Blog

Of Sam Bankman-Fried’s alleged co-conspirators, Nishad Singh gave probably the most emotionally compelling testimony. And on cross-examination, he additionally proved to be probably the most unreliable. 

Yesterday, Singh condemned Bankman-Fried for persevering with to make enterprise investments regardless of understanding the cash got here from buyer funds, even calling the actions taken at FTX “evil.” At present, the protection identified that Singh took out a mortgage from FTX to be able to purchase a $3.7 million home on Orcas Island in Washington after Singh says he came upon concerning the misuse of buyer funds. 

I’ve written twice about my frustrations with Bankman-Fried’s protection, which has typically appeared meandering and confused. At present, they lastly managed to place some factors on the board. 

To date, the prosecution’s witnesses have been credible — Caroline Ellison, the previous CEO of Alameda, particularly. The protection has been grinding away, making an attempt to make it sound like Bankman-Fried’s alleged co-conspirators are simply making an attempt to save lots of their very own skins at Bankman-Fried’s expense. (All three have pleaded responsible to assorted crimes, made cooperation agreements, and await sentencing.) Positive, on some stage, the suggestion that Singh might have been embezzling is worse for Bankman-Fried — Singh wasn’t a cash man, and somebody needed to approve it. However it’s one of the best the protection has performed to this point to undermine a witness’s credibility.

Protection lawyer Mark Cohen started within the grand authorized custom of roasting the witness. A few of the roasts had been to be anticipated: Why was Singh opining on whether or not spending $1 billion on sponsorships was extreme, when Singh was head of engineering, a division is decidedly not advertising?

Then Cohen landed a reasonably good dig on the Bahamas penthouse. Billionaires and millionaires (on paper, at the least) residing collectively as roommates is objectively humorous; one in all mentioned roommates being cross-examined solemnly on whether or not or not he thought it was “actually costly” to dwell in a $30 million house is even funnier.

Singh mentioned he didn’t know what was regular for billionaires and that he “felt confused about it.”

“However not confused sufficient to maneuver out,” Cohen mentioned.

After that, Cohen misplaced some steam. The prosecution has a robust narrative, even managing to deliver witness testimony to emotional crescendos. The protection, in contrast, doesn’t appear clear on the notion of chronological storytelling. At present we skipped round between September 2022, June 2022, November or December 2021, October 2022, and August 2020. As a result of I assume you additionally dwell in a unidirectional timeline, I’m going to offer my abstract out of the order during which it was introduced. I’m additionally going to disregard the locations the place Cohen swung and missed as a result of I’m actually sick of writing concerning the struggle-bus facets of the protection. 

In July 2019, Singh wrote the code for “allow_negative,” on the course of Gary Wang, co-founder and chief know-how officer of FTX, who, like Singh, has pleaded responsible to a handful of crimes. On the time, Singh mentioned he understood the purpose of the code was to permit FTX to maneuver FTT, in addition to to modernize a number of the accounting-related capabilities. 

Wang had testified that the perform of that code was to let Alameda Analysis, which was co-owned by Wang and Bankman-Fried, withdraw cash, even when its account didn’t have any.

In August 2020, FTX had its first occasion the place not one of the market-makers, together with Alameda Analysis, might help in liquidating an account. (Alameda couldn’t step in as a result of it had run out of collateral.) So what occurred subsequent was auto deleveraging, which is a unique danger administration system that sticks some merchants with the loss. This type of factor tends to make prospects sad.

I’m now going to offer you some backstory that the jury didn’t get on this testimony. We’ve heard earlier than — from Wang and from Ellison — a few $65 billion line of credit score prolonged to Alameda. Nobody else on the platform had entry to this sum of money, which was basically limitless. However right here, for the primary time, we now have a believable, non-criminal clarification for why Alameda acquired an enormous line of credit score: to keep away from sticking different prospects with losses by way of auto deleveraging. (Alameda would at all times take the hit as an alternative, and it might at all times have sufficient collateral to take action.) Singh didn’t bear in mind whether or not Alameda’s line of credit score had been elevated right now, but when the timeframes do line up, that’s the least damning clarification for the road of credit score I’ve heard but.

It doesn’t undo the truth that Bankman-Fried repeatedly assured the general public that Alameda had no special privileges on FTX — which looks as if an apparent lie — however it does make the road of credit score sound much less dangerous. That’s not nothing!

In November or December 2021, Singh turned conscious of a bug in Alameda’s system that overstated how a lot Alameda owed FTX. Basically, the bug didn’t accurately observe account withdrawals, making the quantity Alameda owed FTX look greater than it was. Singh mentioned that Adam Yedidia — one other witness — appeared nervous about it however Wang was relaxed as a result of “the course of the bug was protected.” If it had under-estimated how a lot Alameda owed FTX, that may have been a much bigger trigger for concern.

By June 2022, the bug had created an $8 billion discrepancy between how a lot Alameda truly owed FTX, and the way a lot the inner accounting mentioned Alameda owed FTX. Yedidia testified earlier that was when he observed Alameda owed FTX an terrible lot of cash, and have become involved about it. However Singh mentioned that he wasn’t involved on the time, since he assumed Alameda had the belongings to repay FTX. 

I’m a bit of confused about why we’re spending a lot time with the bug. In Yedidia’s case, it explains what he knew and why he knew it. For everybody else? The one factor I can consider is that I’m to imagine that the bug was so large that nobody knew how a lot cash Alameda truly owed, besides that it was a decrease quantity, and thus Alameda spent cash it didn’t have. However that appears fairly weak — particularly since Singh testified about mendacity to auditors yesterday and final week, Ellison testified to creating up seven faux stability sheets to ship to lenders.

Singh claimed he wasn’t conscious that Alameda Analysis was utilizing FTX buyer funds till September 2022, however the protection acquired me to doubt that. In spite of everything, Yedidia put collectively sufficient to get nervous about what Alameda was doing from dealing with the programming on the bug alone, and he wasn’t even doing something shady like transferring cash from Alameda’s account to the “Korean pal” account. (I nonetheless don’t know what the deal is with the username “seoyuncharles88” and I’m beginning to get sort of pissed that nobody is explaining it.)

Singh testified that by September, he knew the cash wasn’t there. And that was when Cohen introduced up the Orcas Island home, which Singh purchased in October 2022. (Sadly, there have been no images, particulars on sq. footage or variety of bedrooms, so I needed to look that up afterward: six bedrooms, a lap pool, and a sizzling tub.) He’d borrowed $3.7 million from the FTX trade, regardless of his testimony yesterday about making an attempt to decelerate what he seen as FTX’s frivolous spending. I assume he didn’t see his personal spending as frivolous.

The testimony wasn’t as spectacular as on Singh’s direct yesterday — we didn’t get any extra cinematic retellings of conversations — and Cohen’s tendency to leap round in time made the narrative rather less than clear. However the Orcas Island home undercut Singh’s ethical authority, making him look inconsistent. Even when the jurors don’t observe the timeline or get a number of the different nuances, that’s fairly straightforward to understand.

The prosecution, on redirect, did handle to make the purpose that FTX was basically a rats’ nest of scams, however Singh nonetheless appeared much less dependable than he had in his preliminary testimony. Nonetheless, in discussing Singh’s loans, one thing curious got here out: Singh apparently felt morally obligated to repay the cash he’d borrowed from FTX, however not legally obligated. That’s as a result of there was no paperwork related to lots of them — he simply discovered giant sums transferred to his checking account. They had been loans “in a unfastened sense,” Singh mentioned. “They weren’t actually loans.”

Actually… that sort of appears like traditional embezzlement. And to me, it made Singh’s sweeping ethical statements about “heinously legal” acts at FTX ring hole. Singh was for positive one of the best storyteller of the alleged co-conspirators, however by the point he stepped down from the stand, I questioned how a lot of the story was self-serving.

On the break, I noticed Joe Bankman, the defendant’s father, speaking with protection counsel. He regarded comfortable, and who might blame him. I feel I wasn’t the one one who thought the protection lastly managed to point out up.