Hacker News Reader

Comment by burkaman | Hacker News Reader

For FTX's Sam Bankman-Fried, incompetence could be a legal strategy - https://www.axios.com/2022/11/16/ftx-sam-bankman-fried-incom...

> Lawyers tell Axios the main criminal risk Bankman-Fried faces is an indictment on charges of fraud — one of the more common charges in white-collar prosecutions. But to convict, prosecutors must prove beyond a reasonable doubt that someone had knowledge or intent to commit fraud, which can be tricky, they say.

> That’s why the defense against such charges typically centers on something like, "It wasn't fraud, I was just really bad at my job."

> "Typically, in a fraud case, the person at the top argues that he was inattentive, delegated to others, and wasn’t focused on the details," Mariotti tells Axios. "The point is to argue that he was sloppy or inattentive, not a fraudster."

View on HN

He made tweets at the end of September when there were huge movements of FTT from Alameda to FTX where he lied and tried to downplay them as "wallet rotation". I posted about that here: https://news.ycombinator.com/item?id=33568688.

There is a paper/tweet trail a mile long that SBF was trying to cover up malfeasance that pretty clearly shows mens rea in my opinion.

The notion that someone that made it through MIT physics, worked for several years at Jane Street, and actively cultivated the persona of a genius can't understand that making a million tokens, selling one of them to yourself for a dollar, and then calling yourself a millionaire is nonsense, is frankly preposterous.

I am a genuine believer that environment plays a big role in all of those "achievements".

And then there's also the question of actual deposits, which would still have to be sent to somewhere - intentionally - and given as those were represented, afaik, as deposits and not buying shares in a high-risk hedge fund, that alone constitutes separate fraud, regardless of how he tried to cover it up afterwards. If I tell you "if you give me $1000 I'll keep them safe and return them to you anytime you want" and then I take these money and go gambling to Vegas, I can't say "I was just not paying attention, sorry". I knew I promised to keep them for you and gambled with them instead.

Exactly. People keep referring to FTX as a Ponzi. It's even worse than that.

There's a segment of smart people who go through a lot of hoops to make themselves look stupid. Because for one reason or another being stupid is advantageous. Here, apparently, it's a defense against fraud.

You’re right, it is preposterous, which is why this is narcissism and not stupidity. The first rule of any fraudster is to never admit the fraud, no matter how obvious. Never apologize for anything, never admit wrongdoing of any kind, and try to deflect and diffuse blame diffuse blame to as many people as possible.

FTT had a real yield that was backed by Ftx trading fees and measured in dollars. (Weekly back backs and burns)

Many analysts did DCF modeling and $22 per FTT looked reasonable.

Judges won't side with him, like, at all.

>The point is to argue that he was sloppy or inattentive, not a fraudster.

If that's going to be his strategy there's still a lot of laughs to have at his expense.

If only it were that easy, "oh I didn't knew I was crossing the border with a hundred pounds of cocaine in my car", like, how come they never thought of THAT? LOL

Is that not a valid defense? It's my understanding it's not uncommon for criminals to plant stuff on a marks car and then secretly grab it after it crosses the border. Possession of something should require your intent to control/keep it or at least knowledge it exists.

It is iff you can convince a jury that's the case.

Maybe could get away with light sentencing If it was few billionaire investors. I don't see how he doesn't get life for screwing so many investors.

It is not - drug possession is a strict liability crime for that reason.

That said if it is some random retired couple with zero idea what is going on and 10 kilos of coke in their spare tire, as long as they co-operate, most gov’ts wouldn’t prosecute them.

I imagine for him it is going to be something more like, "I didn't know she wasn't 18."

I think I might go rob a bank and use the excuse "I wasn't robbing it, I'm just really bad at withdrawals!"

"I'm sorry, I think I got a label mixed up, you mean this isn't MY account?"

"Poorly labeled @fiat accounts" oh my God.

There's an important nuance there which is that they don't have to prove that the person knew the actions they were taking were illegal, just that they intended to take those actions. As an example:

Knowingly driving a car someone else stole is illegal, even if you don't actually know it's a crime to drive a car someone else stole (after all you didn't steal it, maybe you bought it from the person). Driving a car that was stolen that you didn't know was stolen is not illegal.

He built a special backend endpoint so he could move money from FTX to Alameda without triggering any oversight or audits. They have him on fraud.

Or maybe it's just a hidden, poorly internally labeled fiat@ account, with a negative balance of 8bn dollars? (sic)

It's a bit of both.

Specifically, FTX had a margin pool facility. Clients could specify the assets (not just dollars, but also Bitcoin, tether etc) that they wanted to lend in their wallet. Along with APR. It was strictly opt in.

The system also reported small amounts ($400m) last time I checked.

This misrepresentation is fraud.

Removing the audit trail and reporting from accounts probably turns this into theft according to the definition of the intention to permanently deprive, which forethought hence mens rea is satisfied by plural compounding acts of concealment.

OK, but "I loaned it to myself" is a deliberate step. So the defense is "I took user deposits, loaned them to myself and then gambled the money, and I did not know that that constituted fraud or embezzlement." That seems unlikely to fly.

There are some parallels with Elizabeth Holmes.

And we are yet to see whether they throw the book at her.

She didn't immediately publicly confess to a reporter, though, right?

Hell, to this day she still (publicly) claims that they were thiiiiiiis close and all the naysayers who lead to this point are "hurting humanity" far more than they are hurting her.

So you're saying is that a defense for fraud is stupidity? Oh dear god, it can't be that simple can it?

A large class (but not all!) of crime requires ‘mens rea’ or a guilty mind.

If you can plausibly convince everyone, for instance, that you legitimately thought that the car you got into and drove away was your car, then you didn’t commit car theft.

Good luck with that 99.9% of the time of course.

This is in comparison to strict liability crimes, like drug possession or statutory rape that don’t require knowledge or intent.

Fraud requires that you knew you were lying (essentially), or should have known, to be fraud.

You can’t accidentally commit fraud.

Near as I can tell, SBF would have to somehow convince everyone he had been brain dead while collecting billions of dollars to pull that off here, but hey - defense attorneys have to try something I guess?

I'm no legal expert, but surely this requirement of mens rea doesn't actually require the defendant to know the specific law that they are violating. Surely it just requires that the defendant knows the basic facts of their actions that cause their actions to qualify as illegal under the law. In other words, if it's illegal to loan user deposits to yourself and gamble the money, and he knew that he was loaning user deposits to himself and gambling the money, then doesn't that count as mens rea even if he didn't know that it was illegal?

Correct.

It doesn’t requiring knowing what you’re doing is against some law.

It requires knowing what you’re doing (which is against a law).

If what you did is very different from what you thought you were doing because of a legitimate mistake of fact (aka you thought it was your car, but it was not), then you’re not guilty of the crime, because you didn’t realize what you were doing was the thing that was a crime.

It’s roughy why not guilty by reason of insanity is a legitimate defense in some cases.

If someone is so insane they can’t understand what they were actually doing, or the thing they legitimately thought they were doing isn’t a crime, they weren’t committing the crime. That does mean they are probably such a danger to themselves or others they need to be locked up somewhere though.

As with the car defense, it is a very difficult thing to prove in most cases, and for good reasons

Reply on news.ycombinator.com