Recent testimony from former senior FTX executive Nishad Singh has exposed the extent to which Sam Bankman-Fried and other FTX executives spent $8 billion worth of customer funds. These funds were allocated for various purposes, including real estate acquisitions, venture capital investments, campaign contributions, endorsement deals, and even the renaming of a sports stadium. Singh's testimony, which marked the commencement of the third week of Sam Bankman-Fried's trial, provides a comprehensive account of where these substantial sums were channeled.
In his testimony, Singh disclosed that he became aware of a significant discrepancy in Alameda's financial records, amounting to approximately $8 billion. This discrepancy resulted from a coding error that had hindered the accurate accounting of user deposits. This revelation corroborates the statements made by previous prosecution witnesses who were closely associated with Sam Bankman-Fried, including FTX CTO Gary Wang, Alameda CEO Caroline Ellison, and FTX engineer Adam Yedidia. These witnesses have all pointed to Bankman-Fried as the orchestrator of fraudulent activities and money laundering.
Despite his knowledge of the financial shortfall, Singh stated that he approved transactions that he knew would exacerbate the deficit, ultimately drawing from customer funds. He described Bankman-Fried's spending as "excessive" and revealed that he often learned about significant expenditures after the fact, expressing his concerns to no avail.
Moreover, Singh highlighted that Bankman-Fried's excessive spending did not align with the company's purported objectives. He expressed feelings of embarrassment and discomfort, as the expenditures seemed excessively extravagant.
The prosecution scrutinized spreadsheets outlining the allocation of the $8 billion in customer funds. Singh confirmed that Bankman-Fried played a pivotal role in making final decisions on investments and overall investment team choices.
The expenditure included a $1 billion investment in Genesis Digital Assets, a cryptocurrency mining company in Kazakhstan, and a $500 million investment in Anthropic, an AI firm focusing on safety. Notably, the prosecution emphasized Alameda's $200 million investment in K5 Global, a venture firm led by influential investor Michael Kives, known for his extensive network. Bankman-Fried was notably impressed by Kives' network, which included prominent figures such as Hillary Clinton, Katy Perry, Orlando Bloom, Leonardo DiCaprio, Jeff Bezos, and others. Bankman-Fried proposed providing substantial funds and incentives to Kives and co-founder Bryan Baum in exchange for their connections.
Singh expressed concerns about partnering with K5 and providing extensive funds, as it contradicted the cultural values of FTX and Alameda. He viewed it as rewarding politicking and social climbing rather than fostering the company's intended culture.
Bankman-Fried believed that endorsement deals and unpaid partnerships with celebrities would enhance FTX's influence and boost its success. This strategy resulted in significant expenses, such as the $205 million spent on renaming the Miami Heat stadium to FTX Arena and a $150 million endorsement of the MLB. Other notable expenses included payments totaling $1.13 billion for endorsements from figures like Steph Curry, Riot, Larry David, Tom Brady, and Gisele Bündchen, with whom FTX was collaborating on philanthropic efforts.
The testimony also unveiled various properties acquired with these funds, including a $30 million penthouse in the Bahamas, which Singh regarded as excessively extravagant. Additionally, Bankman-Fried made substantial political campaign donations.
Despite Singh's expressions of concern, his objections were typically dismissed, with Bankman-Fried occasionally chastising him for casting doubt on the company's decisions.
The $8 billion financial discrepancy stemmed from a coding bug introduced by FTX engineer Adam Yedidia in 2021. This bug hindered the accurate accounting of user deposits within the Fiat@FTX.com system, contributing to the financial shortfall. Singh also disclosed that he had developed systems that granted Alameda special privileges, including the "allow negative" feature, which enabled Alameda to trade, borrow, and withdraw FTX funds exceeding its balance and collateral amounts. This feature, initially coded in 2019, was developed at Bankman-Fried and Wang's request. A subsequent version allowed Alameda to borrow from FTX without liquidating its collateral, enabling them to withdraw funds they did not possess, thereby risking customer funds.
By June 2022, Alameda had accumulated a $2.7 billion deficit on the FTX platform, and a total of $11 billion in discrepancies on FTX's balance sheet was attributed to the negative account balance and the coding error.
This revelation provides further insights into the intricate financial web and practices at FTX and the extensive ramifications of Bankman-Fried's actions.
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