SEC accuses FTX’s Nishad Singh of defrauding collapsed crypto exchange’s customers
The US Securities and Exchange Commission on Tuesday accused Nishad Singh, the former engineering director of FTX, of defrauding the crypto platform’s stock investors. The charges followed the former executive’s guilty plea to similar charges in a New York City courthouse earlier in the day.
According to the SEC’s complaint, the commission alleges that the 27-year-old Singh created the software code that allowed funds from FTX clients to be diverted to related hedge fund Alameda Research.
The SEC alleged that this occurred when former CEO Sam Bankman-Fried, who has pleaded not guilty to eight criminal fraud charges, made repeated “false assurances” to investors that FTX was a “secure trading platform for cryptoassets with sophisticated risk mitigation measures to protect customer resources and that Alameda was just another customer with no special privileges.”
“We allege that this was fraud, plain and simple: while on the one hand FTX presented its supposedly effective risk mitigation measures to investors, on the other Mr. Singh and his co-defendants stole client funds using the software code that Mr. Singh helped create ,” Gurbir Grewal, the SEC’s Division of Enforcement, said in a statement.
The agency’s charges follow parallel actions filed by the US Attorney’s Office for the Southern District of New York and the Commodities Futures Trading Commission (CFTC). Singh pleaded guilty to separate US criminal charges during a court hearing on Tuesday. The SEC also noted that Singh is cooperating with its ongoing investigation into FTX.
The SEC’s complaint accuses Singh of violating the anti-fraud provisions of both the Securities Act of 1933 and the Securities Exchange Act of 1934. The agency is seeking a conduct-based injunction prohibiting Singh from engaging in future securities activities except for his own personal accounts as well as forfeiture of any profits from bad gains achieved.
Singh has agreed to a two-part settlement, which is subject to court approval.
Upon motion by the SEC, a court will determine whether and what amount of forfeiture of ill-gotten gains plus prejudgment interest and/or civil penalties is appropriate.
Singh’s guilty plea earlier Tuesday came on charges that included one count of wire fraud, three counts of conspiracy to commit wire fraud, one count of conspiracy to commit money laundering, and one count of conspiracy to defraud the United States through violation of U.S. campaign finance laws.
A known member of Bankman-Fried’s inner circle, Singh was also cited in bankruptcy filings as having received a $543 million loan from Alameda Research, the trading firm alleged to have used billions of dollars in client funds, according to the Justice Department indictment. Singh also held a 7.8% stake in FTX.
Since FTX’s collapse in November, the crypto firm’s original co-founder had largely stayed out of the public eye. Two other top executives of the crypto firm – Alameda Research CEO Caroline Ellison and FTX CTO Gary Wang – pleaded guilty in late December.
The development follows a superseding indictment filed last week, which increased Bankman-Fried’s initial charges from eight to 12 counts of fraud. The new counts include bank fraud, conspiracy to operate an unlicensed money transmitter business, conspiracy to commit money laundering and conspiracy to make illegal political contributions and to defraud the Federal Election Commission.
Bankman-Fried is currently on bail in Palo Alto, California. His trial is set for October 2. The case against Singh represents the seventh SEC action against a crypto firm.
“A cornerstone of our securities laws is that when companies and their representatives decide to talk about an issue, they cannot lie to investors about issues that are at the heart of their investment decisions,” Grewal said. “That is true in the case of crypto-asset securities, just as it is in connection with other securities.”
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