The U.S. Securities and Exchange Commission on Tuesday charged Nishad Singh, the former director of engineering for FTX, with defrauding the crypto platform's equity 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 the 27-year-old Singh created the software code that allowed funds of FTX customers to be diverted to related hedge fund Alameda Research.
The SEC alleged this happened as former CEO Sam Bankman-Fried, who has pleaded not guilty to eight criminal charges of fraud, made repeated "false assurances" 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."
"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," Gurbir Grewal, the SEC's Division of Enforcement director, said in a statement.
The agency's charges follow parallel actions filed by the U.S. Attorney’s Office for the Southern District of New York and the Commodities Futures Trading Commission (CFTC). Singh pleaded guilty to separate U.S. criminal charges during a court hearing on Tuesday. The SEC also noted Singh is cooperating with its ongoing investigation into FTX.
The SEC's complaint charges Singh with 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 that prohibits Singh from participating in future securities activities except for his own personal accounts as well as forfeiting any profits of ill-gotten gains.
Singh has consented to a bifurcated settlement, which is subject to court approval.
Upon motion of the SEC, a court will determine whether and what amount of forfeiture of ill-gotten gains plus prejudgment interest and/or civil penalty is appropriate.
Singh's guilty plea earlier Tuesday came on charges that included one count of wire fraud, three counts of conspiracy to commit fraud, one count of conspiracy to commit money laundering, and one count for conspiracy to defraud the United States through violation of U.S. campaign finance laws.
A known member of Bankman-Fried's inner circle, Singh also was cited in bankruptcy documents as having received a $543 million loan from Alameda Research, the trading firm alleged to have spent billions of dollars in customer funds according to the Justice Department's indictment. Singh also held a 7.8% stake in FTX.
Since FTX's collapse in November, the crypto firm’s original cofounder had remained largely out of the public eye. Two other top executives for 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 unlawful 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 action brought against Singh represents the seventh the SEC has taken against a crypto firm.
"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," Grewal said. "That’s true when it comes to crypto asset securities, just as it is in connection with any other securities.”
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