FTX's collapse strands scientists
science.org
science.org
If FTX investors, customers, and watchers of the crypto space did not catch what FTX and SBF were doing until the shit hit the fan, what kind of due diligence can we reasonably expect of these recipients that would’ve alerted them to something being wrong here?
And consider that the number of donors for most institutions would be much larger than the number of companies FTX investors would’ve had to keep an eye on.
> sports teams like Miami Heat or Mercedes F1 actually advertised them
How does that prove any kind of reliability at all? There's no FDIC insurance on any of the deposits. There's no actual regulation or transparency. Its not like VMFXX or SWVXX where there are requirements to publish their assets on a regular basis, or describe asset flows / liquidity requirements.
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Still though, the scientists in this discussion were _NOT_ investors. The economy is designed for _investors_ to win (and lose) money as per appropriate risks. Its fine for investors to lose money here, that's the entire point of capitalism. (The investors get the money if they bet right, but they lose their money if they lose).
These scientists who allegedly got funds... its not their job to be trying to figure out which groups to trust or not trust. Maybe scientific donations / 401c type deals need to be more carefully watched in the future?
The point is that these companies with way more financial experience, size, and more reasons to investigate failed to find any warning signs, so these non-profits had very little chance, even if they didn't go with the "don't look a gift horse in the mouth" approach. FTX might have let some auditor from an investor putting in $100M take a look at their books but they'd almost surely tell a non-profit with no leverage that's receiving the money to get lost if they asked.
I don't think you get the point of Softbank or even Blackrock.
When you have $10 Trillion in assets like Blackrock, you _DON'T_ sweat a $300 million investment or even a $2 billion investment here or there. It literally doesn't matter. Its not even a rounding error to you, your company, or your investors.
Its barely worth Blackrock's time to seriously look at things like this. That's why we get $Billion sized London Whale mistakes or whatever, because they have so much money to manage the only reasonable way to do it is to hand billions of (management) dollars to executives and give those executives broad leeway to do whatever they want.
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This kind of mistake is a "Lol, Executive #455 made an error", and that executive is going to be in the hotseat as other executives make fun of him for his FTX mistake at a place like Blackrock.
I don't understand where you get this idea that VC companies tightly vet their choices. If anything, the bigger the VC firm, the less they vet something at the $million, or even $billion levels.
That is clearly and demonstrably false. Just because you have investments in Lockheed Martin doesn't mean you are free to invest in Al Qaeda to increase the chances of conflict.
Also stadium sponsorships. If you're trying to buy credibility by sponsoring spectator sports, well that's a huge red flag right there.
FTX isn't a US security that was traded on any platform. VCs (and accredited investors) are people rich enough, that the USA / regulators have deemed it "fine" if they lose a lot of money.
Accredited investors are supposed to have over $1M bucks not because it proves that they're smart. Its so that when they inevitably get caught in a Ponzi scheme or whatever, USA doesn't have to rush in and save their money.
Welcome to USA. If you're an accredited investor and/or Venture Capitalist, the training wheels are entirely off. You're on your own.
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There's no FDIC insurance or SEC governing FTX's deposits. Its wholly unregulated, and in the Bahamas to boot.
I don't care about the VCs getting their money, I'm happy they go to zero etc- I'm saying the opposite, the VCs gave a false sense of security to regular folk that FTX was legit, but in reality FTX was telling depositors that they were doing all these things to protect them that they weren't.
At minimum, the regulators should say "Hey, you can't tell people their money is safe if it isn't" (siloed customer accounts etc) at best the regulators should say "Hey, you have to make sure regular consumers are safe if you plan to take money from US consumers".
> Multinationals going bankrupt seems like there will be issues about which group owns what and the various obligations between them.
Yes, which will be decided according to the bankruptcy law of the corp's incorporation, not the one it chooses. You are confusing choice of law with venue.
But yes, I think I get your point. Thanks for making it, and again for following up.
Bahamas don't need to send their own attorneys if they don't want to... they aren't necessarily a party to the case. Here, FTX is opting to have a US disposition of the Bahamian bankruptcy code, so what would Bahama have to send attorneys for? In this case, its still adversarial between the creditors and FTX, so there will be parties arguing for the correct application of law.
Who were they were trying to reach with their Superbowl ads, VCs? I suspect not.
Hate to be that guy, but most people using crypto have been committing (tax) fraud for years. Knowingly or unknowingly.
Regulation failed? The media were complicit into this. Presenting SBF as the second coming of the Christ because he'd give it all to charities / non-profits / help advance science / etc. Regulator people fell for this.
I'm not so sure it's "accredited investors" we need as much as "accredited journalists".
That said bitfinexed will likely say that everything in crypto is a scam, not just ftx. And I'd agree!
Their main focus is the tether scam though.
So where is it? Did they keep the question to themselves, even though they could just tweet it at SBF and have almost 100k followers see it, who could then amplify it?
> “Two ways,” Mike said. “Gradually and then suddenly.”
If history is any guide, Tether's sketchiness is going to continue to not matter to most crypto investors, until suddenly it matters an awful lot.
No one wanted to listen
About two minutes of googling would have come up with the fact that one of their top executive was linked to the biggest online poker scandal.
Now, granted, that information required two minutes and not 30 seconds to be found because the first few pages of results would be NY Times pieces and their ilk pumping the FTX scam "because altruistic democrats donor".
A lot of people have been, at the very least, turning a very blind eye here.
Now is not the time to say it's "unreasonable" to do two minutes of googling.
They should have liquidated those holdings and put them in something safer.
I agree with you regarding regular people having no clue and no way to vet donors but keep in mind most folks on HN are part of this. The public knows what they get from news pieces they read, written by journalists who also don't have a clue. SBF was treated as the king of crypto by the mainstream for whatever reason. Talked to a lot of politicians too and spoke out in favor of regulation. Probably tried to sacrifice what he didn't care about anyway (actually decentralized chains) in order to present himself has a crypto person regulators can work with, all while committing fraud. Gary Gensler is supposed to have had private meetings with him several times. Curious how the agency who's supposed to regulate these exchanges never actually does and is even completely oblivious to multi billion dollar theft until the whole thing implodes. Meanwhile parties accept huge donations from Bankman-Fried and the SEC goes after smaller crypto projects that aren't even certain to be their jurisdiction.
Crypto has only seriously been around for 10-15 years. This is somewhat like saying “he’s only been a react dev for 5 years”
I think the reason is getting more and more obvious with every passing day.
His father and mother are professors of Law (and Business) at Stanford. (The mother is also one of two founders of Mind The Gap.) His aunt is a dean of Columbia University's School of Public Health.
https://showbizcorner.com/sam-bankman-fried-parents
His brother was running a lobby group called Guarding Against Pandemics. FTX's head of policy and regulatory strategy was a Commodity Futures Trading Commission commissioner under Obama.
https://www.cnbc.com/2022/11/14/former-ftx-ceo-sam-bankman-f...
And that's not the end of it all, there are many more interesting connections.
https://www.youtube.com/watch?time_continue=131&v=C6nAxiym9o...
Selling something with no value other than the attention it gets on Twitter and the reputation it gets via reputable investors.
What gets 'reputable investors' to invest in the scheme is the most interesting part of this story, if you at all care about stopping it. Something that has existed long before crypto.
> Selling something with no value other than the attention it gets on Twitter and the reputation it gets via reputable investors.
But that is clearly not a Ponzi scheme. A Ponzi scheme involves an obligation to pay people returns on their fake investment. Here, the pitch was "I don't know why people want these things, but they do. Want one?", and that pitch was honest and accurate. There was no pretense that you'd be getting any special returns.
By your standard, all trading in any commodity or stock is a Ponzi scheme, unless you're planning to consume the stuff yourself. Did you buy 300,000 pork bellies? Ponzi scheme. Do you have a bar of gold? Ponzi scheme. Do you have a share of Tesla? Ponzi scheme.
Compare Charles Ponzi, whose investment thesis was "guaranteed returns of 50% in 45 days", who specified the exact trade he was making (buying American stamps in Italy, where they were cheap, and selling them in America, where they weren't), and who never actually performed that trade. A Ponzi scheme is defined by paying off people who have invested in you with funds from other people who have invested in you.
/s
I'd say to run a successful trading shop you need to be a good trader. Doesn't matter whether you trade potatoes, pork belly futures, or crypto. Do you think Jump Trading cares (or even necessarily knows) anything about the tokens they successfully trade?
And he's somehow "establishment" because he gave to political parties, and Democrat because we're ignoring the GOP contributions.
SBF was more of a crypto guy than 99% of crypto. And he was way more crypto than he was establishment.
And the problems in crypto that his actions highlighted (centralization, fraud, lack of consumer protections) cannot be waved away with "no true scotsman" arguments.
He's your boy. Own it or the industry will not correct its own deep, ongoing mistakes, currently being made by entities like Binance.
Not sure about that. He was meeting with the chairman of the SEC and was a top donor personally to the Democratic Party.
That screams "establishment".
How many crypto bros can meet with the chairman of the SEC?
Unless you hold that meeting with the chairman of the SEC disqualifies you from being a cryptobro. In which case it's tautologically zero.
And that is out of how many cryptobros in existence?
I'm pretty sure he'll end up meeting the SEC a few times.
I love people who portray his willingness to engage with regulators as a form of selling out, as opposed to what it was, knowing that regulation was coming, so engaging to try to influence it to his advantage.
Which is what every other industry does when the regulatory hammer comes down.
But so many crypto believers seem to think that crypto is different to all that's come before it, it's really not. It's very sadly humorous how crypto has speedrun the entire history of why financial institutions are regulated.
So much so he began to think he was above it all.
It's an old story that repeats over and over again, long before crypto and long after it.
Yes, it allowed him to steal billions till someone with non zero morals leaked info about it.
> I love people who portray his willingness to engage with regulators as a form of selling out, as opposed to what it was, knowing that regulation was coming, so engaging to try to influence it to his advantage.
I didn't say that. You are reading too much.
> I love people who portray his willingness to engage with regulators as a form of selling out, as opposed to what it was, knowing that regulation was coming, so engaging to try to influence it to his advantage.
No one said that. The point is SBF is in bed with the establishment and the establishment deserves some blame.
I'm fine with saying he's establishment. I just don't agree that makes him not a cryptobro
And I am fine with saying he's a cryptobro.
> I just don't agree that makes him not a cryptobro
No one said that.
The point is that he is not an ordinary cryptobro. He rose in status in the crypto world due to being in bed with the establishment.
I don't think anyone here but you thinks this is that type of "political" or otherwise meaningful in this conversation.
It's a trick: Nothing in crypto is decentralized. Decentralization (ipfs, orbitdb) is dying on the vine because you can make vastly more money in crypto - because it's centralized.
He was a Ringer that was clearly parachuted in. The NYTimes puff piece absolutely confirmed that.
Sam's not the first and he won't be the last.
I got over the hype back in 2014, once you take the rose colored glasses off guys like Sam are easier to identify.
SBF created a giant custodial casino where one could bet on cryptocurrency prices, and people lost money that they gave him custody over. If they had held it in their own wallets, they would not have lost it. Many people in the cryptocurrency community spoke out against him for a long time. This is like if SBF had a penchant for kilts, the media was asking “what does this mean for Scotland?”, actual Scottish people were saying “this has nothing to do with Scotland”, and you come in with the comment “nO tRuE ScOtSmAn”
https://www.nytimes.com/2022/11/17/business/ftx-bankruptcy.h...
And I quote:
> "John Jay Ray III helped manage the aftermath of some of the largest corporate failures in history, including the implosion of the energy trading firm Enron after an accounting fraud scandal in 2001.
> But the corporate dysfunction at FTX, the collapsed cryptocurrency exchange that he took over last week, is the worst he has ever seen.
> In a blistering court filing on Thursday, Mr. Ray described an astonishing level of disarray and said he had never seen “such a complete failure of corporate control.” He listed a series of “unacceptable management practices,” including the use of an unsecured group email to access sensitive data, and said the financial information maintained by FTX was deeply untrustworthy.
> “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented,” he wrote in the filing in the U.S. Bankruptcy Court for the District of Delaware."
The evidence against SBF is damning. The NYT will continue to report that. You can cherrypick their pieces if you want to.
But what you should be doing is looking at the 10,000 ways that crypto made SBF and FTX what they were, through your credulity and greed. The NYT had nothing to do with that.
Fraudsters will find any way to fraud, no matter the economics or tech.
Enabling a fraudster to build and control something around a fig leaf will result in the same no matter the controls.
Edit: this sounds defeatist on a second reading, but that is not my intent. I’m not saying there’s a futility here. I do think it’s futile to believe we could rid any field of fraudsters and con artists, but I don’t think anyone here has argued we can.
How many times must we tell how many people that crypto is not a normal business, it's inherently dishonest.
I think this is argument is reasonable for individual recipients, but not for the effective altruism community as a whole? I wrote more about this here: https://www.jefftk.com/p/if-professional-investors-missed-th...
Still, while victims of his fraud, they are certainly lower in standing than almost everyone else.
This is not an excuse for assuaging due diligence. And to be frank, the guy looked shifty. Even worse, a cursory look at his company would have told you he was shuffling billions of dollars in investments and user deposits without a board of directors. If it quacks like a duck...
It would do a lot of people well to assume that anybody portrayed as a wünderkind or super genius in the media is anything but and cautiously invest their time, money, and attention in them accordingly.
Should they have known FTX was about to fail? Maybe, but so should a lot of other people who should have definitely known better. So, it’s hard to fault them for that.
In several cases they have received the money, but now feel like it is not ok (morally, legally, or both) to spend it.
Maybe these organizations, the government, politicians, and corporations should be less focused on raising money at all costs. How many SBF, Madoff, Epstein, etc. do we need for these people to learn this?
This describes a lot of people who changed the world. This one, unfortunately, was simply a fraudster.
I've been junkreading all about ftx and it's silly founder the past couple of days, and nowhere have I read that he shot himself up with drugs. Let's not take tweets or posts by randos with an axe to grind as facts.
FTX even had a company psychiatrist/therapist who admitted to prescribing ADHD medications to employees, but tried to play it off as saying the occurrence of ADHD at FTX was supposedly in line with other similar size groups of people. I have never heard of a company, especially of one so small, having a dedicated psychiatrist/therapist.
Another possibility--and I have no idea if this might be the case here--most of the grants here where I work use "drawdowns." Specifically the granting agency awards a grant of $X for whatever you said you were going to do with it in the grant application, but they don't actually give you any money. So you start spending money on the project, and carefully accounting it, and usually every month you sum up everything spent, and issue a drawdown request for the funds spent. The granting agency then cuts you a check and you mark those expenses as reimbursed. This means that if the grnating agency goes belly up, there is a possibility you could be out real funds that you spent and are expecting a reimbursal.
I think it's actually two people. When FTX imploded I asked not to be paid if this would mean taking FTX money.
(I'm fortunate that I'm able to do this, and I don't fault my coworkers who can't.)
Yet we are totally OK with exploiting young people aspirations by making them slaves and destroying their careers and mental health. The last thing we need to worry about is the academic cabal crying wolf.
He was amazed at how swift and low-detail it was as he’s generally spending most of the year flying to conferences, visiting/speaking to foundations etc to pull the funding together.
[1] https://www.mercatus.org/emergent-ventures
[2] https://astralcodexten.substack.com/p/acx-grants-results
I was shocked -- SHOCKED! -- to find out there was gambling going on in there.
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EDIT: That being said, the level of shock here is warranted.
> “It’s definitely a mess,” says Josh Morrison, who heads 1Day Sooner, a pandemic preparedness research and advocacy organization that received $375,000 from the Future Fund and the FTX Foundation. During the pandemic, 1DaySooner became known for advocating so-called human challenge trials, which deliberately infected volunteers with SARS-CoV-2 to test vaccines.
So FTX allegedly donates a lot of money to various causes. Those scientists begin the trials (expecting the money to pay them back eventually), but... FTX goes bankrupt before it hands those scientists money.
That's... bad. I'm not in the scientific field, but it seems like these groups had reasonable expectation that some money was coming for them... and that money wasn't related to cryptocoins or whatever.
Quick FYI: there are no call-girls and the place is not (nominally) a casino, it's Rick's Café Américain, which Renault calls a cafe and Rick famously calls a gin joint -- in any event, a popular nightspot.
Here's the text of the relevant scene, from IMDB[0]:
Rick: How can you close me up? On what grounds?
Captain Renault: I'm shocked! Shocked to find that gambling is going on in here.
[a croupier hands Renault a pile of money]
Croupier: Your winnings, sir.
Captain Renault: [sotto voce] Oh, thank you very much.
[aloud]
Captain Renault: Everybody out at once.
In Renault's defense, right before all this, he was told by a superior to close the place down and, when a reluctant Renault says he has no excuse to do so, he's told, "Find one." Hence his feigning being "shocked" at the gambling.
(If you have 32 seconds, you can watch this classic scene here: [1]).
http://www.paper-dragon.com/fistsand45s/ricks-cafe-americain...
(Amusingly, in the comments, someone says they're building it in Minecraft).
As an aside, this post from 2008 does point to all of the carbon being released from the 1st meter of soil/permafrost, which has probably since melted.
https://phydeauxpseaks.blogspot.com/2008/08/you-know-that-ol...
Casablanca, it turns out, has a relevant quote for this too[0]:
Captain Renault: What in heaven's name brought you to Casablanca?
Rick: My health. I came to Casablanca for the waters.
Captain Renault: The waters? What waters? We're in the desert.
Rick: I was misinformed.
I would suck at pop culture trivia :)
This was plain fraud.
Let us not sugarcoat it by saying it was "plain" gambling.
It was gambling BUT with stolen funds.
I have no idea where you would get that idea. There have been some interesting arrangements for sure, but there is no way to get a tax deduction for a pledge that hasn't been given.
https://www.nytimes.com/2018/08/03/business/donor-advised-fu...
Some donors give with tax benefits in mind and dual intent giving , while some give just to give. In general, you can always ask yourself if a person giving is increasing their net asset value while giving or declining asset value while giving. The mathematics are fairly elementary even when you account for compounding rates
They may be talented, but these are stolen funds that may be clawed back.
The US president, those researchers, and many, many startups are holding what is pretty directly the money of FTX's unsuspecting users.
The recovery will be a long and painful process.
But noooo you can't think that because well you know.
Meh doesn't even matter anymore, seeing the narrative about most things get more convoluted makes me doubt everything we even know about history, like how can I trust something happened 1000 years ago if I can't trust things that are happening right now it's crazy
[1] https://www.investmentnews.com/a-year-later-jewish-charities...
Stealing your money and pledging it to goals you may not agree with is a right strictly reserved for governments.
They donated substantially to both left and right leaning organizations.
https://www.opensecrets.org/orgs/ftx-us/recipients?toprecips...
You can see the breakup of the congressional candidates there, almost a 50/50 split.
Anyone suggesting they are only donating to far-left organizations or the like is lying and has an agenda that is opposed to the truth.
All this discussion about weather the scientists should vet or not is irrelevant when they have 100% certain proof that the donated money they are spending is stolen, and they are keeping on using it... If you don't want people to lose their jobs, take a loan and find alternative funding, don't keep on using stolen funds for for goodness sake.
https://odysee.com/@Chris_Martenson:2/the-deeply-troubling-f...
In the case with FTX, it was likely committing fraud, and the money the foundations received was the equivalent of stolen goods.