FTX execs blew through $8B; testimony reveals how

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

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

Singh, who has already pled guilty to fraud, money laundering and violation of campaign finance laws, said Monday that he learned of the $8 billion hole in Alameda’s accounting in June 2022, which was the result of an accounting bug.

Singh’s testimony helps corroborate the statements given by three previous prosecution witnesses, all of whom were in Bankman-Fried’s inner circle: FTX CTO Gary Wang, Alameda CEO Caroline Ellison and FTX engineer Adam Yedidia. While Wang and Ellison have pled guilty, each witness has pointed to Bankman-Fried as the orchestrator of fraud and money laundering.

Singh said that even after learning about the hole, “implicitly and explicitly, I green-lit transactions that I knew must have been digging the hole deeper and therefore coming from customer funds.”

Singh went on to describe Bankman-Fried’s spending as “excessive.” He said that he often learned about large spends after the fact, and that his expressions of concern weren’t taken seriously.

“I also would express that I felt kind of embarrassed or ashamed of how much it all wreaked of excess and flashiness,” said Singh. “It didn’t align with what I thought we were building a company for.”

Where the money went

Prosecutor Nicolas Roos and Singh went through spreadsheets detailing different ways Alameda spent the $8 billion in customer funds. Singh testified that Bankman-Fried was “in general the one making the final decision on investments and investment team decisions as a whole.”

In addition to going over a $1 billion on Genesis Digital Assets, a crypto mining firm in Kazakhstan, and $500 million on Anthropic, an AI company focused on safety, the prosecution focused on Alameda’s $200 million investment into K5 Global, a venture firm led by investor Michael Kives who is known for his extensive network.

That network seemed to impress Bankman-Fried deeply. After attending a Super Bowl Party hosted by K5 in Los Angeles, the former crypto mogul told Singh that he had met “the most impressive collection of people he ever had in one location.” Faces at the party included Hilary Clinton, Katy Perry, Orlando Bloom, Leonardo DiCaprio, Jeff Bezos, Kendall and Kris Jenner and Kate Hudson.

Bankman-Fried had proposed a term sheet to Singh and Wang one night that laid out hundreds of millions of dollars of onuses to Kives and Bryan Baum, co-founder and managing partner of K5. The sheet also proposed up to $1 billion long-term capital to give to the VC firm, according to Singh.

“We can get from them essentially infinite connections,” wrote Bankman-Fried in a letter to FTX leadership that was shared at Monday’s trial. “I think that if we asked them to arrange a dinner with us, Elon, Obama, Rihanna and Zuckerberg in a month, they would probably succeed.”

Singh said he expressed concern about partnering with K5 and giving them such substantial funds, which would be “really toxic to FTX and Alameda culture.” He said that “politicking and social climbing was not going to be rewarded, and here we were rewarding people in exorbitant amounts.”

The former FTX executive suggested that Bankman-Fried use his own money, not FTX’s, to make some of these investments. Those protestations didn’t yield results, according to the spreadsheet, which showed the K5 deal went through Alameda’s venture arm.

Bankman-Fried also believed that endorsement deals and even “unpaid partnerships with celebrities” would help increase FTX’s influence to propel its success, said Singh.

To that end, about $205 million of that $8 billion chunk was spent renaming the Miami Heat stadium to FTX Arena. Another $150 million was spent to endorse the MLB. Other items on a spreadsheet shown to the jury show FTX paid out $1.13 billion in exchange for endorsements from basketball player Steph Curry, video game developer Riot, Seinfeld writer Larry David to endorse FTX in a Super Bowl ad, football star Tom Brady and model Giselle Bündchen, with whom FTX was coordinating on some philanthropic efforts, according to Singh.  .

Singh’s testimony also revealed a range of properties that had been purchased with the funds, including a $30 million penthouse in the Bahamas that Singh said was “too ostentatious.”

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

The former FTX executive, who also went to high school with Bankman-Fried and was a close friend of his brother, testified that he expressed concern about the company’s spending, but was usually blown off.

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

“It was pretty humiliating,” said Singh.

Where did this $8 billion hole come from?

Singh’s testimony aligned with Yedidia’s that states in June 2022, the executives learned that Alameda owed $8 billion worth of FTX customer money after Ellison shared a Google Doc displaying the “extremely negative” balance.

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

On top of this, Singh testified that he built out systems on FTX that gave Alameda “special privileges” not afforded to other users. A feature called “allow negative” let Alameda trade, borrow and withdraw FTX funds in excess of its balance and collateral amounts, according to Singh. He testified that he coded an initial version of the feature in 2019 at Bankman-Fried and Wang’s advisement.

A later version of this code allowed Alameda to borrow from FTX without having tis collateral liquidated. In effect, it could “withdraw money that it didn’t have,” meaning it could “lose money” that “belonged to customers,” Singh said.

By June 2022, Alameda had built up its own $2.7 billion deficit on the FTX platform.

“This seemed like a real abuse of a feature that until this point I believe was serving FTX, not hurting it,” said Singh.

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