Where does SFTPD log to?
On my machine, (10.9.2) changing the log level for the sftp server in sshd just makes everything spit out onto /var/system.log/ along with the rest of sshd's log output.

e.g. part of my system.log filtered for 'sftp' after a single connect

May  1 19:57:55 joes-imac.local sshd[50141]: subsystem request for sftp by user joe
May  1 20:01:09 joes-imac.local sshd[50199]: subsystem request for sftp by user joe
May  1 20:01:09 joes-imac.local sftp-server[50200]: session opened for local user joe from [::1]
May  1 20:01:09 joes-imac.local sftp-server[50200]: received client version 3
May  1 20:01:09 joes-imac.local sftp-server[50200]: realpath "."
May  1 20:02:31 joes-imac.local sftp-server[50200]: opendir "/Users/joe"
May  1 20:02:31 joes-imac.local sftp-server[50200]: sent status End of file