SEC Alleges Multiyear Scheme by FTX Co-Founder Nishad Singh to Defraud Investors
The former Co-Lead Engineer of FTX, Nishad Singh, has been charged by the Securities and Exchange Commission (SEC) for defrauding equity investors in FTX, the crypto trading platform he helped to create.
According to the complaint filed by the SEC, Singh created software code that allowed FTX customer funds to be diverted to Alameda Research, a crypto hedge fund owned by FTX co-founders Samuel Bankman-Fried and Gary Wang, despite false assurances by Bankman-Fried 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.
The complaint also alleges that Singh was an active participant in the scheme to deceive FTX’s investors. Moreover, as FTX neared collapse, 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. 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 SEC’s litigation will be led by Amy Burkart and David D’Addio and supervised by Ladan Stewart and Olivia Choe. Singh has consented to a bifurcated settlement, which is subject to court approval, under which he will be permanently enjoined from violating the federal securities laws, 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 an officer and director bar.
The U.S. Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission (CFTC) also announced charges against Singh in a parallel action. Singh is cooperating with the SEC’s ongoing investigation, which is being conducted by the Crypto Assets and Cyber Unit.
In a statement, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said, “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 Mr. Singh and his co-defendants were stealing customer funds using software code Mr. Singh helped create. A pillar of our securities laws is that when companies and their representatives decide to speak on an issue, they can’t lie to investors on matters that are core to their investment decisions. That’s true when it comes to crypto asset securities, just as it is in connection with any other securities.”
Investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the FBI, and the CFTC.
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