(HedgeCo.Net) The Securities and Exchange Commission has charged Nishad Singh, the former Co-Lead Engineer of FTX Trading Ltd. (FTX), for his role in a multiyear scheme to defraud equity investors in FTX, the crypto trading platform started by Singh along with Samuel Bankman-Fried and Gary Wang. Investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.
According to the SEC’s complaint, Singh created software code that allowed FTX customer funds to be diverted to Alameda Research, a crypto hedge fund owned by Bankman-Fried and Wang, despite false assurances by Bankman-Fried to investors that FTX was a safe crypto asset trading platform with sophisticated risk mitigation measures to protect customer assets and that Alameda was just another customer with no special privileges. The complaint alleges that Singh knew or should have known that such statements were false and misleading.
The complaint also alleges that Singh was an active participant in the scheme to deceive FTX’s investors. The complaint further alleges that, even as it became clear that Alameda and FTX could not make customers whole for the funds already unlawfully diverted, Bankman-Fried, with the knowledge of Singh, directed hundreds of millions of dollars more in FTX customer funds to Alameda, which were used for additional venture investments and loans to Bankman-Fried, Singh, and other FTX executives. Moreover, according to the complaint, as FTX neared collapse, Singh withdrew approximately $6 million from FTX for personal use and expenditures, including the purchase of a multi-million dollar house and donations to charitable causes.
“We allege that this was fraud, pure and simple: while on the one hand FTX touted its supposed effective risk mitigation measures to investors, on the other Mr. Singh and his co-defendants were stealing customer funds using software code Mr. Singh helped create,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “A pillar of our securities laws is that when companies and their representatives decide to speak on an issue, they can’t lie to investors on matters that are core to their investment decisions. That’s true when it comes to crypto asset securities, just as it is in connection with any other securities.”
The SEC’s complaint charges Singh with violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC’s complaint seeks an injunction against future securities law violations; a conduct-based injunction that prohibits Singh from participating in the issuance, purchase, offer, or sale of any securities, except for his own personal accounts; disgorgement of his ill-gotten gains; a civil penalty; and an officer and director bar. Singh has consented to a bifurcated settlement, which is subject to court approval, under which he will be permanently enjoined from violating the federal securities laws, the above-described conduct-based injunction, and an officer and director bar. Upon motion of the SEC, the court will determine whether and what amount of disgorgement of ill-gotten gains plus prejudgment interest and/or a civil penalty is appropriate, as well as the length of the officer and director bar and the conduct-based injunction imposed against Singh.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission (CFTC) today announced charges against Singh.
