The emotional toll of FTX’s collapse

Hello and welcome to the latest edition of the FT’s Cryptofinance newsletter. This week, we’re taking stock of the US government’s prosecution of Sam Bankman-Fried

After several weeks of powerful testimonies for the prosecution in the FTX trial in New York, you might have thought the strongest ones had come and gone.

Not so: this week Nishad Singh, the former head of engineering at the now-collapsed exchange, took the stand and delivered more blows to Bankman-Fried.

Like many senior FTX people, he had connections to SBF that go back long before they became famous, then infamous. He was the best friend of Bankman-Fried’s younger brother at high school and shared SBF’s interest in effective altruism.

And in common with Gary Wang and Caroline Ellison, also part of Bankman-Fried’s inner circle, Singh said he committed financial crimes and did so in concert with Bankman-Fried. 

But Singh’s testimony also stands apart from that which came before him by offering a window into the emotional toll this alleged fraud had on Bankman-Fried’s associates.

Singh said he’d found out about the hole in customer deposits in September, when the billions in customer funds that should have been in FTX were in SBF’s Alameda Research. He’d signed up thinking the money FTX made would go to effective altruism causes.

“I was blindsided and horrified . . . five years of blood, sweat and tears from me and so many employees, driving towards something that I thought was a beautiful force for good, had turned out to be so evil,” Singh said. 

In the final days of FTX he described his mental state as “suicidal”, adding later in his testimony that feeling remained for several months.

Whether his emotional strain has any sway with the jury of course remains to be seen. For those of us who want the truth, the testimony notably tallies with what Michael Lewis wrote in his controversial Going Infinite book.

“Singh’s own personal state of mind and his testimony concerning his mental health struggles carried its own persuasive value,” Yesha Yadav, professor of law at Vanderbilt University Law School, told me. “His frankness about his mental health crisis seemed to offer a very humanising window into his anguish, shame and guilt.” 

But, as Yadav also pointed out, a juror may conclude Singh’s stress and struggles blurred his ability to truly judge what happened.

It is also fair to anticipate the defence homes in on Singh’s own spending in an attempt to discredit his emotive testimony, especially after he disclosed spending $3.7mn on an apartment with money borrowed from FTX.

The crucial point here is that the deal was done after that revelatory discovery in September. At that point Alameda owed FTX $13bn and FTX had just $5bn in liquid assets, Singh alleged.

But Singh’s testimony still managed to produce new, fascinating revelations. Singh discovered the shortfall via a circulated balance sheet and pressed Bankman-Fried at a hastily convened meeting on the balcony of their Bahamian penthouse overlooking the sea. Bankman-Fried admitted, according to Singh, that: “We are a little short on deliverables.” 

Singh went on to tell the jury that Bankman-Fried said: “Yeah, this has been taxing me some 5 to 10 per cent of my productivity . . . in hindsight, it might have been a mistake for me to circulate that document this morning. People are thus going to freak out.” 

Making matters appear even more challenging for the defence, Can Sun, former general counsel of FTX’s international business, also testified this week, and claimed the former chief executive asked for “legal justifications” that would explain how billions in customer funds ended up in Alameda. 

“The defence is going to have an uphill battle arguing to jurors that Bankman-Fried didn’t have the knowledge he was stealing from FTX,” said Neama Rahmani, president of West Coast Trial Lawyers. 

What’s your take on Nishad Singh’s testimony? As always, email me at scott.chipolina@ft.com. 

Weekly highlights

• A scoop from me: since Hamas’s attack on Israel earlier this month, Israeli authorities have closed more than 100 accounts on Binance and requested information on up to an additional 200 accounts, the majority of which are also held on Binance. The crackdown coincides with a surge in more than 150 new online crypto-donation initiatives affiliated with Hamas, according to people familiar with Israel’s law enforcement operations. Read the story here. 

• London’s Metropolitan Police considers cryptocurrencies as “endemic” in organised crime. The police force — the largest in the UK — began recruiting for a new crypto investigations team last December and is now 40-strong. Read the story here. 

• Binance’s UK woes continued this week when it announced it would stop accepting new UK customers. It follows the Financial Conduct Authority prohibiting a Leeds-based Binance partner from approving the exchange’s financial promotions. Binance has clashed with the FCA previously, especially in 2021 when the regulator said it was “not capable” of regulating the exchange after it allegedly failed to answer basic questions. 

• Another week, another crypto lawsuit: the New York attorney-general sued crypto conglomerate Digital Currency Group, the Winklevoss twins’ Gemini exchange as well as collapsed crypto lender Genesis, alleging fraud to the tune of more than $1.1bn. My colleague Nikou Asgari has the story here. 

Soundbite of the week: The US wakes up to crypto’s terror financing risks 

Hamas — which has long accepted crypto as a form of fundraising — has thrust the industry into the spotlight of Washington after the group’s attack on Israel. 

In a letter to Congress co-authored by senators Elizabeth Warren (D-MA) and Roger Marshall (R-KS), the Biden administration was urged to clamp down on the sector’s use as a means of financing terrorism. 

“Congress and this Administration must take strong action to thoroughly address crypto illicit finance risks before it can be used to finance another tragedy.” 

Data mining: Not so fast on that bitcoin ETF

For all of about half an hour on Monday, bitcoin surged on rumours that the Securities and Exchange Commission had granted BlackRock — the world’s largest asset manager — permission to launch a spot bitcoin exchange traded fund.

It was sparked by a headline, carried on an automated newswire service and fanned by social media. A wrong headline though: BlackRock said its application was still under review by the SEC. But it was still enough to push bitcoin up more than 8 per cent as people raced around seeking confirmation.

Still, it’s worth reflecting on the reasons why the SEC has knocked back all spot bitcoin ETFs for years. Among them, “trading on material, non-public information” or “based on the dissemination of false and misleading information”.

Bitcoin wouldn’t be the first asset to jack-knife on false rumours but it wasn’t ideal if your job is to get a regulator to change its mind.

FT Cryptofinance is edited by Philip Stafford. Please send any thoughts and feedback to cryptofinance@ft.com.