Nishad Singh, the former co-lead Engineer at failed crypto exchange FTX, has been charged by both the Securities and Exchange Commission (SEC) and Commodities Futures Trading Commission (CFTC) with fraud.
Both agencies revealed the charges following the news that Singh had pleaded guilty to criminal charges. Singh has entered a guilty plea to commodities fraud and other charges in an action against him in the Southern District of New York. Singh agreed to forfeit certain assets received from FTX and Alameda Research along with the guilty plea. According to WSJ.com, Singh told the judge he was “unbelievably sorry for my role in all of this and the harm that it has caused.” He also claimed that he “falsified” FTX’s financial position to make the company look better to backers. The report also states that Singh acknowledged “illegal donations to political candidates.”
Singh is the third former FTX executive to plead guilty while positioning himself to cooperate with law enforcement, perhaps garnering lesser penalties. FTX co-founder Gary Wang, and Alameda co-CEO Caroline Ellison, have both pleaded guilty to criminal charges which may have caused a loss of over $8 billion in FTX customer assets.
Former FTX founder and CEO Sam Bankman-Fried, largely viewed as the mastermind behind the FTX collapse, has pleaded not guilty. Recently, additional criminal charges were added to the DOJ’s complaint.
According to both the SEC and CFTC, Singh created or maintained the software code that allowed FTX customer funds to be diverted to Alameda Research.
Alameda Research was a crypto hedge fund controlled by Bankman-Fried, and the allegations indicate Alameda utilized FTX like a personal piggy bank to execute trades or invest in other firms.
The SEC claims:
“… 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.”
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said the SEC alleges 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. 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.”
Division of Enforcement Principal Deputy Director and Chief Counsel Gretchen Lowe echoed Grewal’s sentiment stating Singh engaged in and aided significant violations of the Commodity Exchange Act and CFTC regulations.
Previously, the SEC and the CFTC filed fraud charges against Bankman-Fried, with the SEC describing FTX as operating under a veneer of legitimacy when in reality, it was a house of cards.
Regarding the deal with the SEC, Singh has consented to a “bifurcated settlement,” which is subject to court approval.” Along with being permanently enjoined from violating the federal securities laws and an officer and director bar, 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.
As for the CFTC charges, Singh does not contest his liability on the CFTC’s claims and has agreed to the entry of a proposed consent order of judgment as to his liability on the charges in the complaint. In continuing litigation against Singh and in the related ongoing action against Bankman-Fried, FTX, Alameda, and executives Ellison and Wang, the CFTC seeks restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and permanent injunctions against further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.
United States v. Nishad Singh, Crim No. 22-CR-673 (S.D.N.Y. 2023).