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> Some news reports indicated that Bankman-Fried was still somehow involved, or "assisting", or something. He's not. He has zero authority at this point.

https://pacer-documents.s3.amazonaws.com/33/188450/042120648... indicates that SBF continued to have de facto control over company assets even after resigning on November 11, which I would absolutely say fits the definition of "somehow involved."

Given that so few of FTX Group's digital assets have been secured, per the OP... it would seem to be unknown how much ability he continues to have to access the company's digital assets.

> In addition, in connection with investigating a hack on Sunday, November 13, Mr. Bankman-Fried and Mr. Wang stated in recorded and verified texts that “Bahamas regulators” instructed that certain post-petition transfers of Debtor assets be made by Mr. Wang and Mr. Bankman-Fried (who the Debtors understand were both effectively in the custody of Bahamas authorities) and that such assets were “custodied on FireBlocks under control of Bahamian gov’t”. The Debtors thus have credible evidence that the Bahamian government is responsible for directing unauthorized access to the Debtors’ systems for the purpose of obtaining digital assets of the Debtors—that took place after the commencement of these cases.

Oh, that's a new filing from yesterday. Hadn't seen that one yet.

Here's the view from the Bahamas.[1][2] Apparently the government of the Bahamas did attempt, per a court decision there, in getting custody of some digital assets of FTX. The Bahamas have appointed a liquidator.

The Bahamas are tougher on bankruptcy than the US is. They are going straight to liquidation, while the US bankruptcy in Delaware is chapter 11, "debtor-in-possession / protection from creditors". This whole thing is likely to go to liquidation soon, since there is no ongoing business worth preserving.

There are organized ways of handling international bankruptcies. The Bahamas does not seem to be a party to the main treaty on that. There is, though, an extradition treaty between the Bahamas and the US.

[1] http://www.tribune242.com/news/2022/nov/18/bahamas-rebuts-ft...

[2] https://www.scb.gov.bs/wp-content/uploads/2022/11/Media-Rele...

> Step 2, finding the employees, not so much.

All FTX needs is one or more people on the "outside" (who used to be on the inside) that they trust in case something like this happens.

Those people would be the "hackers" that took 1-2 billion out after the bankruptcy declaration.

Then, anyone who gets a slap on the wrist or whatnot, even if they have their assets clawed back, knows exactly who to call when they're in the clear.

Same goes in reverse. The govt/debtors should connect with ex-employees/investors and get them to try and gossip, commiserate, provide black-hat advice, etc with existing employees in DMs and proxy any discoveries to the govt/debtors in exchange for a "consulting fee".

This is called the "race to the prosecutors office" in the US. The first whistleblower gets a free pass. Everyone else, not so much.

Almost everything here is an unmitigated disaster. However,

> the secret exemption of Alameda from certain aspects of FTX.com’s auto-liquidation protocol

— barring the part where this is secret — this seems like it would make some sense?

Alameda was, by my understanding, meant to be a market maker for the markets that FTX allowed its customers to trade in. You probably don’t want to apply the same auto-liquidation protocol to the market maker as you would regular traders.

Of course, I’m not a finance person, so I’d be happy to be enlightened here.

If market makers are getting liquidated with any consistency frequent enough to require exceptions, they are in deep trouble.

Market makers almost universally remain delta-neutral (that is, their goal is to be hedged against almost any market movement). Sure they sometimes get off balance and lose some money, but the margins for makers are typically so thin that liquidation is basically equivalent to total failure.

Hypothetically, if a market maker had the ability to create lots of little accounts, trade as those accounts, let some go negative, and continue to do this, some very positive expected value strategies should be available based on allowing some accounts to go negative, keeping the average profit only slightly negative over time, and walking away from the negative balances.

Making money on average requires actual competence. Creating a large profit variance with a small expected loss is much more straightforward and is normally a losing proposition.

This plan ends up being a more complicated version of just stealing customer funds though. And they just stole customer funds.

Exactly, this only works if the clearing venue is a third party. In this case, Alameda === FTX

My fund was also a market maker at FTX. We signed two contracts that modified the typical agreement with the venue. One of them stipulated that we had less access to leverage than normal (i.e. we could be liquidated earlier than we otherwise would be, but these terms were vague and apparently never had any effect) and enabled parallel risk checks on our account. The other was a line of credit from the venue which would allow us not to be liquidated when we otherwise would be in exchange for interest when the LOC was preventing liquidation. Our actual use of the LOC was entirely as collateral for open orders, so we never paid any interest on it.

It is not normal to allow market makers to take on arbitrarily large risk or arbitrarily large negative balances.

> preparation for "clawback", where transfers that occurred prior to the bankruptcy are undone

Will be very interesting to see how the $5bn sent to users before FTX collapsed will be handled. If I had any recent withdrawals from them, I'd keep the money segregated for now.

> That's preparation for "clawback", where transfers that occurred prior to the bankruptcy are undone. Anything in the 90 days prior to the bankruptcy gets looked at hard, and the bankruptcy can go back further where fraud is involved. The Madoff Recovery operation used clawback heavily. Which is why the Madoff recovery took so long, but got a sizable fraction of the money back. Lots of lawsuits against people who thought they got out in time. Expect that here.

This clears up some questions I had before about employees potentially taking their own funds. Although, are customers in the clear here? As in, if you were a customer but were able to take your money out in time, is that money safe, or is some of it returned and then divided up?

If you withdrew funds in the 90 days before the bankruptcy, even if you're not at all involved with FTX's operations, you might be considered to be a creditor of the bankruptcy and face clawback. Nobody will bother for the little guys, but anybody who got out 7 figures or above will get some attention. In which case you'll need an attorney. This is complicated.

For a guide to how this goes, see the Madoff recovery.[1] That took a long time, with payouts along the way. The big question was whether the amount owed was what customers had deposited with Madoff, or what customer's listed balances were with Madoff after years of fake gains. With the Madoff scam lasting decades, the fake yields were substantial. That was settled with a court decision that the amount deposited was what mattered. This controversy stalled payouts for some time.

Then, over the years, there were some big clawbacks, followed by distributions to victims. Many of the clawbacks involved people who were insiders in some sense, and they were deemed to have profited from the scam. The Madoff recovery got back about 75% of what people had put in. That's unusually good. Most of that was from clawbacks.

Madoff, though, was a regulated broker. The Security Investor Protection Act applied. Small investor losses (up to $500,000) were fully covered by SIPC insurance and paid out early. The SIPC ran the recovery process. There was an accelerated process for hardship cases. In crypto, there's none of that.

[1] https://www.madofftrustee.com/

Thanks for all those details. It’s gonna be a rough road for all their customers, especially those who had a lot of money deposited.

How great is the Chainalysis business model? When there's a gold rush, sell shovels. When there's a fraud rush, sell investigative services.

> A few little prison-term sized problems

No one will ever see the inside of a prison off of this matter. FTX was deeply involved with powerful political contributors and those people can't be allowed to be subjected to depositions or other legal discovery. Key figures are on the lam and no one with the power to capture them will be tasked with doing so.

While the amounts involved are eye watering they are not large enough to destabilize to the US financial system, so the people involved need only resolve their various financial entanglements and wait for the story to expire out of the news cycle.

Who do you figure can’t be allowed to get deposed and by whom?

Madoff was politically well connected and it didn’t save him in the end. Donating money in one cycle will not save SBF. Your idea that Democratic electeds and regulators are consistently loyal (to anyone, including large one hit wonder donors) doesn’t square with my experience. If anything Dem politicos have an opportunity to show their independence by pursuing Senate hearings and similar public fora of investigation because they have nothing to lose going after this broke man.

> Madoff

First, the Madoff Ponzi was an order of magnitude larger than FTX; large enough to actually matter to important institutions. Second, Madoff could be trusted not to name names and understood that no one really wanted him to and he would, therefore, not be asked to do so. Thus, he could be safely prosecuted. The chuckleheads of FTX are not made of the same material; no one knows what species of insects are under those rocks and no one wants to know.

And I didn't say anything about "Dems". According to this money got beamed to (R)s as well: https://www.foxbusiness.com/politics/ftx-founder-sam-bankman...

> No one will ever see the inside of a prison

One of the enduring myths SBF crafted was that of his political connections. I have barely any D.C. connections. SBF has none. He was paid attention to. But walking into D.C. with tens of millions to spend is far from unprecedented, and it's not the sort of behavior that buys secrets. (Meetings? Sure.)

Do you think FTX working with the SEC team on drafting new crypto regulations was all a lie then? No one else was allowed that access, as far as we know, and Coinbase has been complaining about being stonewalled by Gensler for even basic questions.

Kevin O'leary was saying how he was trying to raise the bailout funds from sovereign wealth funds, but that evaporated once it looked like FTX lost the support (or at least the blind eye) of the SEC.

> Do you think FTX working with the SEC team on drafting new crypto regulations was all a lie then? No one else was allowed that access

I'm not familiar with their claims. That said, the SEC is generally quite receptive to input when it comes to rule making.

> Coinbase has been complaining about being stonewalled by Gensler for even basic questions

Enforcement versus rule making. Also, tweeting angry things at your regulator while publicly trying to yank their jurisdiction is a poor way to solicit discretionary feedback.

Madoff was at one time being considered for a job at SEC, and regularly worked with them on issues unrelated to his business.[1] That probably postponed investigations that should have happened earlier. After the crash, it didn't help. Madoff went to jail and the SEC was investigated by Congress and its own inspector general.

“While examiners and investigators discovered suspicious information and evidence and caught Madoff in contradictions and inconsistencies, they either disregarded these concerns or relied inappropriately upon Madoff’s representations and documentation in dismissing them.” - SEC inspector general

A few SEC employees were disciplined internally, but none were fired.

[1] https://www.reuters.com/article/us-madoff-sec-remarks-idUKTR...

> FTX was deeply involved with powerful political contributors and those people can't be allowed to be subjected to depositions or other legal discovery.

I disagree, he was undoubtedly buying connections and influence, and a lot of the SEC/CFTC/Gensler stuff reeks of corruption, but I don't think he's been around long enough or acquired enough influence to stop heads from rolling.

My money is on him and maybe a few others eventually serving a few years. He'll then try to restore his image and start a new business with a promise of extreme transparency and altruistic purpose, but this time "with adult supervision". I honestly wouldn't be shocked if Sequoia invests in him again.