What Happened at Alameda Research
milkyeggs.com
milkyeggs.com
This is a key point.
They lost $16B in customer deposits.
LTCM lost $4.6B in investor funds.
Enron lost $11B in shareholder capital.
Interestingly, while Madoff is widely quoted as having lost $65B, that was almost all fabricated paper wealth, actual losses were around $18B and $14.4B of that was recovered and returned.
All of these situations are obviously somewhat different, but if what we're starting to hear is correct, FTX may be one of, if not the, biggest financial frauds/scandals in history. The media doesn't seem to be treating it as such.
LTCM shouldn't be in that list because that wasn't fraud. That hedge fund had a flawed math model of volatility of their holdings when a cascade of events got triggered by Russia defaulting on their bonds. LTCM losses were magnified by their over leveraged positions.
A bunch of PhD traders lost their wealth and got their reputations tarnished but it wasn't criminal activity.
Robert C. Merton got the nobel prize, but it seems 3 years later (ironic)
LTCM imploded in 1998.
I don't think their intention was to rob / hide / betray / hoodwink.
> A bunch of PhD traders lost their wealth
That is, the only reason the losses were limited to them was because of special intervention. Otherwise, it would have caused losses for many others.
The PhD guys from LTCM, not so much. Just arrogant.
This is what I initially suspected. But we can see FTX's balance sheet [1]. There is no loan to Alameda. "FTX shot its customer money into some still-unexplained reaches of the astral plane" is the best explanation we have for billions of missing dollars [2].
[1] https://www.ft.com/content/0c2a55b6-d34c-4685-8a8d-3c9628f1f...
[2] https://www.bloomberg.com/opinion/articles/2022-11-14/ftx-s-...
>negative $8bn entry described as “hidden, poorly internally labled ‘fiat@’ account”
probably had something to do with the loan as that seems to be roughly the amount and the description literally makes no sense.
The problem with this is that the customer funds are also not present on their balance sheet. Levine opined about this yesterday; Like 3 of the biggest assets are coins ftx didn't pay for - so where did the money go?
That's why the Alameda explanation is likely, in one way or another. Money had to go somewhere.
> Meanwhile, at a meeting with Alameda employees on Wednesday, Ms. Ellison explained what had caused the collapse, according to a person familiar with the matter. Her voice shaking, she apologized, saying she had let the group down. Over recent months, she said, Alameda had taken out loans and used the money to make venture capital investments, among other expenditures.
> Around the time the crypto market crashed this spring, Ms. Ellison explained, lenders moved to recall those loans, the person familiar with the meeting said. But the funds that Alameda had spent were no longer easily available, so the company used FTX customer funds to make the payments. Besides her and Mr. Bankman-Fried, she said, two other people knew about the arrangement: Mr. Singh and Mr. Wang.
[0] https://www.nytimes.com/2022/11/14/technology/ftx-sam-bankma...
Can you provide the exact wording? At least when it comes traditional finance, if there's margin involved (FTX most definitely has margin), your deposits/holdings are fair game for your broker to use as they please.
https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_ma...
>Some margin accounts allow the brokerage firm to lend out securities in the account to a third-party, at any time without notice or compensation to the account holder, if the investor has any outstanding margin loan in the account
https://www.axios.com/2022/11/12/ftx-terms-service-trading-c...
No, they're different situations.
The current details trickling out of the FTX scandal is that CEO Samuel Bankman-Fried secretly used customer funds to prop up Alameda which is unethical and criminal. This is fraud.
In contrast, the LTCM guys lost billions honestly and transparently via flawed math models based on overconfident assumptions of price spread behavior. That wasn't criminal fraud. There was no illegal transfer of investor funds.
I don't know if it's SBF previous political connections that are making most media outlets hesitant to delve into the details, but the scale of the failure is going to be unavoidable as more details emerge.
Too many institutional investors got burned and they will no doubt be eager to prove fault lest they themselves be blamed for poor judgement.
The Ryan Salame part of it may be making both parties not want to look into it too much.
To give a hypothetical example: Alameda, as a customer, deposits magic beans with a mark to market value of a billion dollars. Then Alameda trades the magic beans for a billion dollars of BTC-perp (FTX paper bitcoin), with FTX acting as the counterparty (which I believe they typically were for trades of the perpetuals). Now FTX's balance sheet reflects $1 billion in Bitcoin liability (plus being long $1 billion worth of magic beans)-- but in this example no bitcoin had been deposited at all-- just magic beans.
When sizing up the losses, all liability ultimately resulting from magic beans ought to be backed out. This is exit complicated because some of the magic-bean derived paper assets have presumably been withdrawn using customer deposits, and those funds are actually lost even if the depositors that brought them in never traded (and simply deposited in FTX because of the ponzi-scheme grade yields they were paying depositors).
If I buy 50 RandoCoins for $1 today, tomorrow it shows that it's now valued at $2, and then the next day RandoCoin is hacked and all the coins are stolen, I didn't really lose $100, I only lost $50.
So he's wondering if the value of loss is being expressed as the money used the purchase the coins or the perceived value of the coins.
I wouldn't be surprised if the number of actual dollars was less than $100 million.
BTC for instance has a 24hr TV of $37B, making it one of the most exchanged assets in the world.
Either way, the inclusion of "astronomically overvalued cryptocurrency" as a descriptor definitely makes it seem more like a slight towards crypto than an honest question of the valuation. Put simply, a lot of people lost a lot of money.
If all of the actual cash, the real liquid assets were withdrawn leaving only illiquid, relatively valueless crypto tokens, and those tokens are sold down over the coming months then the percentage losses as a percentage of the max or total value they managed will be very high indeed. Sorry for the run-on sentence.
I am not a crypto expert, but from the bit I do know, it seems as if it's fairly difficult to correlate fiat with crypto.
Perhaps "only" $5bn was real and much of that was from institutional investors. Not yet clear how many retail rubes have been caught up in this.
Unclear if we have accurate info from Sam but the situation is more like 9b in liabilities with 70% of that in liquid and illiquid assets. People getting back that much is highly optimistic but the 16b doesn’t seem accurate at all. FTX already paid users out $5b btw
They have $9B in liabilities, and realistically they have about $1B in realisable assets. On the balance sheet Sam has included about $7B worth of Serum and FTT, both of which vastly exceed their circulating market cap and are also effectively worthless as the businesses they represent have lost all credibility and/or are insolvent (Serum is a decentralised exchange created by FTX)
FTX has been the lead story on the front page of the Wall Street Journal for days now.
At correct time: https://youtu.be/2ozjiX1E7ZA?t=25
There's a real "accountability overhang" not just in crypto but so many other things. Justice is slow and getting slower.
Not in this case.
A momentary glance from a distance at the balance sheet by a semi competent bank supervisor would have noticed the fraud.
The question: do you hold your users' assets in segregated account is easily asked and easily answered with no.
Just to confuse matters, it appears that both the exchange was hacked and an insider was draining funds just before it shut down. But before that, there was a lot of "money" that went out the door in legitimate trading losses.
> there was a lot of "money" that went out the door in legitimate trading losses.
Let's not give them easy pass on this. I could be wrong so correct me on this:
Easy setup is to have a bunch of people setup 'shitcoins' and shell companies, scam people to put actual money into the scheme to pump the price, and then pay inflated prices for your fellow scam artists' shitcoins, so they clean out, but the chumps who bought your coin are holding the bag.
https://fortune.com/2022/11/10/sam-bankman-fried-ftx-joe-bid...
Who knows what's in store for SBF, but it's important to look at the facts here and acknowledge that this operation was heavily invested in the success of the Democratic party.
Salame donated $26.4M to individual GOP politicians and another $2-3M to GOP political organization.
SBF donated $39.8M to Democratic politicians and organizations.
Not all that different.
The $1B pledge was realistically never going to happen, just as his offer to loan Musk $3B to buy Twitter was never going to happen. Even in the best of times he never would have been able to extract that kind of real money from his operation within a short time.
Unsure if FTX creditors will be able to do the same.
But mostly, Madoff himself didn’t really spend much money. Just did nothing with it. The few pieces of fancy real estate he lived in were actually profitable because he didn’t build some gawdy illiquid palace.
But there was a lot of time-value loss that isn’t accounted for. Even 14 years later there are still distributions. Even getting $1 back on your 1995 $1 is still a big loss.
Did the judge say that? I would think the logic was that they were effectively getting stolen money as gifts. Like when a scammer gives their victims' money to their own family. Doesn't matter if they were in the dark or even spent it already.
As I understand it, if stolen/scam money is used to buy something it's not the seller's responsibility because money is legal tender. On the other hand, if a stolen item is sold, the issue of knowing where it came from does becomes important.
But maybe you’re right and it’s just recoveries of their commissions etc.
The massive links to the Democractic party probably have something to do with this.
I think the media treats anything to do with crypto as much more buyer beware than eg Enron
I'll also add, if you want to really dig into FTX details, simply read Matt Levine's newsletters.
The 16B could've never been liquidated as 16B in cash because the liquidity for many of these assets is too low. Selling even just a small fraction would have crashed the market for many of these assets. It's impossible to know what the liquid worth of these assets was, but it was probably 5-10x less than what's on paper.
Most of that wealth was manufactured in the crypto bubble, not actual money people worked for and put into crypto, just early stage ponzi investors that kept rolling their investment. The wealth, while apparently substantial, was never actually there, I think most understand that the mirage would have collapsed anyway if most investors would have attempted to exit earlier.
Basically, any early holder of Bitcoin today, while losing 70% or so of the peak value, is still a bazzillion basis points in the black, because they can get real dollars for what is essentially an early and rudimentary shitcoin with arcane limits, slow transaction times and extreme volatility, which is only used in the real world for speculation, money laundry and trading other shitcoins. Pretty ironic that's the "gold standard" of the crypto world, followed by an entire brown spectrum of shittier and scammier tokens.
Sure, Tether should have a 1:1 backing to real dollars or dollar denominated assets - but it's like the ponzi-world's worst kept secret that they don't, as we'll soon find out.
That would be my first guess.
Its real money.
https://twitter.com/Travis_Kling/status/1592198107734876160?...
https://www.coindesk.com/business/2022/11/14/ikigai-asset-ma...
That's the very definition of fake wealth, hot money seeking 50% returns in the hot risky mess that is the crypto market. The recursively leveraged self-licking icecream is melting down.
https://prospect.org/power/sam-bankman-frieds-multimillion-d...
> Crypto’s supporters in Congress are determined to ignore the massive gap in capacity between the two agencies; in fact, they likely understand that its incapacity is part of its appeal to FTX. A bill proposed by Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) seeks to grant the CFTC “exclusive jurisdiction over any agreement, contract, or transaction involving a contract of sale of a digital asset that is offered, solicited, traded, executed, or otherwise dealt in interstate commerce, including market activities relating to ancillary assets.” Perhaps in anticipation of such a move, FTX has stocked up its ranks with former CFTC officials. Former CFTC commissioner and acting chair Mark Wetjen is FTX’s head of policy and regulatory strategy. Ryne Miller, who was legal counsel to Gensler when he led the CFTC, is FTX’s general counsel. The Tech Transparency Project has also identified 14 other cases of CFTC alumni revolving into the crypto industry.
Vote these people out.
I don't know anything about the CFTC in particular but I'm familiar with the general idea of lobbying and the role it plays in a representative government.
Elected officials have to interface with basically every industry in the country. How is any specific representative in a legislature going to have the knowledge required to vote on a banking act? Or a bill pertaining to power plants? Or cryptocurrencies?
Does it make sense to allow representatives from various industries access to members of the legislative branches of government? How else could Cynthia Lummis or Kirsten Gillibrand make an informed decision when writing federal laws related to cryptocurrencies? Should there be federal laws related to cryptocurrencies? Should legislatures have a government regulatory agency that enforces federal laws? Who is going to write those laws? Should there be a federal agency like the SEC, but specifically for cryptocurrency? Is that the CFTC? Who should make up the CFTC? Who should make up the SEC? Are the people who are qualified to work for industry more or less qualified to work in the agency that regulates the industry? Who is best qualified to lobby for the industry? For the people who work for the regulatory agencies or lobby for industry, are they owners or laborers in the regulated industry? What if everyone at least wrote their name down on a big public list and said who they worked for and published when they met and who from which government position they met with?
Are there easy answers to these questions? How the hell has any of this ever worked?
What's actually needed is government agencies staffed with industry insiders who knows that they will never ever work in the industry again and have nothing to loose from putting the general public first, but this is kind of hard to do when government work is not seen as something of particularly high status, where people go for self realization after a success career in the private sector.
Super easy to solve for - pay them more.
With the amount of money the government has (the DoD has a nearly 2 trillion dollar yearly budget), it should be relatively trivial to be able to outspend the private sector.
I hate paying taxes, but if those taxes go towards paying an extremely competent professional who will prevent this sort of shit from happening (which would cost us more in taxes to fix), I'm more than happy to pay as much as the government would want me to.
The pentagon budget is a chronic scandal and a pretty good example of exactly how the private-public partnerships is creating a system where everyone benefits from the government being seen as inefficient.
Sure. You know, you can also prevent that from happening, right? Any former high ranking military official gets a pretty nice pension and benefits. those alone are more than enough to last a lifetime.
You want to go work at a defense contractor after retiring from the military? Fine, give up your benefits, give up your pension, give up your VA healthcare rights, give up your security clearance.
Using taxpayer money to fund the retirement of a former general who then takes their knowledge and relationships (again, both paid for by taxes) to the private sector to enrich themselves seems highly unethical and a massive conflict of interest. You're essentially bankrolling the development of someone who is going to eventually sell that knowledge to people who profit off of ripping off the very institutions you (as a solider) swore to protect and defend.
Perhaps we should make power unattractive to such types instead, making it not lucrative so that only crazy* individuals who are content with good enough clean salary seek it out of dumb* desire to make the world better.
* In a good way, obviously.
Making elected positions pay very little, rather than discouraging people who seek wealth, will limit them (even more) to people who are already wealthy, because they will be able to bankroll the expected lifestyle out of pocket.
Furthermore, for those who go into politics looking for money (as opposed to those who go into it looking for power, which is a related, but separate, issue), the salary is peanuts compared to the kinds of money they can get from lobbyists, or as a lobbyist themselves once they leave office. So reducing the salary will have very little effect on that.
Yes.
It does not make sense to allow those industries to influence elections or the decisions of those elected by making political donations, though.
> Should there be federal laws related to cryptocurrencies?
Increasingly I think prohibition is the only option. Even if it's very leaky. It's far worse a mind virus than, say, TikTok. At least if it's illegal there won't be superbowl adverts for frauds.
If HN users want to impact policy and legislation, its not happening without donating a lot of money (or to a limited extent time) en masse to lobbyists and institutes that believe in whatever it is you believe in.
Better to be slapped with the truth, than kissed with a lie, and having worked in politics, this is the truth.
Besides what makes FTX especially trendy to cover was how he targeted mostly American, supposedly sophisticated SV VC types. He got funded by dozens of billionaires.
Funny enough SBF openly described his cynical scam months ago, explaining both how shit coins and greedy VCs operated.
CeFi is CeFi, Binance is CeFi.
note: This is an actual question.
Not being incorporated anywhere (which is the last thing I heard about the matter) is an extremely bright red flag, so that's some evidence (in the Bayesian sense) that something is off.
Kraken is one of the few exchanges that provide proof of reserves, which is basically just a Merkel tree of all user assets which users can use to check that the exchange holds their money. This is not just trivial to implement, there are open source implementations that exchanges could just use and prefer not to.
[0] https://www.kraken.com/proof-of-reserves
[1] https://niccarter.info/proof-of-reserves/
[2] https://bitcointalk.org/index.php?topic=528432.0
Edit: And here is CZ of Binance claiming they’ll do it soon as well: https://nitter.kavin.rocks/cz_binance/status/159005581941633...
"The results of our most recent audit were once again verified by top-25 global accounting firm, Armanino LLP. " (1)
So from this I read that Kraken has done audit themselves and then some other firm has verified it. This (if true) is called attestation, and not audit. Attestations are an empty claim with no proof in the tokenbro industry.
And second issue I see (directly related to the first) - they list some tokens they are auditing. Auditing on chain. But what if the Kraken company has a completely off the chain liabilities? Like a contract where they loan money/btc to some shady person and get some worthless tokens as a collateral in return. You can't see this on chain, only a real independent audit can uncover such things.
(1) https://blog.kraken.com/post/15002/kraken-proof-of-reserves-...
Until these crypto companies are audited by actual recognized auditors I would just assume that everything they say is suspect.
[1]: https://coingeek.com/ftx-sam-bankman-fried-pens-crypto-regul...
This is regulatory capture. If you think it's bad for crypto, wait till you see how bad it is for the agencies that approve our drugs.
https://www.nfa.futures.org/about/committees/index.html
The influence of the regulated companies is entirely transparent.
https://coinpedia.org/crypto-live-news/ftx-ceo-in-connection... https://www.foxbusiness.com/markets/sec-chairman-gary-gensle... https://twitter.com/bof_tob/status/1592247076100112385/photo... https://twitter.com/jchervinsky/status/1592173682687938560 https://twitter.com/SenLummis/status/1592212987259281408
This is speculation, but this is starting to fit the classic playbook of: 1) Create / seize a crisis 2) Have new regulation already ready to "address" crisis (using voter outrage to pass under rushed conditions) 3) Incrementally increase regulatory control (regulatory capture) 4) profit / increase power concentration
In this case, it's clear they are trying to establish CFTC control of eth & btc.
In order to decide to go into crypto trading you need to have an extremely high tolerance for risk. The crypto industry is self-selected for risk in the first place, you don't need complex explanations of why they use lots of leverage on highly volatile assets, that's literally the reason why they're there. If SBF had a low appetite for risk he wouldn't have entered crypto or started a start up, he would have stayed in trad-fi getting paid massive sums of money for some fairly basic quant work. It's not that Sam has a high risk appetite, it's that in order to get into the position Sam was in you need a high risk appetite.
And that obviously poses a big problem for people who want to use a crypto exchange - because they can only find exchanges run by people with a massive risk appetite making it likely to blow up in your face.
Been a while since I read it but feel like even after a couple of years of winning games and tracking his own performance, he had enough stats knowledge to realise that he didn't actually know if he was good or just lucky. The noise swamped the signal.
This feels relevant to many of these trading things where people start to believe their own BS.
If you've flipped a coin and it's came up heads 10 times in a row, why wouldn't you bet everything on it happening again? You're really good at getting heads when you flip. Humans aren't really built for that kind of thing.
https://www.youtube.com/watch?v=Gokkl2br7G8&t=152s
Later in the movie, when Marvin decides to ask for more money and takes a Polaroid of the Duke in the bathroom of the motel, he comments to himself: "I amaze myself... I'm always thinking."
The thing is, the character of Marvin is quite dumb, not a nice person and above all someone who never grasps the full picture -- but at the same time he has good instincts and is, in fact, a fairly good hunter. It's a dangerous combination.
He's right about the specific NYT article not including much pertinent information, but they're a serious journalistic publication and have verification standards for sources.
There are a lot of really crazy things happening with this story they don't touch upon.
It's worse than a 'puff piece' to the point I suggest there is background manipulation going on. This is 'reputation laundering'.
There is a huge amount of money here, and a ton of very, very powerful people involved.
I suggest that within a few weeks this will be known to be truly a criminal enterprise and this NYT article will not age well.
To be clear, I enjoyed Levine's commentary on the situation so it's not just because I dislike mainstream publications.
Not sure how this stuff makes it to the top on HN.
I myself greatly enjoy it and am happy to see it become more widespread, but that's mostly because I grew up immersed in the culture.
This statement makes zero sense. What is the arbitrary threshold of tweets to "serious work"? What correlation is there to making tweets and writing articles? This is just a weird form of elitism - congrats on not posting tweets, I guess.
milkyeggs dot com is disupting journalism, by permissionless quote tweeting and decentralized fact checking.
and if you join now using my code "FNB" you can get 20 percent off your first milky coin.
Appeals to authority are weak compared to facts laid bare. The fact is that the NYT author has made clear biases against other exchanges and overly forgiving of a single exchange guilty of customer theft, which is papered over in his article. This is unusual compared to all other reporting of FTX amongst mainstream jouranlists. There were no articles attempting to humanize Bernie Madoff, this article hides the fact that SBF ran a ponzi scheme, imagine the same with Madoff, it would be shocking. This is shocking.
Imagine having the Bernie Madoff subheading, "he had expanded too fast and failed to see warning signs". This is the scale of ludicrousness here. The facts aren't subjective or unclear in any way, FTX didn't have customer deposits, which they claimed to have up even until the very end. When it comes to journalism, this is an unforgivable failure.
11/10: Meanwhile, the S.E.C. and the Justice Department are said to be investigating FTX for potential securities violations. [...] Whether S.B.F. or others associated with FTX also face civil or criminal action — and where such legal fights would take place — remains unclear.
- https://www.nytimes.com/2022/11/10/business/dealbook/ftx-cry...
11/11: Authorities worldwide are intensifying their scrutiny of the embattled cryptocurrency exchange, amid concern about improper use of customer money.
- https://www.nytimes.com/2022/11/11/business/dealbook/ftx-sbf...
11/11: The bankruptcy proceedings may be only the beginning of Mr. Bankman-Fried’s legal troubles. Federal investigators are examining the relationship between FTX and Alameda, and customers are likely to file lawsuits.
- https://www.nytimes.com/2022/11/11/business/ftx-bankruptcy.h...
11/12: The implosion of Mr. Bankman-Fried’s cryptocurrency exchange has already cost customers billions of dollars in lost crypto deposits, setting off law-enforcement investigations that could lead to criminal charges. [...] Investigators at the S.E.C. and the Justice Department are examining whether Mr. Bankman-Fried improperly used customer funds to prop up Alameda Research, a trading firm that he also owns. FTX lent as much as $10 billion in customer funds to Alameda, according to a person familiar with the finances.
- https://www.nytimes.com/2022/11/12/business/ftx-cryptocurren...
11/13: “Sam and FTX had a lot of good will — and some of that good will was the result of association with ideas I have spent my career promoting,” the philosopher William MacAskill, a founder of the effective altruism movement who has known Mr. Bankman-Fried since the FTX founder was an undergraduate at M.I.T., wrote on Twitter on Friday. “If that good will laundered fraud, I am ashamed.”
- https://www.nytimes.com/2022/11/13/business/ftx-effective-al...
11/14: Should the U.S. have moved faster to create an attractive regulatory environment so companies like FTX would have moved here and had to abide by Washington’s rules? Maybe. But if the FTX case turns out to be fraud, regulation unto itself may not have been enough to stop it. Madoff didn’t live on an island beyond U.S. jurisdiction — he was based on Lexington Avenue. [...] If we ultimately learn that FTX’s undoing is the first of many in an industry that has been built on a pile of offshore fairy-dust leverage, the regulatory lesson will actually be the opposite: The S.E.C., C.F.T.C. and Treasury will have proved prescient for all their warnings to the public that crypto was too risky.
- https://www.nytimes.com/2022/11/14/business/dealbook/ftx-ban...
11/15: Major questions still remain, such as whether FTX improperly used billions of dollars of customers’ funds to prop up Alameda Research, a trading firm that Bankman-Fried also founded.
- https://www.nytimes.com/2022/11/15/briefing/iran-clampdown-p...
This is literally one of the biggest fraud cases in history.
By their own 'standards' they are compelled to use the word in proper context.
The on-chain anaylsis, digging and commentary done by people on Twitter has been insanely insightful.
This article is very little more than just a gossip rag version of the NYT article.
This characterization is so far from the contents of the article I have to assume this comment is in bad faith or you're extremely biased towards the NYT.
The article is 90% discussing facts/quotes from various sources and 10% speculation on what actually happened by people who are very familiar with crypto markets.
The NYT piece on the other hand contains almost no facts (90% narrative) and throws a pity party for SBF. It's a complete joke.
NYT piece: https://archive.ph/413e0.
E: the author of this piece even states on Twitter that it's mostly a compilation of known information. Nowhere near gossip or speculation.
Whereas this article has a tonne of speculation (none of the stuff about market making has fact behind it, it's speculation based on a handful of tweets) and a heavy reliance on sources that are at best questionable. The stuff about the rogue algo is entirely without evidence, and the stuff about drug taking, whilst lurid, could be entirely tangential to why the company actually collapsed. The NYT isn't going to quote random anonymous users on an EA forum claiming to be ex-employees.
That's definitely not the bar they have or else they wouldn't be able to publish much.
Journalists should be a bit cynical, dig for info. The NYT has more resources than anyone, and should be able to ask around, do some actual blockchain work, interview others.
This story looks like one of the biggest frauds in history, likely because it is, it's the job of the NYT to show at least there's a lot of smoke and put puzzle pieces together (obviously with context), they are not a formal judiciary.
There are so, so many crazy parts of this story that were not addressed it reeks of something awry. For example the co-CEO. There's almost nothing about this guy, as though he does not exist. That's a huge mystery and it's only one small artifact of the story.
This article raises as much suspicion as it clears up.
> Alameda had accumulated a large “margin position” on FTX, essentially meaning it had borrowed funds from the exchange,
Par 6. Common knowledge, finance-splained and followed by equivocation and hand-waving from SBF.
> On Nov. 6, Mr. Zhao announced on Twitter that he was selling the FTT, spooking customers who rushed to withdraw their FTX deposits
Common knowledge for more than a week (in par 28). More well-known things about the Zhao deal in the next couple of pars. Obv suggesting the two key questions, why did they need a bailout in the first place, and what was wrong with the business that led Zhao not to invest? Needless to say, neither of them is answered in the article.
> Her voice shaking, she apologized, saying she had let the group down. Over recent months, she said, Alameda had taken out loans and used the money to make venture capital investments, among other expenditures.
> Around the time the crypto market crashed this spring, Ms. Ellison explained, lenders moved to recall those loans, the person familiar with the meeting said. But the funds that Alameda had spent were no longer easily available, so the company used FTX customer funds to make the payments. Besides her and Mr. Bankman-Fried, she said, two other people knew about the arrangement: Mr. Singh and Mr. Wang.
> The meeting was previously reported by The Wall Street Journal.
Several day old scuttlebutt taken from another newspaper in par 30+. (And nicely written to suggest that it's an urgent eyewitness dispatch "Her voice shaking")
That's it. Literally no actual news reporting was done in this article.
The high standards of reliability and standing up to scrutiny are worthless, because they are not actually applied to any useful or new information, but just to the human interest color that 90% of the piece consists of. Yes, the 'facts' that SBF has 15 room-mates and not 12, and that he plays League of Legends not Terraria are rigorously fact-checked, but they might as well not be. The actual question of Where did the money go is completely ignored beyond what is widely known.
This isn't news reporting, it's a form of entertainment journalism, which allows people out of the loop to get a sense of the excitement and glamor of what's it like to live in the Bahamas and have your crypto exchange go bankrupt. (And it equally fulfils the desire for other clueless people to tut and sigh over the way the world is going.)
I can't see the article because of the login, but what does the piece achieve? Does the interview ask Sam hard questions?
I don't see where you're justifying that. I read this article and it gave me a good overview of the situation. You're right, I guess, that it's not "new" investigative journalism and that if I'd been paying better attention I could have found the same info elsewhere and earlier.
I don't see how a correctly-reported review piece becomes "entertainment journalism" though. Do you make the same article about wikipedia?
I did not say anything about "new investigative journalism". I said it was not news reporting.
The claim that is is entertainment journalism is very simple. This type of piece is written, not to inform, but to entertain. That's why it focusses on color and character, while missing basic story details - the 5 W's, any overview of how the bankrupt businesses worked, etc. Such pieces are often designed to give the impression of information, because this impression is part of the entertainment experience. You can easily find decent and free writing on this topic which provides way better analysis and is generally accurate and honest.
As you have probably noticed, stories about scams and frauds are a very big business, and articles about them are now part of a well-worn pipeline by which books, movies and mini series are made. Very few of these have any commitment either to accuracy in general or to useful information about why such scams are possible, why they are socially important, or how they can be stopped. They exist merely to entertain and titillate. A writer like the author of this piece, will be aware that they are part of this machine, and that there is lots of career advancement to be made in writing fluff about grifters, particularly in a way which tends to get you closer to other grifters.
Wikipedia is not news reporting either. Not sure of your point, however note that the wikipedia page about Sam Bankman-Fried, while shorter than the NYT article, contains vastly more detailed information about his career, and has 85 citations to its sources.
Isn't it much more useful to write something which actually tries to answer the question of what happened, albeit with appropriate caveats, than something which doesn't advance the understanding of the reader at all?
Yes, it paints one picture of how the losses could have added up, but I'm looking forward to more exhaustively investigated reports grounded in more than heresay and gossip.
You'll never find rampant drug abuse in the financial industry.
Certainly not on Wall St.
Is it more fun if the shared story has a clear villain or more fun if the shared story has a diffusive, complex relationship between good and bad between not only the characters but also the readers?
This isn't a criminal court.
This piece speculates very strongly about SBF's stimulant usage degradating his cognitive abilities. Eg:
> If the above observations about SBF’s personality and competence are even half true, that would go a great deal toward explaining Alameda’s losses.
The entire article goes into much further depth. But it doesn't even speculate about malice.
> losing all the money accidentally rather than malice (far more likely)
They sound an awful lot like trading / accidental losses than malice to me.
Makes it sound like poor SBF got unlucky and it wasn't his fault he recklessly gambled $8+B of customer deposits
Ok? Regardless, this piece does a significantly better job than the NY Times and the "serious journalistic publication".
The times articles actually misleads readers into thinking that the FTX downfall was moreso from bad timing & outside attacks then from SBF fraudulently stealing user funds.
> immediately cite anonymous Twitter anecdotes as better sources
The Twitter accounts directly quoted have many followers and a long history of tweets that are easily searchable.
If you're referring to the Autism Capital tweet, that's a tweet of a photograph which you can look at yourself. It's clearly a stimulant that says EMSAM on it.
Name the specific tweets in the piece that you find incredulous rather than an ad hominem.
It goes both ways. It seems like they didn't do much verification of Sam's claims.
In fact, that's what happened this time.
Perhaps this is why the NYT's Judith Miller has such prominent roles in journalism.
> While this might have been considered highly competitive in 2019-era crypto markets, it is a far cry from the microsecond-level precision of market making in traditional finance.
The author is confusing tick-to-trade with prediction horizon. The "microseconds" market makers talk about is how long it takes to react to incoming market data and send out a trade message. The 2 seconds SBF is talking about is how far ahead in the future you want to predict price changes over.
Doesn't really inspire a lot of confidence in the rest of the analysis if this is the level of domain knowledge the author has.
But I'm not in the "community", I don't read a lot of this inside baseball stuff. Is this the way she is usually referred to? It looks like her twitter name, in tweets quoted here, was just her first name too? And she's referred to by just her first name in the "insider's account" quoted at the end too. What's up with that?
Presumably, since Larry Ellison is also a figure in the high-net-worth tech world, one might unintentionally mislead the reader by just using Caroline's last name, so in this case I see people just using her first. I don't think there's much more to it than that.
The celebrity first-name-ism is sort of an attempt to claim a global fame, as well as a sort of artificial familiarity. I refused to call them "Hillary" or "Bernie" either, they aren't my friends, they are public figures.
It seems notable and weird and interesting to me in this case (as well as distracting as a reader who wasn't expecting it), but I'm not certain or making assumptions about what's behind it, I'm curious.
Essentially, when there's a digital market hype, the big cloud providers collect their share on the revenue. Brilliant.
[1]: https://www.computerweekly.com/news/252523200/Google-results...
I think this is an interesting alternative to equity vesting. Not all countries have laws that make equity vesting possible. Also this could work if you are a US company and hiring from all abroad. You can give tokens to your employers abroad, keep the token valuable as long as the company is profitable. What do you think?
However, if tokens are securities, that doesn't mean you can legally sell/give them tokens either.
What does the league of legends article say? That part seemed crazy speculative. I'm bottom quartile at FPS and fighting games but I enjoy them and play a lot. Dota 2 as well. And I've been top 1 percent at other games. Even higher for a bit in Auto Chess. I hope this isn't evidence of brain damage...
It’s also worth noting (and quite frankly pretty harsh when you eventually realise) that the affected brain has massive difficulty recognising its own altered cognition and perceives its distorted interpretations and consequent chains of response as perfectly natural and justified.
Not drawing any specific conclusions on the particular assertions in the article, but IMHO the interpretation is certainly plausible given the apparent drugs involved.
Apparently working on his defense. Temporary loss of mental faculties due to drug use, along with this "it wasn't anything other than Sam on drugs" & (yes there it is again) "incompetence" article. Country club prison it is to be then, after all.
I've seen tweets that question the origin story of first windfall of SBF. Has anyone actually vetted that initial "arb" that was the pretext for Forbes et al to introduce us to SBF the virtuous genius? These tweets claimed surprise that it could have been done without substantial unmentioned support. I would start digging there.
But... you have all this money. Hire an adult? Almost anyone who's had a trading desk job would tell you to clean up. You don't need to have much experience to do this part, just get one of your friends that you must know from the business?
Also, WTF would this say about Ontario Teachers' Pension Fund or Sequioa if the whole team was on drugs, playing games all day, and having no idea what their balance sheet looks like? I actually got Ontario into a fund I was at, and we'd have lost the investment if we hadn't behaved like adults. This is causing me some cognitive dissonance, because I don't think of the investors as the kind of people who'd even smile if they found me in the office playing a video game, let alone addled on drugs.
Also about the market making strats not working anymore, I don't see why they'd even need it. Once the exchange is jump started and you have WM/Jump/JS on board, there's MMs on the platform and it feeds itself. Just keep marketing running. Hand out some FTT or something to retail. Do silly advertisements. Just turn off the algo that doesn't work.
As for hiring an adult, have you seen some of the things they’ve said in public? They thought the adults were wrong! Like on a mathematical level. People that far into their own cult-think don’t want outside help.
Finally, the Ontario Teachers thing feels extremely overblown. They put in 75m of ~220b aum. That’s a minuscule investment in a category that was clearly part of their highly speculative book. I think people keep bringing it up for the “think of the teachers!” benefit, but of a pension fund doesn’t have some outsized return opportunities on their book they’ll not be able to cover their outflows under certain future economic scenarios.
They might been starstruck by Sequoia more than SBF and his team, and just gone along for a ride with the most storied VC firm in the world.
You can be drunk by your own success. Without a voice of reason or an adult in the room (like sheryl sandberg) that can be quickly deadly.
Musk and the religion that's built up around him in recent years exist in two separate realities.
Just so you know, this is a clear and obvious prison sentence in normal finance.
Also FTX itself was trading with customer deposits instead of just keeping them like an exchange is supposed to do, which is also prison in normal finance.
Matt Levine wrote a good piece on this debacle, and will probably write more. It is simply breathtaking, every paragraph evokes a massive "wat".
Why couldn't they just get a loan to cover their losses?
Criminal beyond measure and it's absurd that all of these big name funds did not do even ten minutes of due diligence.
The Ontario Teacher's Pension Fund was "investing" in trash like this without even looking at their corporate governance. How do you treat a pension fund like that?
Fucking nothing will happen.
Here is the turtle’s cut, for example. Out in the open.
https://www.bloomberg.com/opinion/articles/2022-11-14/ftx-s-...
The FTX "balance sheet" (which was a spreadsheet) had a cell called "hidden, poorly internally labled ‘fiat@’ account”.
Another key bit from Levine:
"If you try to calculate the equity of a balance sheet with an entry for HIDDEN POORLY INTERNALLY LABELED ACCOUNT, Microsoft Clippy will appear before you in the flesh, bloodshot and staggering, with a knife in his little paper-clip hand, saying “just what do you think you’re doing Dave?” You cannot apply ordinary arithmetic to numbers in a cell labeled “HIDDEN POORLY INTERNALLY LABELED ACCOUNT.” The result of adding or subtracting those numbers with ordinary numbers is not a number; it is prison."
And that's not all. This is fraud on a truly epic scale... Read the whole thing.
Edited to add that the HIDDEN POORLY INTERNALLY LABELED Account had a value of negative $8 billion.
Renaissance Technologies hires less than a dozen new employees per year...
https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-q...
> In making some of these leveraged trades, the quant fund was using a cryptocurrency created by the exchange called FTT as collateral. In a lending agreement, collateral is typically the borrower’s pledge to secure repayment. It’s often dollars, or something else of value — like real estate. In this case, a source said Alameda was borrowing from FTX, and using the exchange’s in-house cryptocurrency, FTT token, to back those loans. The price of the FTT token nosedived 75% in a day, making the collateral insufficient to cover the trade.
Although they were trading crypto it was more like an old fashioned/real money collapse.
NFTs this year was a microcosm of exactly that. Loads of people jumped on the bandwagon, buying up NFTs as they were released, but the whole thing collapsed again when it turned out the resale market just wasn't there. Except for the first movers.
(I am not an US American. And I don’t care for either the Democrats nor the Republicans.)
Alameda had accumulated a large “margin position” on FTX, essentially meaning it had borrowed funds from the exchange ... He said the size of the position was in the billions of dollars but declined to provide further details.
You would expect even retired people to be good at the game if they played enough.
Regardless, playing video games, doing drugs, looking dishevelled and being over weight are all visible signs of some kind of internal disorder. Most people don't wear their disorder visibly, they either learn to hide it or it doesn't reveal itself physically. In this episode it's like the signs are treated as a good sign - of creativity.