Of Sam Bankman-Fried’s alleged co-conspirators, Nishad Singh gave the most emotionally compelling testimony. And under cross-examination he also proved to be the most unreliable.
Yesterday, Singh condemned Bankman-Fried for continuing to make venture investments despite knowing the money came from client funds and even called the actions taken at FTX “evil.” Today, the defense pointed out that Singh took out a loan from FTX to buy a $3.7 million home on Orcas Island in Washington after Singh said he learned of the misuse of client funds.
Defense attorney Mark Cohen, in the great legal tradition, began roasting the witness
I’ve written twice about my frustration with Bankman-Fried’s defense, which often seemed convoluted and confusing. Today they finally managed to get some points on the board.
So far, the prosecution’s witnesses have been credible – particularly Caroline Ellison, the former CEO of Alameda. The defense has worked hard trying to create the impression that Bankman-Fried’s alleged co-conspirators were just trying to save their own skin at Bankman-Fried’s expense. (All three have pleaded guilty to various crimes, entered into cooperation agreements and are awaiting sentencing.) Sure, in some ways the suggestion that Singh may have committed embezzlement is worse for Bankman-Fried – Singh wasn’t a money guy, someone had to to permit. But it’s the best thing the defense has done yet to undermine a witness’ credibility.
Defense attorney Mark Cohen, in the great legal tradition, began roasting the witness. Some of the criticism was to be expected: Why did Singh think spending $1 billion on sponsorships was excessive? When Singh was head of engineering, was there clearly no marketing in one department?
Then Cohen landed a pretty good shot for the penthouse in the Bahamas. Billionaires and millionaires living together as roommates (at least on paper) is objectively funny; What’s even funnier is that one of these roommates is solemnly cross-examined about whether he thinks living in a $30 million apartment is “really expensive.”
Singh said he didn’t know what was normal for billionaires and he was “confused about it.”
“But not confused enough to move out,” Cohen said.
The defense appears to be unclear about the concept of chronological storytelling
After that, Cohen lost some steam. The prosecution has a strong narrative and even manages to bring witness statements to emotional heights. In contrast, the defense appears to be unclear about the concept of chronological storytelling. Today we jumped between September 2022, June 2022, November or December 2021, October 2022 and August 2020. Since I assume you also live in a unidirectional timeline, I will give my summary in the order in which it was presented. I’m also going to ignore the places where Cohen swung and missed because, frankly, I’m tired of writing about the fight-bus aspects of defense.
In July 2019, Singh wrote the code for “allow_negative” at the direction of FTX co-founder and chief technology officer Gary Wang, who, like Singh, has pleaded guilty to a handful of crimes. At the time, Singh said he understood that the purpose of the code was to allow FTX to offload FTT and modernize some of the accounting-related functions.
Wang had testified that the function of this code was to allow Alameda Research, which was jointly owned by Wang and Bankman-Fried, to withdraw money even if there was no money in the account.
In August 2020, FTX hosted the first event where none of the market makers, including Alameda Research, were able to assist with account closure. (Alameda couldn’t intervene because the company no longer had collateral.) What happened next was automatic deleveraging, another risk management system that leaves some traders saddled with losses. Such things tend to leave customers dissatisfied.
I’m a little confused as to why we’re spending so much time on the error
I’m now going to tell you some backstory that the jury didn’t hear in this deposition. We’ve already heard – from Wang and Ellison – about a $65 billion credit line extended to Alameda. No one else on the platform had access to this amount of money, which was essentially unlimited. But here, for the first time, we have a plausible, non-criminal explanation for why Alameda got a huge credit line: to avoid causing losses to other customers through automatic deleveraging. (Instead, Alameda would always take the loss, and it would always have enough collateral to cover it.) Singh couldn’t remember whether Alameda’s line of credit had been increased at the time, but if the time frames were correct, that would be the least serious explanation for the line of credit I had I still heard.
It does not change the fact that Bankman-Fried has repeatedly assured the public that Alameda did this no special privileges on FTX – which seems like an obvious lie – but it makes the line of credit sound less bad. That’s not nothing!
In November or December 2021, Singh became aware of a bug in Alameda’s system that overstated how much Alameda owed FTX. Essentially, the bug failed to track account withdrawals correctly, making the amount Alameda owed FTX appear larger than it was. Singh said that Adam Yedidia – another witness – seemed worried about this, but Wang was relaxed because “the direction of the beetle was certain”. If it had underestimated how much Alameda owed FTX, that would have been a bigger cause for concern.
As of June 2022, the error had resulted in an $8 billion discrepancy between the amount that Alameda actually owed FTX and the amount that internal accounting indicated that Alameda owed FTX. Yedidia previously testified that he noticed that Alameda owed FTX a lot of money and that he was worried about it. But Singh said he wasn’t worried at the time as he assumed Alameda had the assets to repay FTX.
Unfortunately there were no photos or information about the square footage or number of bedrooms, so I had to look it up later
I’m a little confused as to why we’re spending so much time on the error. In Yedidia’s case, it explains what he knew and why he knew it. For all others? The only thing I can think of is that I believe the error was so large that no one knew how much money Alameda actually owed, except that it was a smaller amount and thus Alameda was spending money it wasn’t had. But that seems pretty weak – especially since Singh testified yesterday that he lied to auditors and Ellison testified last week that he put together seven fake financial statements to send to lenders.
Singh claimed that he did not know that Alameda Research had used FTX customer funds until September 2022, but the defense cast doubt on this. Eventually, Yedidia got his act together enough to get nervous about just programming the bug, which is what Alameda did, and he didn’t even do anything shady like transferring money from Alameda’s account to the “Korean friend’s” account. (I still don’t know what the username “seoyuncharles88” is all about, and I’m starting to get annoyed that no one is explaining it.)
Singh testified that in September he knew the money wasn’t there. And that’s when Cohen brought up the house on Orcas Island that Singh bought in October 2022. (Unfortunately, there were no photos, square footage, or number of bedrooms, so I had to look that up later: six bedrooms, one lap.) He had borrowed $3.7 million from the FTX exchange, even though he testified yesterday had said he was trying to curb what he saw as frivolous spending by FTX. I guess he didn’t think his own spending was frivolous.
The testimony wasn’t as spectacular as Singh’s direction yesterday – we didn’t get any more cinematic retellings of conversations – and Cohen’s tendency to jump around in time made the narrative a little less clear. But the house on Orcas Island undermines Singh’s moral authority and makes him appear inconsistent. Even if the judges don’t stick to the schedule or don’t understand some of the other nuances, it’s pretty easy to understand.
“It wasn’t really loans.”
While the prosecution managed to point out that FTX was essentially a rat’s nest of scams, Singh still seemed less reliable than in his initial statement. Still, something strange came to light in the discussion of Singh’s loans: Singh apparently felt morally obligated to repay the money he borrowed from FTX, but was not legally obligated to do so. That’s because many of them didn’t require any paperwork – he just found large amounts transferred to his bank account. These are loans “in a loose sense,” said Singh. “It wasn’t really loans.”
Honestly… that sounds like classic embezzlement. And to me, Singh’s blanket moral statements about “heinous criminal” actions at FTX rang hollow. Singh was easily the alleged co-conspirators’ best storyteller, but when he stepped away from the witness stand, I wondered how self-serving the story was.
During the break I saw Joe Bankman, the defendant’s father, talking to his defense attorney. He looked happy, and who could blame him. I guess I wasn’t the only one who thought the defense had finally managed to show up.