Former FTX Trading Ltd. (FTX) Co-Lead Engineer Nishad Singh was charged with fraud by the SEC today for his role in a multi-year plan to trick equity investors in FTX, which Singh co-founded with Samuel Bankman-Fried and Gary Wang. Other businesses and individuals may be investigated for possible links to the alleged misbehaviour as well as potential violations of securities laws.
Nishad Singh Charges by SEC
Even though Bankman-Fried told investors that FTX was a safe crypto asset trading platform with sophisticated risk mitigation measures to protect customer assets, the SEC says that Singh wrote software code that allowed FTX customer funds to be sent to Alameda Research, a crypto hedge fund owned by Bankman-Fried and Wang. The complaint states that Singh either knew or should have known that the statements in question were untrue and deceptive.
The lawsuit further asserts that Singh was complicit in the plot to defraud FTX’s investors. The complaint further alleges that after it became apparent that Alameda and FTX would not be able to reimburse customers for the funds that had been wrongfully diverted, Bankman-Fried, with Singh’s knowledge, directed hundreds of millions of dollars more in FTX customer funds to Alameda, where they were used for additional venture investments and loans to Bankman-Fried, Singh, and other FTX executives.
While FTX was about to fail, the complaint claims that Singh took out $6 million for his own purposes, including the purchase of a multimillion-dollar home and charitable donations.
“This was a fraud, plain and simple,” said Gurbir S. Grewal, Director of the SEC‘s Division of Enforcement. “On the one hand, FTX told investors about its supposed effective risk mitigation measures, but on the other hand, Mr Singh and his co-defendants were stealing customer funds using software code that Mr Singh helped create.”
Fundamental to our securities laws is the prohibition against firms and their personnel making materially false statements to investors. That is true in relation to cryptographic assets in the same way that it is true in relation to any other securities.
In a complaint, the SEC claims that Singh violated the Securities Act of 1933 and the Securities Exchange Act of 1934, both of which contain anti-fraud provisions. The SEC wants an injunction to stop Singh from breaking securities law again, a conduct-based injunction to stop him from issuing, buying, offering, or selling securities (except for his own accounts), the return of his illegal gains, a civil penalty, and a ban on him being an officer or director of a company.
Singh has agreed to a two-part settlement that, if approved by the court, will result in permanent injunctions against his breaking the federal securities laws, the conduct-based injunction outlined above, and a restriction from serving as an officer or director of a public company. Based on the SEC’s request, the court will decide how long Singh will be banned from being an officer or director and how long the conduct-based injunction will last. The court will also decide if and how much disgorgement of ill-gotten gains plus prejudgment interest and/or a civil penalty is appropriate.
Both the CFTC and the U.S. Attorney’s Office for the Southern District of New York have announced charges against Singh today.
Singh is helping the Securities and Exchange Commission’s Crypto Assets and Cyber Unit’s Devlin N. Su, Ivan Snyder, and David S. Brown, as well as the SEC’s Brian Huchro, Pasha Salimi, and Ainsley Kerr, with their investigation. David Hirsch, Jorge Tenreiro, Michael Brennan, and Amy Flaherty Hartman are in charge of it. Amy Burkart and David D’Addio will be in charge of litigation for the SEC, with oversight from Ladan Stewart and Olivia Choe.
The FBI and the Commodity Futures Trading Commission (CFTC) were helpful to the Securities and Exchange Commission (SEC).
