In the continuing fraud trial of Sam Bankman-Fried, a high-ranking FTX executive confronted on Monday the former crypto firm chief regarding the mysterious disappearance of billions in customer funds from the crypto exchange. These funds had been funneled to the affiliated trading firm, Alameda Research.
Nishad Singh, the former head of engineering at FTX, took the stand as a key witness in the case. He offered a harrowing account of the events leading up to the collapse of the exchange, which left a gaping hole in its customer accounts in November of the previous year.
“Sam is a formidable character… I came to distrust him,” Singh said, when asked to describe his relationship with Bankman-Fried.
The jury was presented with a vivid image of a luxurious terrace at a penthouse in the Bahamas, shared by Singh and Bankman-Fried. It was in this picturesque setting that Singh described a crucial and stressful conversation that took place in September 2022. During that exchange, Singh confronted Bankman-Fried, who was lounging on a chair, about the fact that Alameda had borrowed billions from FTX customer funds, leaving them unable to repay.
Recalling the conversation, Singh said he paced back and forth for over an hour, questioning Bankman-Fried. Bankman-Fried, who held control over both FTX and Alameda, seemingly downplayed the gravity of the situation, saying, “We are a little short on deliverables.” This phrase referred to the gaping chasm between the $5 billion in liquid assets they had available and the staggering $13 billion that Alameda owed to FTX.
Singh’s testimony, one of the prosecution’s primary witnesses, implied that Bankman-Fried was well aware of the customer funds shortfall long before the exchange’s catastrophic downfall. Furthermore, Singh asserted that Bankman-Fried’s subsequent efforts to secure fresh funding from equity investors were a deliberate attempt to fill the financial void.
It’s worth noting that Singh, who has pled guilty to fraud and campaign finance violations, is cooperating with prosecutors in the hopes of receiving a more lenient sentence. On the other hand, Bankman-Fried has entered a plea of not guilty, vehemently maintaining his innocence throughout the proceedings.
The K5 dinner
Singh recounted his frequent challenges to Bankman-Fried’s spending and investment choices and the consistent rejection he faced, stating, “I would hear that my opinions were already factored in, and I didn’t need to continue sharing them.”
The former FTX chief engineer divulged that he regularly approached Bankman-Fried to express his concerns about the company’s extravagant expenditures. He explained that he would candidly tell Bankman-Fried he felt “embarrassed” and “ashamed” due to the lavish spending, which, in his opinion, exuded a sense of “excessiveness” and “flashiness.”
The court presented a spreadsheet detailing investments made in 2021, including a substantial $1 billion allocated to Genesis for a mining company, $499 million to the startup Anthropic, and a notable $200 million to the investment firm K5.
Of these investments, Singh found the K5 allocation particularly troubling. He mentioned that Bankman-Fried had shared a term sheet outlining generous bonuses to K5’s owners, Michael Kives and Bryan Baum, following a K5 dinner attended by luminaries like Hillary Clinton, Katy Perry, Orlando Bloom, Leonardo DiCaprio, Kris, and Kylie Jenner. Singh conveyed his deep concern to Bankman-Fried, labeling the K5 investment as “value extractive.” He also inquired whether the investment had originated from Bankman-Fried’s personal funds rather than FTX’s. The spreadsheet clarified that it was sourced from Alameda.
In a motion to dismiss a bankruptcy court complaint against K5, the firm’s legal team asserted that the allegations attempting to implicate Kives and Baum in Bankman-Fried’s misconduct lacked factual basis.
Before the court’s recess on Monday, the jury was presented with a separate spreadsheet enumerating celebrity sponsorship deals, including a substantial $205 million for the FTX arena in Miami, $150 million for Major League Baseball, $28.5 million for Stephen Curry, $50 million for Tom Brady and Giselle Bundchen, and $10 million for Larry David. The total sum of these deals on the spreadsheet amounted to an impressive $1.13 billion.
Singh recalled an incident when Bankman-Fried instructed him to cease voicing his opinions in front of a group of other FTX employees, describing the experience as “pretty humiliating.”
Up until September 2022, Singh remained unaware that Bankman-Fried had been making extravagant purchases with funds sourced from unsuspecting FTX customers, a revelation that unfolded during his testimony.
Shutting down Alameda
Adding to the dramatic backdrop, Singh disclosed that earlier on the day of the pivotal penthouse meeting, Bankman-Fried had circulated a memo contemplating the possibility of shutting down Alameda. A group chat among the inner circle revealed that the trading firm’s CEO, Caroline Ellison, believed such a move was unfeasible due to Alameda’s inability to repay its debt to FTX.
“I was really hoping that I misunderstood,” Singh recounted. “And I called for a meeting immediately.”
Singh confessed that he had contemplated quitting, but Bankman-Fried persuaded him to persist in the hope of recouping customer funds and preventing the exchange from collapsing. Singh’s testimony painted a picture of a man who was increasingly distressed and felt “suicidal” in the exchange’s final days.
In the course of his extensive testimony, Singh revealed that Bankman-Fried had twice requested him to backdate transactions and FTX records, artificially inflating the appearance of collateral that Alameda supposedly had to cover its borrowings and make the exchange’s revenues appear larger than reality.
Singh, the youngest member of FTX’s inner circle, had joined Alameda in late 2017, leaving a position at Facebook. Initially, he held Bankman-Fried in high regard, but over time, that admiration waned, and he began to distrust him.
Singh’s cross-examination by Bankman-Fried’s defense lawyers is scheduled for Tuesday, promising further revelations and dramatic twists in this high-stakes legal battle.
Last week, Ellison took the witness stand, admitting sending “dishonest” balance sheets to other lenders before FTX’s demise.
Information for this briefing was found via Financial Times and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
