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FTX executives spent $8 billion; testimony reveals how

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Sam Bankman-Fried and other FTX executives spent $8 billion of client funds on real estate, venture capital investments, campaign donations, sponsorship deals and even a sports stadium, according to the testimony from former FTX executive Nishad Singh.

Singh’s testimony, which kicked off the third week of Bankman-Fried’s trial, provides new details about exactly where that money went.

Singh, who has previously pleaded guilty to fraud, money laundering and violating campaign finance laws, said Monday he became aware of the huge hole in Alameda’s books as a result of a coding error that “prevented the correct accounting” of user deposits of approximately $8 billion.

Singh’s testimony helps corroborate statements made by three previous prosecution witnesses, all of whom were part of Bankman-Fried’s inner circle: Gary Wang, CTO of FTX, Caroline Ellison, CEO of Alameda, and Adam Yedidia, engineer from FTX. Although Wang and Ellison pleaded guilty, each witness named Bankman-Fried as the orchestrator of the fraud and money laundering.

Singh said that even after learning of the hole, “implicitly and explicitly, I green-lighted transactions that I knew had to dig the hole deeper and therefore come from client funds.”

Singh later called Bankman-Fried’s spending “excessive.” He said he was often told about large expenses after the fact and his expressions of concern were not taken seriously.

“I would also like to express that I felt a little embarrassed or ashamed at how excessive and flashy the whole thing was,” Singh said. “It didn’t fit with what I thought we were building a business for.”

Where did the money go

Prosecutor Nicolas Roos and Singh pored over spreadsheets detailing the various ways Alameda spent its $8 billion in client funds. Singh testified that Bankman-Fried was “generally the one who made the final decision regarding investments and decisions of the investment team as a whole.”

In addition to passing $1 billion for Genesis Digital Assets, a cryptocurrency mining company in Kazakhstan, and $500 million for Anthropic, a security-focused AI company, the lawsuits focused on Alameda’s $200 million investment in K5 Global, a venture capital firm led by investor Michael Kives, known for his extensive network.

This network seemed to deeply impress Bankman-Fried. After attending a Super Bowl party hosted by K5 in Los Angeles, the former crypto mogul told Singh he met “the most awesome group of people he’s ever had in one place” . Among the faces at the party were Hilary Clinton, Katy Perry, Orlando Bloom, Leonardo DiCaprio, Jeff Bezos, Kendall, Kris Jenner and Kate Hudson.

Bankman-Fried had offered Singh and Wang a term sheet one evening that imposed hundreds of millions of dollars on Kives and Bryan Baum, K5’s co-founder and managing partner. The sheet also proposed up to $1 billion in long-term capital to be given to the venture capital firm, according to Singh.

“We can get essentially infinite connections from them,” Bankman-Fried wrote in a letter to FTX executives shared during Monday’s trial. “I think if we asked them to have a dinner with us, Elon, Obama, Rihanna and Zuckerberg in a month, they would probably make it happen.”

Singh said he expressed concern that partnering with K5 and giving them such substantial funds would be “really toxic to the FTX and Alameda culture.” He said that “politics and upward mobility were not going to be rewarded, and here we were rewarding people exorbitant amounts of money.”

The former FTX executive suggested that Bankman-Fried use his own money, not FTX’s, to make some of these investments. Those protests yielded no results, according to the spreadsheet, which shows the K5 deal went through Alameda’s venture capital arm.

Bankman-Fried also believed that sponsorship deals and even “unpaid celebrity partnerships” would help grow FTX’s influence and propel its success, Singh said.

To that end, about $205 million of that $8 billion was spent to rename the Miami Heat stadium to FTX Arena. Another $150 million was spent to support MLB. Other elements of a spreadsheet presented to the jury show that FTX paid $1.13 billion in exchange for backing basketball player Steph Curry, video game developer Riot, Seinfeld writer Larry David for backing FTX in a Super Bowl ad featuring football star Tom Brady and model Giselle. Bündchen, with whom FTX coordinated some philanthropic efforts, according to Singh. .

Singh’s testimony also revealed a series of properties that were purchased with these funds, including a $30 million penthouse in the Bahamas that Singh called “too ostentatious.”

Bankman-Fried has also donated tens of millions of dollars to election campaigns.

The former FTX executive, who also attended high school with Bankman-Fried and was close friends with her brother, testified that he expressed concern about the company’s spending but was generally discouraged.

Singh recalled an instance where Bankman-Fried was visibly angry with him and said people like him were “sowing seeds of doubt in company decisions” and were “the real insidious problem here.”

“It was quite humiliating,” Singh said.

Where does this $8 billion hole come from?

Singh’s testimony aligns with that of Yedidia who states that in June 2022, executives learned that Alameda owed $8 billion in money to FTX customers after Ellison shared a Google doc showing the balance ” extremely negative.

Singh told the court that this hole was due to a bug that Yedidia accidentally introduced into the system in 2021. The bug “prevented correct accounting of fiat@FTX.com balances on specific types of withdrawals,” said Singh. Fiat@FTX.com was an internal accounting system that recorded user deposits.

On top of that, Singh said he built systems on FTX that granted Alameda “special privileges” not granted to other users. A feature called “allow negatives” allows Alameda to trade, borrow and withdraw FTX funds beyond its balance and collateral amounts, according to Singh. He testified that he coded an initial version of the feature in 2019 on the advice of Bankman-Fried and Wang.

A later version of this code allowed Alameda to borrow from FTX without its collateral being liquidated. In effect, she could “withdraw money that she didn’t have,” meaning she could “lose money” that “belonged to the clients,” Singh said.

As of June 2022, Alameda had accumulated its own $2.7 billion deficit on the FTX platform.

“This seemed like a real abuse of a feature that, until now, served FTX, without harming it,” Singh said.

Alameda also owed FTX $8 billion in user funds at this point that it no longer had on hand. In total, the negative account balance and accounting glitch contributed to an $11 billion hole in FTX’s balance sheet, Singh said.

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