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Comment by dpflan | Hacker News Reader

I find the collapse, the PR, puff-pieces, SBF chatting away during NYT DealBook summit, celebrities white-washing to be incredible to watch. I am wondering how large the impact is on investors: Why is Bill Ackman talking about how cool Helium is within the last month? It does seem like a (last?) gasp for reassurance and hence liquidity for the larger/st investors involved in cryptocurrency/web3 madness. How much money is being lost that desperation is required to pump the ponzi still...

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> I find the collapse, the PR, puff-pieces, SBF chatting away during NYT DealBook summit, celebrities white-washing to be incredible to watch.

What I find way more incredible is that we've got someone who committed many crimes: wire fraud, running ponzis, pumping and dumping shitcoins which were considered for some as securities, funneling money out of the US to the Bahamas using tens if not hundreds of companies, naming his company "Alameda Research" to dodge banking restrictions, lying up until the very last moment when things blew up that everything fine, lying about US customers deposits being FDIC insured, bribing people (several people came out and said SBF downright offered them $1m to paint FTX in a positive light), using the stolen money to buy properties in the Bahamas to the tune of $300m, etc.

And yet... This is resumed by many with: *"Cryptos are all ponzis".

What's the reasoning? Everybody in crypto is a fraudster so investors and depositors all deserve to be wiped out by a scammer? And he should walk free?

While the guy who wrote "tornado cash" is in jail?

While Aaron Swartz got sentenced for putting online research papers (paid with taxpayers money btw)?

Is that what you're saying? That's it's all a gigantic fraud so it's on par for the course and SBF is not worse than the guy who bought two DOGE and three SHIBA INU coin?

You seem to repeatedly raise the idea that we can't or shouldn't use the FTX fraud and collapse to criticize the rest of the crypto space, or that doing so somehow excuses SBF. You are wrong on both counts.

all the crimes sbf committed are "traditional" fraud and not dependent on there being crypto involved.

we should still scrutinize and perform due diligence on all businesses, though, including crypto businesses.

Well, it's him doing them in the crypto space that has enabled the proliferation.

The whole premise of crypto is that it's unregulated, so yes it should 100% be assumed that you're probably going to get swindled.

There was a story about how Sequoia (or a different VC) gave FTX millions while SBF was playing games during the call with them. I mean, if nothing else, if you can't expect the tiniest ounce of professionalism from a company you're investing in, I find it hard to feel bad for you when you're scammed out of that investment.

I think most people have roughly zero sympathy for institutional investors that give good money to garbage companies, but what's outrageous here is that be stole customer funds.

I'm certain each party felt they could swindle the other. Hence the lack of professionalism from one party, and the apathy towards the behavior from the other.

When one has a king-high full house, they should call every raise. But that but no one knows if that's the winning hand until everyone shows their cards.

>I'm certain each party felt they could swindle the other.

There's a reason trader turrets handsets and boxes have high resistance non latching push to talk switches. Because both sides of every deal think the other sides just that in the most regulated markets and otc / "self reg" alike.

People who invested into crypto don't deserve justice. Government warned them and now they're on their own.

OK, maybe not all ponzis, some maybe less ponzi than others, or maybe even not at all. Are you saying that 1 individual was problematic, blatantly told Matt Levine he is involved in ponzi schemes, ran one of the largest such, began absorbing smaller ponzis, and that because of this 1 individual saying the industry is all ponzis is a stretch? I agree with that, sure, absolutism is hard to prove. But, the evidence of what has happened and what exists at the largest scale in the industry is a huge fraud -- it is a decent assumptive base.

This is a storyboard for a John Oliver episode

Total hunch here, but:

Based on everything reported, it seems very likely he will go to prison, or at least stand trial, for everything that has happened. It's not clear why it's taking so long, there might be jurisdictional/logistical issues with the fact that he's in the Bahamas.

The Dealbook interviews and news stories don't seem to be helping him... if anything they generate more outrage and provide more contradictions in his story. He's trying to pitch himself as incompetent rather than criminal, but by constantly talking about the case I think he's undercutting himself.

If I was an investigator, I wouldn't interrupt someone when they're incriminating themselves.

> It's not clear why it's taking so long

Investigations like this take time. The old saying is the wheels of justice grind slowly, but they grind exceedingly fine.

The new CEO can't even make sense of what happened, and he has access to all internal information. It's going to take a long time to sort out what exactly happened.

Once he is indicted, I'm sure SBF will be well defended. A smart prosecutor will take their time in order to build an iron clad case. If he gets off on a technicality you run the risk of not being able to prosecute again due to double jeopardy. If you want a conviction, you really need your ducks in a row ahead of time.

> but by constantly talking about the case I think he's undercutting himself

Absolutely. The FBI doesn't usually announce investigations, as that puts the person being investigated on notice. Let him talk freely, it's all potential evidence to be used against him later.

Once the FBI announces an investigation, it often means that they have more than enough evidence and are mostly ready to prosecute. By announcing it, they hope to pull in little more information from those in the know, who might not have come forward.

These frauds seem to take place at the speed of light, while it takes forever for justice to show up. But it will show up. The slow speed of investigations is a feature of justice, not a bug.

This guy's out there doing who-knows-what in the Bahama's. He should be shipped back to the US and brought into custody. As context Bernie was in jail within a few days.

Getting him back to US requires extradition which will take time and evidence. Alternatively they can try to lure him here (hey bro come visit me in US we got billions to invest) and arrest him after he lands. Also, I believe the government of the Bahamas is keeping close tabs on him, there's a non-zero chance they might arrest him first.

A big difference between SBF and Madoff is that Madoff admitted to his sons that there was ongoing fraud that was about to unravel. He asked them for a week to get things in order. His sons, not wanting to be accessories to the crime their father just confessed to, immediately went to the feds and told them what was going on. They arrested Bernie the next morning. [1]

[1] https://www.youtube.com/watch?v=-duaB887gMQ

There's another, newer, saying as well - American's confidence in the US Criminal Justice System is now at 14% [1]. Okay that's not a saying, but it says much more than any saying. That's the lowest level ever, and by an extremely wide margin. It's seemingly approaching zero. And some would say we're divided on everything. Nonsense!

And that is what makes this case so interesting to many, myself among them. It's essentially a very visible test of "our" cynicism, and the integrity of the criminal justice system. SBF has all the right family connections, "donated" to all the right people, and even pulled a reverse Robin Hood - stealing from the poor to give to the rich, all the while also being arguably the most visible advocate for their interests (within his domain).

It will be interesting to follow.

[1] - https://news.gallup.com/poll/394283/confidence-institutions-...

Not disagreeing that many things are wrong and need fixing in the digital age. But lately it seem people being divided often has little to do with the underlying facts and basis in reality. A lot of it is perception. Someone recently told me that your opinions say less about you and more about the kind of media you consume. Disagreement, cynicism and conspiracy theories are a sign of the times.

For example, my Red friends to say the Dems are helping SBF because he was their #2 donor. Well SBF was also one of the biggest donors to the Republicans as well. [1] But that doesn't stop some people from believing its a big liberal conspiracy. It's not that their facts are wrong, it's that they only have half the facts and are drawing the wrong (and often biased) conclusions. But I digress.

I'm not as cynical in our justice system as you are. I take comfort in the fact that Elizabeth Holmes is going to prison for 10 years. Like SBF she had all the right connections, was a media darling, compared to Steve Jobs etc. Cynical people thought that she was going to walk, but the conviction proves otherwise.

I don't believe justice in this country is in as bad of a state as many believe. I think it takes a long time, and the younger generations are raised to expect immediate gratification, so they are frustrated at the "lack" of anything happening. I firmly believe SBF is going to prison for a long time. I'll revisit this prediction in 5 years to see if I'm right.

[1] https://decrypt.co/116005/sbf-hid-republican-donations-media...

> It's not clear why it's taking so long

At this point I think the DOJ is just sitting in stunned silence, quietly hoovering up all the data they can and waiting for him to finish adding more evidence to that pile. This will be a blockbuster of a legal case and I expect they're working to get everything lined up before they open fire.

I would predict SBF will spend the rest of his life in a US prison, but OTOH many people reading the statutes had good arguments why Elizabeth Holmes was going to get what amounted to a life sentence, but look what actually happened.

> It's not clear why it's taking so long,

How much money did he steal?

Answer that. Not prove he wasn't in legal compliance in tricky TOS people signed without reading. Not prove that it wasn't all honest inept code. Not even prove that it turns out an unnamed hacker was not behind it all.

The prosecutor is going into a US court and say he stole how much money in the US?

Keep in mind that the CEO who unraveled Enron among other things has said it's going to take months to figure out how much money still in valid investments owned by FTX and is legitimately not stolen.

(I'm using stole, but lawyers probably would have a different set of terms)

This is a good reason for why it's taking so long -- It seems from a lot of reporting that there was theft/fraud, but prosecutors probably want extremely solid evidence (including some details on where the money went) before arresting, or attempting extradition.

I don't see anyone arguing that he should get leniency. It's more in the opposite direction: given how common scams are in this space _and_ how basically every time the response is some combination of “yeah, everyone knew that [but didn't say anything]” or “yes, but this new venture is totally different” it seems reasonable to question whether anything in the field is what it's actually being portrayed as. At the very least it seems like a good argument that there needs to be some big improvements in self-regulation and things like real, public audit reports.

> Everybody in crypto is a fraudster so investors and depositors all deserve to be wiped out by a scammer?

Nobody deserves to be wiped out. But anyone wiped out in crypto is on their own. They chose to sidestep centuries of knowledge on financial regulation. If they want their money, they need to pay for lawyers.

> and he should walk free?

The wheels of justice grind slowly but fine. The day after any fraud, HN is filled with conclusions that the fraudster will walk free. (Holmes until the day of her sentencing.)

SBF is almost certain to be charged. It just won’t happen this week.

> The wheels of justice grind slowly but fine. The day after any fraud, HN is filled with conclusions that the fraudster will walk free. (Holmes until the day of her sentencing.)

This is part of the problem, is it not? There are tiers of justice. Law and order types shriek about how none of us are safe because presumptively innocent people who shoplift or jump turnstiles are not kept in cages before their trial. Meanwhile, you can steal billions of dollars or forge medical data and you're not only walking free, but invited to speak at glamorous conferences.

> you can steal billions of dollars or forge medical data and you're not only walking free, but invited to speak at glamorous conferences

Plenty of felons speak at conferences? And again, you’re asking for instantaneous indictment. That’s not how competent legal systems work.

The indictment I'm asking for is no more instantaneous than is standard for low-level arrestees.

Low level arrestees don't get indicted, generally; indictments aren't required in most states even for felonies (unlike the federal system) and some states have entirely abolished indictment and criminal grand juries, so indictments tend to only happen for federal and a fraction of state felonies, biased toward more major felonies in the states that use the system.

And when someone is accused of minor low-level offenses, prosecutors aren't worried about losing the ability to prosecute potentially multiple major crimes, and to lose access to any restitution and criminal forefeiture actions associated with them, by premature prosecution of lesser included offenses blocking the more major ones under double jeopardy rules.

> because presumptively innocent people who shoplift or jump turnstiles are not kept in cages before their trial.

But they are, and therein lie the hypocrisy. If you're wealthy, then you get the opportunity to turn yourself in after weeks or months to get your affairs in order, while regular people who allegedly commit minor crimes get a gun pointed at them, roughed up, arrested, and shoved in a cell for who knows how long until they are finally informed that they have a bench warrant out on them for something that happened in 2017.

> until they are finally informed that they have a bench warrant out on them for something that happened in 2017

If you’re wealthy and ignore warrants until a traffic stop, this happens to you too.

IANAL and this isn't legal advice, but the example warrants I found issue by a state government only command the officer of the state it happens in to perform the arrest. I'm not certain an officer out of state from the offense would be commanded to serve the warrant, rather than just have the option. And the rich often perform their shenanigans somewhere else so they don't shit where they eat.

See an example arrest warrant http://www.georgetowncriminaldefenselawyer.com/wp-content/up...

These statements can all be simultaneously true:

1. It is foolish to walk down a dark alley flashing wads of cash;

2. Anyone who robs another person who is walking down a dark alley flashing wads of cash deserves to be punished harshly;

3. If there's a pawn shop at the end of the alley that is knowingly selling guns to robbers, fencing the goods they rob from citizens, and enticing citizens to walk down the alley, they also deserve to be punished harshly;

4. If citizens are regularly being robbed, we should look for structural ways to create safety, such as lighting alleyways, reinstating bicycle patrols for police, &c.

The fact that it's foolish to invest in these ponzi schemes and outright robberies in no way dilutes the blame that these fraudsters deserve, along with the industry that has sprung up around them to profit from that fraud. And none of that invalidates the notion that regulations and enforcement seem like an awfully good idea.

It looks like some of these larger cases take a while to prosecute. Not saying there's no favoritism here, but FYI the Enron scandal unfolded in late 2001 and the current and former CEO Lay and Skilling's trial started more than four (4!) years later in early 2006.

That's very quick.

My memory is a little hazy, but the fast prosecution was motivated by covering up structural inefficiencies in CA energy trading created knowingly against considerable objections by politicians, that Enron abused, and not the a priori fraud of propping up their stock for dozens of quarters to be able to trade so massively in the first place.

Edit : to clarify, politicians created structural inefficiency in the California grid, in the name of deregulation, specifically Govenor Pete Wilson and California Legislature AB 1890 of 1996.

FTX advertised direct to consumers through Fortune cookies via openfortune.

I know because I saved one on my desk and I'm looking at it.

The crypto fortune cookies were the biggest red flag I've ever seen in my life.

They were also being promoted by the World Economic Forum whose page described them as a partner [1], while SBF was rubbing shoulders with individuals like Clinton/Blair and receiving lavish praises throughout the corporate media and becoming one of the biggest political players there is.

[1] - https://web.archive.org/web/20220613111008/https://www.wefor...

Everyone in crypto is a fraudster so investors and depositors all deserve to be wiped out. But the scammers also deserve to go to prison for wire fraud and related crimes. Both things can be true. There is no contradiction in the reasoning.

Alexey Pertsev is in jail for allegedly operating an illegal money transfer business in violation of AML/KYC laws. If he had merely developed the Tornado Cash code without actually using it then he wouldn't be in jail.

I agree that the Aaron Swartz case was a travesty of justice.

The interesting thing is that FTX had almost no retail customers in the US[1], yet most of the coverage has been US-focused, due to the VC investors and US political donations. It really was just investors (in the company itself) that got hit the hardest. It just goes to show how easy it is to buy media coverage. If the media talked about things that affected their readers rather than their owners, the FTX news cycle wouldn't have lasted one day before everybody moved on.

[1]: https://cdn.i-scmp.com/sites/default/files/d8/images/canvas/...

As I post on many threads, I have barely heard a single story about retail losing money on FTX, whereas I personally knew a handful who lost money with LUNA. I assume institutions are holding the vast majority of the bags here.

common joke amongst ct natives is that left curves got rekt in luna, while right curves got rekt in ftx. interesting to see it commonly admitted by corresponding market participants

Fascinatingly cryptic comment. My best guesses don’t map to anything intelligible. Connecticut natives? Left curve of the what exactly?

Not sure if you are being sarcastic but I will post my guesses:

ct => crypto traders

left and right => each person political leaning tendency

Think it's left/right of the bell curve (as in the meme), i.e. dumb money (retail) vs. smart money (industry).

That does make sense, but I’m oddly reluctant to give up on the mental image of a Connecticut locker room where crypto investment preferences are revealed by the individual curve direction.

CT = Crypto Twitter, and it's referencing the midwit meme [1] [2].

[1] https://knowyourmeme.com/memes/iq-bell-curve-midwit

[2] https://twitter.com/notfrydoteth/status/1590386451027746817

What are "ct natives", "left curves" and "right curves"?

I interpreted left/right to be corresponding curves of wealth distribution.

Yeah, I wonder if the investors bought the media coverage in addition to paying for it (intentionally or not.)

I believe it is more "give the people what they want." This story is getting clicks because the numbers are so big it has everybody daydreaming about having lived through this from the inside. People want details to fill in the cracks of their fantasies.

This is like Nightcrawler, and the press is satisfying the bloodlust of its readers who like The Social Network like drama and Big Shortesque scandals.

We arent living in the right reality if Adam McKay/Charles Randolph/Michael Lewis and Aaron Sorkin/David Fincher/Ben Mezrich dont have dueling FTX movies coming out on opposite streaming services the same week. (Probably Apple and Disney, who then happen to announce a merger, because of course thats how the world works now.)

The Apple-Disney merger is a rumor of genuine vintage.

It was first rumored around 1996-97 when Apple was in enormous trouble. Potential acquirers according to the rumor mill included Oracle, Sun and Disney. (Somehow the “Network Computer” was a cornerstone of these speculations, but I forget what Disney had to do with any of it.)

After Jobs firmly established himself at Apple, the Pixar-Disney connection ensured this speculation regularly resurfaced. Sometime around 2007 Apple passed Disney in market cap and the rumor flipped from a merger of equals to “Apple buys Disney”.

That was a silly tangent. My point was, the press isnt being forced upon society by puppetmasters who lost money in FTX. Thats a silly silly conspiracy theory.

The story is just generating clicks with the home investor crowd, who has no skin in the game.

So FTX was just a bunch of institutional traders trading against each other? Sounds a lot like a dark pool.

> So FTX was just a bunch of institutional traders trading against each other? Sounds a lot like a dark pool.

A dark pool has nothing to do with who trades in it. As GME made famous, alot of GME retail orders got sent to dark pools to trade on.

What distinguishes a dark pool from a lit exchange is that orders are hidden and often trade at the midpoint(half penny) and not on the penny.

Who is on the exchange has nothing to do with dark vs lit.

> The interesting thing is that FTX had almost no retail customers in the US[1]

This is only true if you believe the massive amounts of customers in the Cayman Islands, Virgin Islands, etc were not just US persons' shell companies.

Is it common for retail investors in the US to create shell companies in the Cayman Islands etc? Is that a service offered at low cost that everybody uses to get around so regulatory hurdle, like using a VPN to get around simple geofencing on streaming platforms?

It's very common for investment firms and other tax-dodging entities, very uncommon for the everyday wealthy person. Much of the privacy benefit to Caymen shell corps is readily available in Delaware or e.g. Montana, so only more exotic tax schemes require international companies.

> Much of the privacy benefit to Caymen shell corps is readily available in Delaware or e.g. Montana, so only more exotic tax schemes require international companies.

FTX.com was unavailable to US persons or companies, so being legally based in Delaware/Montana/etc wouldnt have helped.

Yes. Sub $10k pa for nominee management of companies. Used to have Mossack Fonseca as a customer.

It’s around $4-5k USD to set up a exempted company and get a bank account for said company in the Caymans, with annual costs being in the $2-3k USD range. Can be cheaper or more expensive, depending on the service provider. Not uncommon for more savvy investors.

It's pretty hard to feel bad for tax dodging fat cats getting bitten by a con man though.

Who cares if you feel bad for them? Who even asked? Crime isn't supposed to be legal when you victimize other unsympathetic criminals.

Those wouldn't be retail customers in the US though, they'd be customers in the Cayman Islands...

They aren't "in the Cayman Islands" any more than a VPN user is in the country of their VPN server though. In this case, setting up a shell company in the Caribbean was a convenient way to get around US regulation (or taxes, or both).

FTX was transacting with a user in the Cayman's not the us.

All media is super US focused.

“World news” is code word for “non-US news” since US is the default, which makes sense.

In every country, world news very explicitly means news about what's happening outside that country.

This is kind of a weird argument. There's no reason US reporters or commenters shouldn't write about things that happen in other countries, if they find it interesting. The FTX scandal is fascinating for lots of reasons.

(I've also seen coverage about how it affected the Bahamas.)

This is what has befuddled me.

I still wager the main con was more similar to classic VC frauds where you pump up your user numbers and trade volume in order to get more investment dollars (which you can then spend on anything). Advertising on sports arenas and stuff gave them a lot of plausibility as the "big player" to people (like me) who dont trade crypto at all.

Good point. Also Cathy Wood suddenly buying more $COIN and $GBTC seems like similar forces at play. Many are caught off guard and seem to have lost big on paper

Indeed, the compound growth required for BTC to reach Wood's $1M target by 2030 from where it is now, seems incredibly unlikely...

I didn't know she ended up picking up McAfee's torch. Hopefully she skipped the pledge.

Yeah, she didn't really pick up the torch with the same flare https://twitter.com/dergigi/status/1597721460784582657

Cathie Wood is another version of SBF. She has repeatedly said stuff that is obviously false. Even worse, she has actually demonstrated that her staff also have no idea what they are doing.

It isn't possible to go full-FTX with a long-only fund...but there is further downside.

They are all trying to frontrun the next boom cycle in hopes of having good returns for 2023. Their returns for 2022 are garbage. Can you imagine giving ARK 1% of your wealth as payment for them losing 60% of your wealth? Their hope is that the fed cuts rates in early 2023, and that causes a ton of money on the sidelines to come back into the market into speculative assets.

I don’t understand the criticism of the Dealbook interview. I want to hear SBF side and found that he’s definitely hanging himself with his public statements. If the media were to “deplatform” him that would be an incredible disservice. I thought ARS asked fair questions.

Sure, he can mint himself enough rope, but the opportunity can give weight to a narrative that is desired, whatever it may be.

My new conspiracy theory is all of the smaller coins were an easy way to extend the Ponzi scheme by inventing valuation out of thin air. Now that those have been unmasked and everyone's asking hard questions around liquidity or pulling their coins into their own wallets, the major players are over leveraged to the gills (because you can't make "real money" on customer money without risky bets). The only way out is to get BTC's price back to the good ol days and keep the Ponzi going.

> My new conspiracy theory is all of the smaller coins were an easy way to extend the Ponzi scheme by inventing valuation out of thin air.

I don't think this is a conspiracy theory...

At the very least, we know that some of largest institutions were regularly pumping up assets for solvency reasons.

That’s why in “legacy” (stocks/bonds/futures) risk/portfolio management side not only is there a market quote next to your position, but also #of trading days at x% of avg. daily volume to exit…and as a supervisor/risk manager you’re going to assign a lot of risk to that illiquid position (regardless of where the “price” is)

> My new conspiracy theory is all of the smaller coins were an easy way to extend the Ponzi scheme by inventing valuation out of thin air.

That's exactly what happened. I invent $GRBG coin, reserve 1 billion of them, and sell 1 to my friend for $1. Boom, $1 billion "market cap".

Then you wash trade between each other, raising the price enough so the suckers start to notice, and then cash out at the top.

The Ponzi can keep going for a while. The Fed Balance Sheet is still within 95% of its all time high.

These huge asset price moves are more a function of investor preferences and people trying to get in front of the Fed rather than there being a lot less money around. The (real) Art Market, for example, still seems quite healthy.

https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

I suspect the strange news/media outfall is because nobody quite knows yet WHO is at fault and since the money lost is from larger investors, they themselves are perhaps worried that they are at fault somehow, so there's really no "narrative" at play.

Something similar happened during the implosion of the mortgage crisis; it wasn't clear how the contagion had spread until later.

I personally think all of crypto is a scam but bitcoin, anyone who plays with alt-coins is just trying to get rich quick... You could say the same for bitcoiners, but it I think it's different.

What makes bitcoin different other than it being older than the rest of the pack?

Bitcoin is the only currency that's leaderless, decentralized, belongs to no company or some 30 years-old "CEO", and is contributed to much like the Linux kernel. You could compare it to TCP/IP versus proprietary protocols du jour.

Or just Google "what sets bitcoin apart to other cryptos".

https://bitcoinmagazine.com/culture/what-makes-bitcoin-diffe...

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