Former Top FTX Executive Testifies He Knew $8B of Customer Money Was Missing

• A former senior FTX executive, Nishad Singh, who has already pleaded guilty, testified as the third week of Sam Bankman-Fried’s criminal trial began.
• Singh, who said he knew around $8 billion of FTX customers’ money had gone missing, helped crystallize points from previous testimony by other members of Bankman-Fried’s inner circle.
• “I had a lot of admiration and respect for him, but over time that eroded,” Singh said of Bankman-Fried, his friend from high school.

NEW YORK — The third week of Sam Bankman-Fried’s criminal trial began with a member of his FTX inner circle weaving together statements from three previous witnesses, walking the jury step-by-step through the programming errors, product features and leadership decisions that let the crypto exchange allegedly misuse customers’ money – and led to the crypto empire blowing up.

Nishad Singh, who was head of engineering at FTX, said he “learned of a hole” in the company’s finances in September 2022. Though he noticed around $8 billion missing from Bankman-Fried’s company, he nevertheless approved transactions that he “implicitly” knew had to have come from user deposits, Singh testified Monday. That money was apparently funneled to Bankman-Fried’s affiliated trading firm, Alameda Research.

Singh has already pleaded guilty, as have two previous prosecution witnesses: FTX CTO Gary Wang and Alameda CEO Caroline Ellison. Singh’s testimony helped draw connections between their courtroom statements along with those of FTX engineer Adam Yadidia.

The financial hole was “enormous,” Singh said, adding that he learned in conversations with Bankman-Fried that the funds were used by Alameda for a variety of venture investments, political donations, real estate purchases and other expenditures.

Prosecutors seemed intent on using Singh to paint Bankman-Fried as the one who ultimately directed FTX and Alameda’s investments. Singh testified that Bankman-Fried would frequently ignore objections from other team members, making large investments designed to give his businesses entreé with celebrities, politicians and other people of influence.

One line of questioning zeroed in on a $200 million Alameda investment into K5 Global, a venture firm led by businessman Michael Kives. Singh said that Bankman-Fried attended a Kives-hosted Super Bowl party with Hillary Clinton, Jeff Bezos and Kendall Jenner, among others. Apparently impressed by the star power at the event, Bankman-Fired pitched the investment into Kives’ business as a way for FTX to earn “essentially infinite connections.”

Read all of CoinDesk’s SBF trial coverage here.

Singh, however, said he expressed concern that the investment, which would put FTX in proximity to celebrities and professional athletes, would be “value-extractive” and “toxic to FTX culture.”

“If we must go through with this, it must not go through FTX,” Singh recalled telling Bankman-Fried. “It should be Sam’s money, not FTX money.” Singh said his protestations didn’t yield results. Prosecutors entered a spreadsheet into evidence listing FTX and Alameda’s various venture investments; the sheet showed that the nine-figure K5 deal went through Alameda’s venture arm, not Sam’s own pocketbook.

The infamous ‘fiat@’ account

Singh, who worked at Alameda before FTX was founded, said he was aware from “FTX’s inception” that Alameda bank accounts had been used to store FTX customer funds – a move initially designed to circumvent the trouble FTX had with opening its own accounts.

He said he personally programmed systems in 2019 that routed FTX user deposits into Alameda bank accounts. Singh also added wire instructions to FTX’s website which, if followed, landed funds in Alameda-controlled accounts (testimony from earlier in the day showed that FTX users were instructed to wire funds to an Alameda-linked entity called “North Dimension”).

“Someone would manually credit” FTX user balances with the amounts deposited into Alameda’s bank accounts, he explained.

Singh said that in 2021, he and other FTX executives became aware of a bug in FTX’s internal accounting systems that overstated user deposits by around $8 billion. FTX recorded these user deposits in an internal database entry dubbed “fiat@.”

“When a withdraw was processed, the customer balance [on FTX] was decremented, funds were sent from actual bank accounts, but fiat@’s actual balance was not correctly adjusted,” Singh explained.

On top of this error, Singh testified that he built out systems on FTX that gave Alameda “special privileges” not afforded to other users. One feature, “allow negative,” let Alameda trade, borrow and even withdraw FTX funds in excess of its balance and collateral amounts, Singh testified. Singh said he coded an initial version of the feature in 2019 “at Sam [Bankman-Fried] and Gary [Wang’s] advisement and direction.”

Eventually, Alameda was able to borrow from FTX without ever having its collateral liquidated, and it was able to “withdraw money that it didn’t have,” Singh said. In sum, this meant that “Alameda could lose money” that “belonged to customers,” Singh testified.

“I don’t recall it ever being stated that [user] funds were being taken,” said Singh. “[I] recall affirmative statements from Sam and others that Alameda didn’t have any special privileges,” he added.

By June 2022, Alameda built up a $2.7 billion deficit on the FTX platform, and Alameda technically still owed billions in user funds to FTX that it no longer had on hand – withdrawals that FTX missed as a result of its accounting bug. Altogether, the negative account balance and buggy accounting system contributed to an $11 billion hole in FTX’s balance sheet, Singh testified.

Fooling the CFTC

Bankman-Fried tried to fool the U.S. Commodity Futures Trading Commission by asking his lieutenants to move Serum (SRM) tokens he owned personally onto Alameda’s balance sheet, Singh testified Monday afternoon. Singh told the court he didn’t complete the transaction because it “felt wrong” to attempt to trick a federal regulator.

Later during his testimony, Singh walked the jury through his discovery that Alameda owed FTX customers billions of dollars after Bankman-Fried circulated a proposal called “We came, We saw, We Researched” about his potential plans to shutter Alameda and rehabilitate FTX’s image.

Caroline Ellison told Singh that it would be “impossible” to sunset the quant trading firm’s operations, alluding to Alameda’s inability to close out its accounts and pay back debts it owed to its sister company’s customers, Singh testified.

He then realized “customers had been betrayed,” Singh said.

SBF’s campaign donations

FTX had a sophisticated operation for donating funds to political candidates, Singh testified. Ryan Salame, an executive, would route funds from Singh’s bank and Prime Trust accounts to recipients. Singh was the face of some of these donations because of “advantageous optics,” he said.

Salame originated wire transfers from Singh’s Prime Trust account that Singh then had to approve, he said. Singh also signed blank checks that he gave to Gabe Bankman-Fried, the defendant’s brother, for use as donations to other political candidates.

Read more: FTX Asks Politicians Who Received Bankman-Fried Donations to Return Money

During another section of testimony, Singh said versions of a spreadsheet that inflated FTX’s revenues were sent to FTX investors. At Bankman-Fried’s direction, Singh said that he recorded crypto staking fees in a spreadsheet and went into FTX’s database to mark these fees as having come in throughout 2021, though this wasn’t actually true.

This was done to inflate FTX’s 2021 revenue to north of $1 billion, he said.

Bankman-Fried’s high school friend

Singh recounted his experience climbing the ranks from software developer to manager at FTX, the crypto exchange founded by his high school friend, Bankman-Fried.

At the beginning of his tenure at the exchange, Singh testified, he felt “intimidated” by the “formidable” and “brilliant” wunderkind who helmed the platform he was helping build out. But, that admiration quickly turned to “shame” following the September 2022 discovery that FTX’s executives were enriching themselves with customers’ funds.

“I had a lot of admiration and respect for him, but over time that eroded,” Singh told the court.

According to Singh, Bankman-Fried’s frequent dipping into customers’ funds was at times done “unilaterally” and was often “excessive.”

The issues of the executives’ lavish spending and the company’s poor investments were ones Singh eventually decided to raise to the former FTX CEO. But, when he broached the subject among a group of the company’s employees, Bankman-Fried berated him for it, Singh told the court.

“I thought we had been fleeced for $20 million,” Singh testified, but Bankman-Fried said “it was people like me who were seeding doubt” in the company.

UPDATE (Oct. 16, 2023, 18:01 UTC): Adds additional testimony throughout, starting in the first paragraph.

UPDATE (Oct. 16, 2023, 19:44 UTC): Adds testimony about trying to trick the CFTC.

UPDATE (Oct. 16, 2023, 21:10 UTC): Adds testimony about campaign donations.