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Comment by gruez | Hacker News Reader

>>corporate structure seems orthogonal to their fraud

>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.

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You're right that it is just an implication on my part (and thanks for the sister comment of yours for finding the diagram!). Comparing it to LB is just a little bit flippant. But you have to admit, LB was a 100 year old company that provided actual value in an incredibly complex and entrenched market. FTX was only a few years old and basically managed electronic trading cards for electronic trading card enthusiasts, yet has ~100 different entities in the corporate chart? Something is a bit off.

> what does corporate structure complexity have to do with fraud?

Broadly speaking, inexplicable complexity in finance means fraud.

Except in this case there's a far simpler explanation floating around:

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

Obviously all their planning did not account for issue #3 either way. But perhaps their concern was simply having actions like #2 exposed, and more generally the value of their company (which goes hand-in-hand with the value of their various tokens) exposed. In that infamous interview, the guy talked about manipulating the prices of crypto using a small float as one tactic.

>Obviously all their planning did not account for issue #3 either way. But perhaps their concern was simply having actions like #2 exposed, and more generally the value of their company (which goes hand-in-hand with the value of their various tokens) exposed.

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.

>possibly fraudulent

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?

> 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).

>There is no possibility where this isn't fraudulent.

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...

When you do number 2 you know number 3. It’s not possibly fraudulent. It is fraudulent.

I think you're missing the point here. I'm not saying it isn't fraud, I'm just saying that in this case, the complexity doesn't have anything to do with it.

> 1. Alameda Research experienced some losses and needed capital injection

Were the losses real or were they "diverted" to someone else? This, herein, lies the problem. We as outsiders cannot tell the difference.

Why go for the conspiracy angle when "did dumb things with money" perfectly explains it? I'm not saying it can't possibly be some conspiracy going on, just that absent any evidence you seem pretty happy to jump on the conspiracy bandwagon.

Why must he be stupid all of a sudden, when it's clear he's a pretty smart guy?

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...

Alameda got called by their creditors on their loans because cz of binance have been slowly liquidating FTX position for the past year and half.

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.

> Okay, but what does corporate structure complexity have to do with fraud?

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.

The potential relation to fraud is that financial complexity can be used to obfuscate cash flows and a great many other things and hide malfeasance. Even if things like corporate officers and beneficial ownership info is easy to retrieve, having a Byzantine structure of entities can make it really hard to see the ‘one hand washing the other’ stuff, especially for outsiders.

And corporate officers and beneficial ownership info is rarely easy to get when this is done offshore, like many of these were.

Not sure if you replied to the wrong comment by accident, but that has absolutely nothing to do with my comment that you replied to.

Nope, my comment is definitely applicable.

Ok, care to explain?

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.

You quoted the section I was answering, and then went on that tangent yes.

Which I figured was because you couldn’t see the connection, otherwise you would have quoted another section?

https://www.tookitaki.com/compliance_hub/shell-companies-mon...

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. For the money laundering claim, do we have any reason to believe that SBF is trying to launder money (ie. trying to conceal the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source[1])? Is he secretly also a darknet drug dealer or something? I guess you could argue the embezzle angle, but the guy isn't exactly known for a lavish lifestyle. He does use company funds to fund his charities/PACs and buy expensive properties (I think there was a group penthouse in Bermuda that's for sale now), but that's all in the open.

[1] https://en.wikipedia.org/wiki/Money_laundering

Alameda

You mean the company that is very obviously and directly connected to them?

Yes it’s a glaring example of fraud and dodgy deals/assets, since you seem unable to accept that the obvious fraudsters are in in fact up to no good.

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.

> Yes it’s a glaring example of fraud and dodgy deals/assets, since you seem unable to accept that the obvious fraudsters are in in fact up to no good.

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.

If you read the article is not just about money laundering, shell companies and complex corporate structures are fraud adjacent, something you seemed surprised by, that is why I gave you the link.

> 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.

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