm wrong——if the account balance is negative, then the payment would be considered using customer funds.
PETER DOUGLAS EASTON: If the account balance of the particular cryptocurrency was negative and that particular cryptocurrency was used to pay the loan, it would be considered dipping into customer funds. Where else could it have come from?
MR. LISNER: Okay. So then using my example, if the account is negative 15, Bitcoin——are you with me?——and then Alameda deposits one Bitcoin from off the platform, so now it's negative 14, and then it pays 10 to somebody, all use of customer funds?
PETER DOUGLAS EASTON: It's paid out of the 14, which is what's left. It's customer funds.
MR. LISNER: And there's no distinction in your analysis between deposit of Bitcoin put on and the negative Bitcoins that are there.
PETER DOUGLAS EASTON: It must have come out of customer funds because the balance is negative. It would be dipping further into customer funds.
MR. LISNER: No further questions.
JUDGE KAPLAN: Thank you.
JUDGE KAPLAN: Thank you, Professor Easton. You're excused.
(Witness excused)
PETER DOUGLAS EASTON: Thank you.
JUDGE KAPLAN: Next witness.
MR. RAYMOND: Your Honor, the government calls Cory Gaddis.
JUDGE KAPLAN: You may proceed, Mr. Raymond.
MR. RAYMOND: Thank you, your Honor. CORY GADDIS, called as a witness by the Government, having been duly sworn, testified as follows: