FTX: A Cryptocurrency Trading Platform
Nishad Singh, a former Co-Lead Engineer at FTX Trading Ltd. (FTX), was charged by the Securities and Exchange Commission (SEC) today for his role in a multiyear scheme to defraud equity investors in FTX. Singh was one of the three founders of FTX, along with Samuel Bankman-Fried and Gary Wang.
FTX is a cryptocurrency trading platform. Ongoing investigations are being conducted into potential violations of other securities laws, as well as potential wrongdoing on the part of other entities and individuals.
According to the complaint filed by the SEC, Singh created software code that enabled FTX customer funds to be diverted to Alameda Research, a cryptocurrency hedge fund owned by Bankman-Fried and Wang.
This occurred despite Bankman-false Fried’s assurances 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. According to the allegations made in the complaint, Singh either knew or should have known that the statements in question were false and misleading.
The complaint also states that Singh was an active participant in the scheme to deceive FTX’s investors and states that he did so intentionally. The complaint alleges further that even after it became apparent that Alameda and FTX could not make customers whole for the funds that had already been unlawfully diverted, Bankman-Fried, with the knowledge of Singh, directed hundreds of millions of dollars more in FTX customer funds to Alameda.
These funds were then used for additional venture investments and loans to Bankman-Fried, Singh, and other FTX executives. The complaint alleges that Bankman-Fried did this with the knowledge of Singh. In addition, the complaint alleges that as FTX was coming dangerously close to failing, Singh withdrew approximately $6 million from the company for his own use and expenditures. These included the purchase of a home worth multiple millions of dollars as well as contributions to charitable causes.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated that “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 hand Mr. Singh and his co-defendants were stealing customer funds using software code that Mr. Singh helped create.
We allege that this was fraud, pure and simple.” “When it comes to crypto asset securities, just as it is in connection with any other securities, one of the pillars of our securities laws is that when companies and their representatives decide to speak on an issue, they are not allowed to lie to investors on matters that are core to their investment decisions.
The complaint filed by the SEC alleges that Singh violated the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The complaint filed by the SEC seeks an injunction against future violations of securities law; 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 officer and director liability for Singh.
Both the United States Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission (CFTC) have announced today that they will be bringing charges against Singh in a parallel action.
Singh is providing assistance to the SEC in their ongoing investigation, which is being led by Amy Flaherty Hartman, Michael Brennan, Jorge Tenreiro, and David Hirsch. The SEC’s litigation will be led by Amy Burkart and David D’Addio and supervised by Ladan Stewart and Olivia Choe.
The Securities and Exchange Commission is grateful to the Federal Bureau of Investigation and the Commodity Futures Trading Commission for their assistance in this investigation.
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