Are you sure? FTX was collecting deposits in many countries, so I think they had to have local subsidiaries to enable that...The corporate structure seems orthogonal to their fraud
EDIT: here's the diagrams (thanks HN!)
https://www.manchesteropenhive.com/view/9781526100580/figure...
https://i.redd.it/078p4g7m6cz91.jpg
Note that for LB, like most normal companies, it has subsidiaries where it makes sense to operate under different tax laws, etc. So they have a Japanese company, and Australian company... For FTX there is no such rhyme or reason. Most of the entities outside of DE are in Antigua, Seychelles, Cayman Islands, Switzerland. I don't know enough about finance to understand if this is a red flag, but given the circumstances the intent behind such a structure is certainly suspiscious.
>FTX's corporate structure was at least an order of magnitude more complex than Lehman Bro's at the time of it's collapse.
Okay, but what does corporate structure complexity have to do with fraud? It seems like you're trying to argue something along the lines of "lehman brothers was complex and collapsed due to fraud. FTX is even more complex than lehman brothers, therefore it's even more fraud then lehman!", but we didn't even establish how complexity has to do with fraud.
Shell companies are most often used for fraud or tax evasion, there really are no good reasons to have such a complex web of companies.
Did I claim that they weren't engaging in fraud, or that the deal wasn't dodgy? My objection was with "money laundering". Even with the loosest possible interpretation, there needs to be some sort of obfuscation involved. The facts seem to point towards something very straightforward (ie. Alemeda Research borrowing money from FTX), which suggests that no obfuscation was attempted. All of this confirms my prior comment:
>It feels like certain terms (eg. "ponzi scheme", "money laundering", "shell companies") get thrown around any time there's any sort of financial malfeasance, without regard to their specific meaning.
Was there malfeasance at Alameda Research/FTX? Hell yes. Was there money laundering? No.
> Alemeda Research borrowing money from FTX
A company can't 'borrow' customer funds from another company. Companies also shouldn't try to price the assets they hold as security or swap securities on customers. There are so many examples of fraud here.
Broadly speaking, inexplicable complexity in finance means fraud.
1. Alameda Research experienced some losses and needed capital injection
2. In a transaction that was probably not at arms-length and possibly fraudulent, they borrowed money from FTX by putting FTT and other tokens as collateral
3. The tokens taken as collateral crashed in value, which caused FTX to be unable to meet their liabilities
So let me get this straight: They were concerned with "actions like #2 exposed", so they set up a super complicated corporate structure, and apparently... didn't make use of it? Once the leaked balance sheet came out on coindesk everybody pretty much immediately figured it out, and not because there was great internet sleuths, it was just that obvious.
They used user funds to cover their losses. There is no possibility where this isn't fraudulent.
Also how did they even lose so much in the first place?
That one's easy, they bought a bunch of tokens that turned out to be worthless. (E.g. allegedly they were buying Luna the whole way down).
It's called being conservative in your statements.
>Also how did they even lose so much in the first place?
Bad investments
>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
https://www.nytimes.com/2022/11/14/technology/ftx-sam-bankma...
Were the losses real or were they "diverted" to someone else? This, herein, lies the problem. We as outsiders cannot tell the difference.
Afterall, "Fraud and Stupidity look an awful lot alike" [1] Playing the dope is pretty common con scheme.
[1] https://www.bankinfosecurity.com/fraud-stupidity-look-lot-al...
Market paniced when alameda attempted to buy all remaining FTX from Binance, at $22. Probably because Alameda has loans that would be liquidated under that price.
A Bank run materializes, and the rest is history.
Their point is that we can't look at those diagrams and determine if LB was more complex than FTX, because we suspect that those diagrams weren't drawn with the same granularity. So it's possible (perhaps even likely) that LB was more complex than FTX, and this would be apparent if we were to compare diagrams drawn with the same granularity.
And corporate officers and beneficial ownership info is rarely easy to get when this is done offshore, like many of these were.
It seems to me that your comment concerns the connection between financial complexity and fraud (it's easier to conceal fraud when you have complex structures).
My comment didn't concern that topic at all. My comment concerned "can we judge if A is more complex than B based on these 2 pictures". I said that we can't know if A is more complex than B, or if B is more complex than A, based on these 2 pictures.
Your comment doesn't even mention the pictures. Nor does it attempt to draw any kind of conclusion about the comparison between A and B. Nor does it provide a general framework for drawing comparisons. So I don't see how it relates to what I said at all.
Which I figured was because you couldn’t see the connection, otherwise you would have quoted another section?
Less so for FTX.
All are tax havens and, afaik, provide a level of corporate veils that are not readily available elsewhere.
For example FTX was able to claim, with a vague semblance of honesty, that it had assets to cover liabilities. But in fact what it did was transfer money to other companies that were part of the network, like Alameda, and get back tokens with a book value but no real market value, like Serum. On paper both companies had engaged in a fair transaction. In reality customer money got moved to another company that was then free to do with it what it wanted, all hidden behind the corporate structure.
Read https://archive.ph/TOgjK for Matt Levine explaining exactly how this actually worked.
Since every dollar they received in customer deposits appeared both in assets and liabilities, the only way they ended up with liabilities that their (non-Serum, non-FTT) assets did not cover, is by exchanging the dollars with something that lost value.
That's the way it ought to work in the absence of fraud or theft. But as Matt says, the reason this balance sheet is so insane is that there's no evidence this happened. Only a very small amount of customer dollars could have been used to generate Serum. FTX invented several cryptocurrencies which, at a 10x inflated valuation, obscure the fact that they completely lost $16 billion of assets.
In fact, it seems that SBF used a backdoor in his own software to secretly transfer customer funds to Alameda. There's no evidence that any sort of internal accounting actually balanced the books in the way you suggest, which is what's so insane about this whole story.
How does it go again?
“ The government are very keen on amassing statistics. They collect them, add them, raise them to the nth power, take the cube root and prepare wonderful diagrams. But you must never forget that every one of these figures comes in the first instance from the village watchman, who just puts down what he damn pleases.”
- Josiah Stamp
Step 2 is for Alameda to deposit on FTX, and then withdraw 95% of its notional value in USD or say BTC/ETH. Then on FTX they have a negative balance on this matched by a positive balance in FTT or other Sam coins. The USD or BTC/ETH withdrawn comes from someone on platform who has clicked "lend" on their positive balance of same in exchange of some yield.
To be fair, any user could do that, deposit shitcoin, withdraw non-shit, up to 100% of the funds where people had clicked "lend" and that without any fraud. If the value of the shitcoin collapsed their account just got zeroed and FTX took the corresponding loss on their books.
The list of shitcoins allowed in this genius scheme is still up:
https://help.ftx.com/hc/en-us/articles/360031149632-Non-USD-...