Former FTX Director Pleads Guilty to Fraud—SEC, CFTC File Civil Charges

By André Beganski

Nishad Singh, former head of engineering at bankrupt crypto exchange FTX pleaded guilty to criminal charges Tuesday, the third member of founder Sam Bankman-Fried’s inner circle to admit to illicit activities in relation to FTX.

Singh’s lawyer said the former high-level employee at FTX has agreed to plead guilty to criminal charges during a court proceeding, Reuters reported, after Singh reportedly met with U.S. prosecutors to discuss a potential cooperation agreement last month.

Singh pleaded guilty to wire fraud, conspiracy to commit wire fraud, money laundering, and conspiracy to defraud the U.S. government by violating campaign finance laws. Singh said that he was aware of mismanagement at FTX by the middle of last year and apologized for his role in the abuse of FTX’s funds.

The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) brought charges against Singh following his guilty plea. SEC Director of Enforcement Gurbir Grewal claimed in a statement that what Singh did at FTX "was fraud, pure and simple," helping create software code that led to customer funds being stolen.

Bankman-Fried has pleaded not guilty to criminal charges brought against him for his management of FTX, a leading crypto exchange that collapsed last November following a bank run on the exchange that was triggered by a steep drop in its exchange token FTT. The bank run forced FTX to admit it could not honor customer withdrawals and did not hold one-to-one reserves of customer assets.

The charges Bankman-Fried faces range from money laundering to wire fraud. He is accused of misappropriating billions of dollars worth of customer funds to fuel trades at Alameda, purchase private real estate, and donate to political campaigns.

Federal prosecutors announced additional charges against Bankman-Fried last week, filing a superseding indictment that detailed illegal political donations the FTX founder has made. The superseding indictment also discussed how Bankman-Fried was allegedly able to access customer funds through Alameda, relying on code that was created. 

“Bankman-Fried [...] caused the creation of secret loopholes in the computer code that powered FTX's trading platform—loopholes that allowed Alameda to incur a multi-billion-dollar negative balance on FTX that Bankman-Fried knew Alameda could not repay,” the indictment alleges.

Last December, prosecutors in the Southern District of New York revealed they had obtained the cooperation of FTX co-founder Gary Wang and ex-CEO of Alameda Research Caroline Ellison into the collapse of FTX, who both pleaded guilty to criminal charges.

"If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it. We are moving quickly, and our patience is not eternal," U.S. Attorney Williams said in a video that accompanied the announcement.

The SEC alleged Singh played a role in FTX’s mismanagement that same day, claiming in a criminal complaint that Wang and Singh “were the lead engineers responsible for writing the software code for FTX.”

The complaint claims that Alameda benefited from “undisclosed features of the FTX platform, which were embedded in software code developed by Wang and other FTX engineers, and which allowed Alameda to divert FTX customer assets.”

The features allegedly included ones that allowed Alameda to obtain a negative balance on its customer account with FTX, raise a line of credit extended to Alameda that “effectively became limitless,” and exempt the firm from being automatically liquidated when falling below the required margin level on trades—features no other customer had.

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