The Securities and Exchange Commission (SEC) has charged Nishad Singh, the former Co-Lead Engineer of FTX Trading Ltd. (FTX), for his involvement in a multiyear scheme to defraud equity investors in FTX, a crypto trading platform that Singh co-founded with Samuel Bankman-Fried and Gary Wang. The scheme allegedly involved diverting FTX customer funds to Alameda Research, a crypto hedge fund owned by Bankman-Fried and Wang, despite false assurances to investors that FTX had measures in place to protect customer assets.
Singh’s Role in the Scheme
According to the SEC’s complaint, Singh was responsible for creating software code that enabled the diversion of FTX customer funds to Alameda Research. Bankman-Fried had falsely assured investors that Alameda was just another customer with no special privileges, and FTX had sophisticated risk mitigation measures in place to protect customer assets. Singh allegedly knew or should have known that these statements were false and misleading.
Singh was an active participant in the scheme to deceive FTX’s investors. Additionally, as it became apparent that Alameda and FTX could not reimburse customers for unlawfully diverted funds, Bankman-Fried, with Singh’s knowledge, directed hundreds of millions of dollars more in FTX customer funds to Alameda. These funds were used for additional venture investments and loans to Bankman-Fried, Singh, and other FTX executives. The complaint also alleges that 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.
Charges Against Singh
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 complaint seeks various remedies, including an injunction against future securities law violations, disgorgement of ill-gotten gains, a civil penalty, and an officer and director bar.
Singh has consented to a bifurcated settlement, subject to court approval, under which he will be permanently enjoined from violating federal securities laws, subject to an officer and director bar, and 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. The court will determine the appropriate amount of disgorgement of ill-gotten gains, prejudgment interest, and/or a civil penalty, as well as the length of the officer and director bar and the conduct-based injunction imposed against Singh, upon motion by the SEC.
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