FTX used corporate funds to purchase employee homes, new filing shows
cnbc.com
cnbc.com
Listed companies on the NASDAQ and NYSE have lots of requirements here (eg internal and external audits). Obviously these don't apply to FTX but the truly shocking thing here is the likes of Sequoia and other sophisticated investors did not require an adult in the room in the form of a CFO.
They literally handed billions of dollars to a 20-something with absolutely no supervision or accountability. I would not be surprised if this lack of oversight doesn't land them in court from customers and other investors. You may think they are shielded from this through limited liability and corporate structures but that doesn't innoculate them against tort claims and you could probably make the case they are recklessly negligent or even as far as being liable in conspiracy to commit fraud (before or after the fact).
SBF engaged in on-the-record messages with a reporter about this. This is how clueless this man is. He either doesn't have lawyers or he's ignoring them as any lawyer will tell you to STFU [2]. No good can come of this ans. SBF and his cohorts are facing the prospect of being on the run for the rest of their lives from US authorities or possibly even spending the rest of their lives in prison.
It's that serious.
[1]: https://www.ledgerinsights.com/ftx-warning-signs-no-cfo/
His parents are both lawyers! And law professors! Specializing in compliance and ethics!
Barbara H. Fried aka mom, Beyond Blame, 2013:
https://nitter.net/ShellenbergerMD/status/159311376898027520...
> Bankman-Fried and FTX “management practices included the use of an unsecured group email account as the root user to access confidential private keys and critically sensitive data for the FTX Group companies around the world, the absence of daily reconciliation of positions on the blockchain, the use of software to conceal the misuse of customer funds.”
https://www.cnbc.com/2022/11/17/ftx-ceo-shreds-bankman-fried...
Everything up to that last part could be chalked up to idiot savants doing their thing. But as the saying goes, the cover up is the crime.
Of course, given the depth of financial depravity on display here and the incredible thinness of the financial defense, one must also entertain the theory that they did do the due diligence, they were aware of how dangerous this was, and they invested anyhow for other reasons. And that those reasons are probably not good.
There have been many cases where companies go to great lengths to do accounting alchemy to fool even very smart auditors, but we are clearly not dealing with that here. Binance or whoever was offering to buy FTX out literally figured out within single-digit hours of looking at FTX's books that they were not interested. A person skilled in the art can literally glance at these books and figure out that they are worthless. I do not believe there is any credible theory that any investor could possibly have been unaware of these issues.
FTX's books don't so much have red flags as that they are printed on red flags, with ink derived from red flags, a custom-made red cover made out of more red flags, and each page, when opened, has pop-up red flags along with a little electronic speaker that plays Red Flag by Antigoni while you get sprayed with Red Flag perfume [1].
OMG - I'm dying here. You really shouldn't have buried that at the bottom of your reply because many will miss it. Perfectly written. I love it.
A Westerner arrives in the USSR. Walks absentmindedly along the street, boom, open manhole, falls down, climbs up all covered in sewage, shouts, furious: “What the hell? Couldn’t they have put up a red flag or something like normal people?” A passerby replies: “You’re from the airport?” “Yeah.” “You’ve seen the huge red flag on the roof, right?”
I'm not convinced that the issues that caused Binance to back out even existed the last time FTX raised outside capital (March 2022 according to Crunchbase). My understanding is that in March, FTX had a basically normal balance sheet for a crypto exchange, with roughly enough non-FTT assets to balance against its liabilities.
Alameda was an over-leveraged crypto hedge fund, which in hindsight wasn't great news for Alameda's investors or creditors. But there's a world where Alameda goes to zero but FTX is mostly fine. After all, FTX would automatically recalculate margin levels and liquidate assets as needed every 30 seconds. If they did that with Alameda like they would have for an arms length counterparty....I'm not going to say that FTX would have been unscathed - a lot of those loans seem to have been secured by FTT, plus Alameda seems to have made up a lot of FTX's trading volume - but the end result of incinerating billions of dollars' worth of customer deposits wasn't inevitable. IMO, FTX's fate wasn't sealed until its management team built a backdoor into its systems to siphon customers' assets to Alameda. And that probably didn't happen til summer, months after its last funding round.
Employees were stealing from the company, there were no internal controls...the rules for VC are...different. If you were on a Board and this happened on your watch, you would never work on another Board again. If you did this in PE, fired. If you invested in such a public company, very likely fired or irreparable damage to your reputation.
Sequoia are a huge fund, they are one of the doyens of the industry...it isn't even that they failed, they didn't even put in place the mechanism to try to protect their investor's money. It is unbelivable.
Despite the notional legal structure, I think the key thing is that FTX, FTX.US, Alameda Research, and the other 130 or so entities involved were mostly not, in any meaningful sense, distinct businesses, it was all just three grifters in a trenchcoat.
Crypto was filled with sleazy car-salesman "investor" types at the time Alameda Research was looking for funding. So when in came someone with a Jane Street background and not a single flashy Ferrari in their driveway, the dam broke on VCs finally being able to pour money into the crypto space on a decent looking founder.
> and not a single flashy Ferrari
the article mentions his $30 million dollar penthouse ... It seems the only place the flashy assets didn't exist was in the press coverage put out by organizations SBF gave money to...
This is an extraordinary number of high-profile companies which either failed to do due diligence, or were knowingly, deliberately doing shady dealings.
Not great to have to choose between incompetence and shadiness at any of those, but those are the two options, and each should be investigated for throwing their [customers'] money into an obvious scam.
Lol. This should be a framed quote.
“Sam Bankman-Fried’s pitch to investors was not much of a pitch: It was a take-it-or-leave-it offer.
“In meetings to raise money for his cryptocurrency exchange FTX over the last year, the entrepreneur left little room for negotiation, two investors said. FTX was his company, Mr. Bankman-Fried told them, and he planned to run it with little oversight. Interested investors should ‘support him and observe,’ one investor who heard the pitch said.”
A meta reply to several of the commentors here is that we're not talking about JoeBob's Angel Investing who got lucky with his bait shack and has a few hundred thousand more than he knows what to do with to throw around. These are nominally the top tech investors in the world, along with lots of other people who should know what they are doing. Investing in a business in a KNOWN risky and volatile area calls for MORE due diligence, not less. If they didn't do it, we are certainly in the position of trying to figure out the exact distribution between stupid and evil. "Oh, poor us, we asked him to show us the books and he said 'no' and we just couldn't help but throw tens of millions of dollars at him" is bullshit. This isn't hopskotch at the local elementary school. The only even remotely sane conclusion to come to in that circumstance is not only "no", but a NO! yelled back over your shoulder as you flee as fast as your feet will take you.
This is failure so profound that your brain is having trouble wrapping itself around it and you are thinking to yourself, surely they knew what they were doing and I'm just not seeing it? No. Have more confidence in yourself and less in others of supposed authority.
That said, my own opinion is that anybody who invests in the crypto space is either a scammer or a rube.
If they did, they would know there'd be a 100% chance that it would blow up.
This is some serious balance sheet depravity. This is not like the CEO buying up companies with a conflict of interest, or billing the company for their private jet. All of that is plausibly legit.
When there are no financial controls at all, money is being looted, it will go down.
VC funds normally don't do due diligence so long as some other entity did it in the round, there is legit oversight on the board etc.. in this case, their own controls failed.
All of the funds who invested in FTX need a serious audit of policy.
This is a dereliction of responsibility, not just a 'bad bet' and so heads should roll. They probably won't though.
I mean - who doesn’t love pop up books?
what would those be?
My best guess is that these VCs need to deploy so much capital that they don't really do due diligence, instead they go by "founder vibes" and "vision", a watered down version of "invest in the team, not the product". Sequoia, SoftBank, a16z all seem to be guilty of this.
Anecdotally, Chamath Palihapitiya, in the recent All-in Podcast [0], said that they met with SBF and as a condition to invest they wanted to get rid of dual class voting shares (or something like that) and a board. FTX leadership (not necessarily SBF) replied with "fuck you".
So I guess you have some VCs trying to do the right thing, but if founders can get capital with no strings attach elsewhere, then your ability to deploy that capital is hampered. Essentially, until recently there were was more capital than founders, so founders could just do whatever (and SBF did).
I would expect that this changes a bit with raising interest rates and a tech downturn, but a16z's $350M investment in Adam Neumann's newest Thing makes me think that we are still flush with money ready to be thrown at anyone that has the connections to get a coffee chat in Sand Hill Road.
[0] https://open.spotify.com/episode/3CKYt4mKxndPkEfAvc7SM0?si=e...
They have loose morals.
Kevin O'Leary, of Dragon's Den fame, who is now a creditor in the FTX bankruptcy (ie wiped out) recently said in an interview that he would invest with SBF again.
The guy literally had money stolen from him. How do you even explain that?
I don't know how. Maybe he's just fucking stupid, or too prideful to admit he was wrong.
FTX defrauded average people, many of whom were lured by the big name ads, the friendships with Tom Brady, the marquee investors list.
Supporting that is deeply immoral.
This end of the era of easy money is going to reveal that many of the "geniuses of our time" are nothing of the like.
So you don't go in saying "hey look we can make a trillion dollars doing arbitrage between American, Japanese and Korean exchanges." You go in showing that your work doing the former proved the existence of a massive market for crypto securities and derivatives, and how you're uniquely positioned to capitalize on that market.
And if they believe in the existence of that market and the founders are able to execute they'll invest.
That's what they mean about investing in founders and teams.
Originally the story was korean exchanges; he changed to saying Japanese, presumably after too many people pointed out the korean story was impossible. (The Japanese story was also more or less impossible, they could have made a bit of money maybe even millions but not the $10+bn he claimed)
Both of these arbs were glaringly obvious and talked about constantly, but difficult to pull off due to banking hurdles in both countries.
Then Alameda comes along showing actual profits from their early trading operations. Someone who as actually figured out how to make money in the crypto world without selling their own tokens (yet). Compared to all of the other dead-end projects these investors get pitched every day, this seems like the golden child. Someone who is actually turning a profit. Investors want to put their money into the golden child's profit machine and get a piece of that action.
SBF was also very successful in turning his early successes into a lot of momentum and social proof. He played investors and influencers against each other by bringing them all on within a short span of time. When this happens, investors go into FOMO / "me too" mode and just throw their money into the momentum, assuming some other investors have probably done the due diligence already.
Which is essentially all fundraising in a crowded market, but you would expect investors to be more sophisticated. Even accounting for selection bias (we're opining on the ones who invested).
Current theory is there's some sort of investment U shape curve. Either people look the part and talk the part and get the part, or they look like they care so little that they must be the real deal. Wish I'd known this, because I am also able to play video games badly while wearing a T-shirt.
Turns out this was hitting very close to the truth. That show was great to show how much a clown world SV can be.
VC's aren't stupid, even if they thought it was 80% likely he was an outright fraud, it's still worth the bet for a 20% chance at 50-100x returns.
When a confidence man and thief loudly and proudly shouts out a religious affiliation as his guiding star, we generally don't go ahead and condemn the religion for his behavior. (Doing so is a great way to get canceled. At most, we blame him for not being religious enough.)
If you were poor or otherwise suffering would you not want help from someone richer than you?
The due diligence is about the founder's connections and the ability to use them to skirt regulatory oversight. This checked out - both Sam and his girlfriend came from well-connected families and so far acted the part (including the massive political donations). Whether it's going to save them remains to be seen. I hope we won't sink to a new low of bailing out Ponzi schemes with taxpayer money, but I wouldn't be surprised too much.
Their term sheets gave them a big chunk of the "limited supply" tokens. So even if the business model was trash, they could cash out well before the market for that coin collapsed.
It is similar to when investment banks underwrite stock issues; they purchase a chunk of the stock directly from the company at an agreed-upon price. The company gets guaranteed funds, and the bank is free to sell the shares on a secondary market and potentially pick up a profit.
What's missing in crypto are the safeguards that ensure that banks + companies do not collude on pump and dumps in the securities markets. These include quarterly financial audits and oversight from a watchdog agency like the SEC. Obviously they are far from perfect, but considering the anti-regulation nature of US business (even after the Great Depression), the fact they even exist is a small triumph.
“Of the exchanges that we had met and looked at, some of them had regulatory issues, some of them were already public,” Bailhe wrote. “And then there was Sam.” FTX, Sequoia felt, was “Goldilocks-perfect.”
In colorful language, Sequoia partners reveled in their appreciation for his pitch for FTX.com as the center of all monetary transactions. In their own words:
“I LOVE THIS FOUNDER,” typed one partner.
“I am a 10 out of 10,” pinged another.
“YES!!!” exclaimed a third.
The firm has since deleted the article.
https://www.commonsense.news/p/the-32-billion-crypto-scammer
The basics of due diligence is: * How is their record keeping of board decisions & financials? * What board decisions and indemnities exist in those records that may have conflicts of interest or claims from other third parties? (FTX didn't even have a board) * etc..
Furthermore, probably should raise every red flag ever for a reasonably intelligent person if some 20-somethings with a few years of experience claim they have the secret sauce to trade successfully under every possible market regime. It falls on its own implausibility and only reeks of hubris.
To understand most market regimes likely to occur, you likely need people in their late 50'ies onboard, or even older (there's a reason Buffett, Soros et al come out relatively unscathed out of most crises, while everyone else bleeds out).
This is a result of stupidity meeting easy money.
if a crypto journalist was able to find these tweets and blogs, it would indicate the VCs didn't do their due diligence on the CEO, at the least.
You can only conclude that there is a lot of dimb money out there. Some people made big money despite being idiots. Which means I have a chance as well!
the audits done in july 2021 were by armanino and prager metis, both of which are trying to expand into the digital asset space and would stand to benefit from continued growth and success by ftx. the implication i am making is that there was no way for the audits to be unbiased.
if the audits weren't junk, the company probably wouldn't have been big enough to cause such a mess
That, or fraud, of course.
Connected family? Check
QuIrKY AF? Check
Maybe they got to join the FTX polycule if they invested enough. Who wouldn't want to get in on that.
There’s got to be a No-nut November joke in there.
Maybe not too fast (or at all) for SBF though. His father is a Stanford Law professor and that doesn't come without some connection to the rest of the legal world-- and so, assuming SBF is likely to have some method of funding, a flavor of defense along these lines could keep him out of jail:
"SBF was simply an idealistic young man who tried to strike out in a new direction in the financial world. But he'd only had a year or two of experience and found himself in a crypto industry filled with scammers and VC forms eager with FOMO failed to provide the guidance or ensure proper governance as would usually be the case. And so business SBF built was very ad hoc on the inside and when things started crashing down SBF made some extremely poor but well intentioned decisions. But now? He's learned his lesson"
And then he gets his probation and a ban from working in the industry for X years. And maybe even a handslap jail sentence.
Based on what's come out so far that has some small chance of still being how he gets off the hook, but it's early days and getting worse by the tweet.
[1] https://pacer-documents.s3.amazonaws.com/33/188450/042020648...
https://pacer-documents.s3.amazonaws.com/33/188450/042020648...
Oh look, the same one that "audits" Kraken.
The truth really is stranger than fiction.
https://www.coindesk.com/business/2022/11/11/meet-the-metave...
Wow Another Simpsons did it first moment (https://frinkiac.com/img/S07E15/318918.jpg)
My goodness this stupidity is a conglomerate industry if so.
"I have over 40 years of legal and restructuring experience. [...] Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. 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[1] and potentially compromised individuals, this situation is unprecedented."[2]
I am really looking forward to the next Matt Levine column going through this filing!
[1] Ouch that hurts. At least you want to go down in history as a criminal mastermind!
[2] https://pacer-documents.s3.amazonaws.com/33/188450/042020648...
Got u fam: https://archive.ph/VaSw8
How and why...?
Greater Fool Theory
Take your pick
~1 Week in to the melt down of a massive, hilariously horrifying structure of $Billions intricately tied up in a mixture of hubris, malfeasance, scam artistry, good intentions (maybe?) and...
his biggest regret is that in, perhaps, a moment of sanity he filed for bankruptcy in a jurisdiction that is expert in handling the fallout from this kind of thing. (well, I'm not sure Delaware has actually ever seen this kind of thing before)
This does not reflect well upon his character and perhaps belies his claims that all he wants to do now is find some way of rescuing things from the ashes to make whole the folks whose assets were incinerated
The 2 biggest players - Tether and Binance are much worse and still very well alive. Both are several times bigger (on paper) than FTX.
Binance is already banned in most countries and without headquarters. Do anybody believes they have a proper gouvernance ?
Tether was proved to lie about it réserves several times, recently started publishing attestations about reserves - attestations that are obviously false - the numbers don’t really add up.
For all we know, both could disappear tomorrow with all the money and nobody would be able to say where and how it’s gone !
If they go then the magic beans are worth $0. In which case - what are the damages? They've ran away with magic beans worth $0.
To quote Monty Python: "I mean, what have you got to lose? You know, you come from nothing. You're going back to nothing. What have you lost? Nothing."
As long as it happens slowly enough and with enough steps, that's 1 USDT converted to 1 USD.
The damages are everyone with money in a USDT denominated exchange who believes that the actual USD still exists somewhere in the system. It left months / years ago, the people still playing are the ones holding the empty bag.
It’s a game of musical chairs where people holding the magic beans are dancing around and the dollars are the chairs. There’s only so many dollars to go around when the music stops, and they will go to the exchanges and the ones who “cashed out”.
There's a lesson in here.
- they lied about the reserves and weren't backed at 100%
- they did fraudulent attestations wiring money for the 'snapshot' of accounts for the attestation then moving it back to owners (from Bitfinex exchange if I remember - which is the same people - see a pattern here ?)
- held money in their personal accounts
the above were proven without doubt by the NY AG.
- promised an audit for several years (it's always just a few months away)
- publish attestations that are obviously false. some red flags - in the first one, they claimed to have so much money in commercial paper that would put them in top 10 players - yet, among desks trading those papers, nobody ever heard of them ! In the last 2, if what they published was true, they would already be under water, given the decline of all coins - yet, somehow they are all okay.
- each time an exchange / scam goes down - they publish those papers saying they have 0 exposure to them (recently FTX, Genesis) - this despite findings that Alameda (FTX affiliated hedge found) was on the recepient of >30% of all Tethers
- last I checked, their CEO wasn't seen publicly for several years. Most of their financial 'communication' is done by their AG and 'the IT guy'
There are many more. In case of doubt, watch this interview and judge yourself if this feels like guys legitimately managing 70B real dollars:
https://www.youtube.com/watch?v=ZBEqyiO35cQ
It's all scam - it's so obvious that it's amazing. It will collapse - we just don't know when.
Why would this matter? Tether gives out USDT to (almost) anyone who wants it in exchange for cash, and only redeems it for cash if you give them back the USDT... 100% of their USDT could be held by FTX and that would not suddenly cause them to have any exposure to FTX.
Tether has also been subject to scrutiny and was found, at the time, to be lying about their reserves and backing. And this was before they printed a lot more! It doesn’t make sense to write them off as having withstood the test of time when they literally failed to stand up to the first legal scrutiny that got access to their books.
What due diligence did Blackrock and SoftBank did before investing in FTX?
Half the people I know trusted FTX just because "Blackrock and SoftBank must have done their homework".
I'm not sure what could collapse Tether other than Tether itself saying they're broke and refusing to honor redemptions.
Considering the silence from top officials, I don't think this is going to be true. Don't forget he donated ~$50M to the democrats for the mid-terms and was the second biggest dem donor.
Is there any evidence of this? Sure, maybe wearing a t-shirt and flip-flops, driving a Corolla, and sleeping on beanbags is some sort of act to divert attention, but the simpler explanation is that he just fucked up. Not everything has to be a heist.
Maybe he just fucked up. But when the music stops and instead of having your customers' money, you have a bunch of loans to the owners of the company... I'm not sure if "he just fucked up" is the simpler explanation, or the more credulous one.
[1]: https://s.wsj.net/public/resources/documents/FTXFILING.pdf
Nobody is sure where these people are now.
It increasingly looks like FTX was a money laundering operation.
Had to have been one of the top donors.
[1]: https://forum.effectivealtruism.org/posts/XHrHsrQGyr4NnqCA7/...
> Alameda and later FTX are founded explicitly as Effective Altruist organizations, although they rely on commercial investment and seed funding. Early employees are mostly or all EAs. The hiring process filters aggressively for goodness of fit a lot of which is to what extent someone is an EA. They pitch FTX and Alameda as places to go work if you are looking to do good.
> SBF is influenced by his longtime friend Will MacAskill* and others by the principles of Effective Altruism.
* Will MacAskill is the co-founder of EA, close friend of SBF for 9 years, and the one that was trying to get Musk to accept an investment from SBF for Twitter.
https://forum.effectivealtruism.org/posts/f9rFsbsd4rGLQfpQg/...
That isn't the impression I got from reading their forums-- rather, you can find some messages vocally opposed to "shady practices" but only because people keep promoting and arguing against the position.
You won't find such vocal opposition to shady practices elsewhere because elsewhere it isn't needed. In the world of charity for sociopaths, "scamming for good" is inside the overton window and has to be combated to prevent it from taking over.
a scam, through and through.
- how convenient for SEC.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,”
And this is the same man who oversaw the liquidation of Enron.
"Ray said he had found at FTX international, FTX US and Bankman-Fried’s Alameda Research trading company “compromised systems integrity”, “faulty regulatory oversight” and a “concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals”.
Don't forget to read this with the "diplomatic/legal/lawyer" mindset. These are not internet comments, these are legal filings. Sentences like "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. 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." are not the words of someone seeking updoots, this is a very serious individual in a serious legal filing. Read this way this entire filing is filled with zingers and knee-slappers. Truly an amazing work.
The Debtors did not have the type of disbursement controls that I believe are appropriate for a business enterprise. For example, employees of the FTX Group submitted payment requests through an on-line ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis.
The audit firm for the Dotcom Silo was Prager Metis, a firm with which I am not familiar and whose website indicates that they are the “first-ever CPA firm to officially open its Metaverse headquarters in the metaverse platform Decentraland.”
Mr. Bankman-Fried, whose connections and financial holdings in the Bahamas remain unclear to me, recently stated to a reporter on Twitter: “F* regulators they make everything worse” and suggested the next step for him was to “win a jurisdictional battle vs. Delaware”.
You're not kidding.
-'The audit firm for the Dotcom Silo was Prager Metis, a firm with which I am not familiar and whose website indicates that they are the “first-ever CPA firm to officially open its Metaverse headquarters in the metaverse platform Decentraland.”'
-'The Debtors did not have the type of disbursement controls that I believe are appropriate for a business enterprise. For example, employees of the FTX Group submitted payment requests through an on-line ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis. '
https://www.scribd.com/document/562063724/Kytch-v-McDonald-s...
eh. until a criminal trial occurs, these really are just updoots. the gravity of this doesn't change that people write colorful language for clout in the process. if you're read enough filings like this, you'll have seen it all.
> Because such balance sheet was produced while the Debtors were controlled by Mr. Bankman-Fried, I do not have confidence in it, and the information therein may not be correct as of the date stated.
... Oh.
> I have substantial concerns as to the information presented in these audited financial statements, especially with respect to the Dotcom Silo. As a practical matter, I do not believe it appropriate for stakeholders or the Court to rely on the audited financial statements as a reliable indication of the financial circumstances of these Silos
... Hmm.
> The Debtors have not yet been able to locate any audited financial statements with respect to the Alameda Silo or the Ventures Silo.
Oh, my.
https://mobile.twitter.com/nntaleb/status/159059960483560652...
SBF's prison sentence should be at least five times what Holmes gets.
Until the Chapter 11 filing, I assumed the books were pretty much normal until Alameda started to tank and then shady stuff started happening, but it turns out they were always just guesstimates in Excel. Which is apparently fine when raising ~$2B.
How does he get compensated? I’m assuming it’s not simply a goodwill/hobby thing
Thr bankruptcy court lets the bankrupt entity spend money (woth supervision) on tasks essential to what it needs to do in bankruptcy, including paying employees needed for that worm.
Even the most basic regulations would have squashed FTX’s entire fraud from the start. They weren’t bothering to play by any rules because they knew they could get away with it.
> “The Debtors do not have an accounting department,” Ray wrote, stating he expected it would be “some time” before reliable financial statements could be prepared.
Maybe HN will be finally wrong about crypto one day too
I would have gotten an F if I had done that in my first Accounting 101 quiz.
Just to see it describing the financial situation of a company holding millions is just unbelievable.
The citizens of California would highly disagree with that. In those cases, all they had to do was put plants into "maintenance" mode. Literally, do nothing, and profit.
This doesn't even begin to cover how they encouraged their employees to put their retirement into the business.
Enron wasn't one fraud.. it was several.
I understand the words in this sentence individually, but not the sentence in its entirety. Can anyone translate?
Although he did famously yell at (wall street) analysts on a quarterly earnings call right before he broke down.
hah!
quite interesting
Perhaps Coinbase is an example of that, though maybe not as well known due to less drama?
It's very easy to see the celebrity endorsements, puff pieces and the companies name plastered over a stadium as endorsements of how solid the business is, after all, a bunch of kids living in the Bahama's couldn't just buy all this right?...right?
While FTX tried to gain respectability through all that, seems that Coinbase is taking the tack of just focus on the fundamentals of the business and build trust that way (you know the old school way).
https://news.ycombinator.com/item?id=31738029
Some gems:
"Yeah. FTX people clearly know a lot more about market making and how exchanges work. Makes coinbase look like amateurs.
... I agree and am in general a big fan of FTX and the guys that work there. The CEO, Sam Bankman-Fried one of these HFT guys from Jane Street and his net worth shot up from 0 to $24 billion in just a few years. He kept things super lean and focused. But in the last few months it looks like he's hired a PR team and is all over the place: podcasts, obviously planted news stories, etc. He even hired a head of fashion and luxury partnerships and even has an ad out in Vogue ...
This is the case for most market makers in whatever markets they're in. A crash usually produces a huge trading windfall, and then the subsequent "recession" leaves people with little money to invest/gamble with. FTX's traders are veterans of the industry, and they understand the need to be lean when order flow is light, and the need to make as much as possible when it's hot. Coinbase just watched the best two years of trading pass in front of their eyes, and failed to monetize it even to 10% of its potential. If they're lucky, they will get another opportunity to do things right in 5 years. But the trading graveyard is filled with people/companies like Coinbase who did really well for a year because they lucked into a good position, but who should have done 10x better. But then the real players see the opportunity, and run the Coinbases of the world off"
https://news.ycombinator.com/item?id=31738560
> Very different approach to Bryan Armstrong, who’s more of a Bitcoin “believer”
The fact that you think this goes to show just how little you know about this ecosystem. And Bankman is the worst type of con-artist, he is going to use his billion(s) to influence US politics rather than build viable technological solutions. Armstrong has been the source of ire since the Segwit wars where he scammed and peddled Bcash on unsuspecting noobs using the 'legitimacy' of being the only YC backed and US sanctioned exchange. It's been a series of horrible UX after bad business strategy.
Armstrong is what I expected when SV entered this space and played the typical VC game as seen with the buy-out of 21 Inc. I kind of respect him for hustling the SV crowds with such an absurd IPO valuation, but he is immensely foolish if he did not cash out then and there and anticipate buying back under this bear market to recapitalize and sell more of his worthless shares as they cratered in price.
Again, HN is pathetically out of its depth when it comes to this Industry that it's hard to take most of you seriously on anything else.
As it turns out doing things the right way like Coinbase looks "boring" sometimes, while fraud might look more exciting.
I don't think we should refer to them as kids. It seems to absolve them of responsibility. Kids are given leniency when they do wrong. The FTX/Alameda people are adults that graduated from one of the highest ranked universities in the world. They are foolish, but not kids.
Part of me wonders if there is media narrative that wants them to be referred to as kids because powerful people don't want them to be punished as harshly.
I'm not saying that young people can't create great companies. Many big companies are started by young founders, but when there are no adults in the room at all it starts looking suspect.
People who use Coinbase are called normies by the larger cryptocurrency community, as though relying on competency is a bad thing. It's this bizarre communal masochism. But then they complain when it all goes wrong? I don't get it.
This never made sense to me. To me celebrity endorsements and purchasing naming rights only mean that you have the money to pay for them. It might convey some legitimacy in the way of "they can pay for it", but I don't think of them as some sort of stamp of approval.
They just ruined that by using the exchange's money to bail out Alameda's unrelated investments. As far as I can tell if they hadn't done that Alameda would've died and FTX would've just kept being a good exchange.
It was a giant scam. All of it.
the problem was FTX customer deposits ended up being borrowed by Alameda (using as collateral ftt that was fraudulently created and then loaned to them), if no one did the ftt fraud then who knows what might have happened.
FTX and SBF avoided this and really any scrutiny by repeating the correct words and opinions, but were actually fraudulent under the surface.
It goes to show how shallow it all is.
The company is having problems because they have too many employees (5000+), sky-high expenses, and very little revenue (due to falling crypto prices and the implosion of NFTs). If they want to succeed, they need to be making money. It's as simple as that. Cries of "we're getting cancelled!!" isn't going to save the company.
His big mistake was making an enemy that was sitting on enough fake token to crash the exchange. Had SBF stayed on good terms with Changpeng Zhao FTX would still be around today and could probably have survived for many years.
Coinbase is about the least exciting exchange out there. They don't offer the derivatives, futures, and leverage the others do and are very slow to add any new tokens or coins. They don't fly as high and fast as others, but there was never a high chance of crashing and burning. Now that they are public it's even lower. The company itself may flounder and crypto may tank, but I doubt there's a safer place for customer deposits outside of holding the keys yourself.
Perhaps as a kick starter Alameda was important, but I doubt they were needed after the usual suspects came on.
An exchange can make money letting the customers trade different types of magic beans with each other.
An exchange that only does that won't have any customers, because they'll all be going to the ponzi-exchanges that pay out 8-12% APR if you buy and hold their shitcoin, or where the market makers piss away mountains of customer funds to tighten the spreads.
Now that I think of it, maybe the best way to reign all this madness in is to require that celebrity endorsers and sports arenas can only get paid a decade after they shill for an exchange/coin/etc.
Just pointing out that what they were saying about FTX, before, that is now proven correct, is also being said about Coinbase and has been for some time.
Hopefully.
The scandal also drove Enron's accounting firm, Aurthur Anderson, out of business costing all 85,000 their employess their jobs.
Madoff was magic beans, he just invented $50bn of money that he said he made for investors. SBF was depositing customer money into his hedge fund directly (FTX didn't even have a bank account).
So this is a relatively big fraud because it was USD value multiple billions, likely near $10bn. This was money stolen directly from customers. The $1bn that SBF took directly out of the company into his personal bank account (which shortly thereafter went into the bank account of the DNC) was a small part of the fraud.
“At this point, what difference does it make?” - someone famous