SEC Charges Samuel Bankman-Fried with Defrauding Investors in FTX [pdf]

- Conspiracy to Commit Money Laundering

- Conspiracy to Defraud the United States and Violate Campaign Finance Laws

There's also a forfeiture section in the federal indictment that demands forfeiture of all any and all property that is traceable to the commission of the offences.

He alludes to it here: https://youtu.be/4o_jPzBZSIo at 11:58 or so, where he mentions “before FTX had its own bank account.”

I know there’s a longer explanation, but that’s the best citation I can come up with off the top of my head. In the longer explanation, he specifically says that creating a bank account for a new company can be difficult, so they used Alameda’s bank account as they waited for a bank account specifically for FTX.

This goes specifically with point 31 in the document. Of course, they’ll have better evidence once they go through discovery, but this moron has been on a self-incrimination tour. I’d call it a wild success!

Yeah, he thinks he'll look better as delusional than criminally greedy and apparently he's right

it doesn't matter if people use the platform more if they don't pay for the blue check or if advertisers are not interested in paying for ads.

So your friends are using twitter more and you just assume everyone else does too? Have you considered that people who have other opinions exist and theirs is as valid as yours?

Ultimately stopped using it because it isn’t really for me. I also don’t care enough for anyone’s opinion that much that I’m willing to scroll through insanity, bots, and a holes to find a nugget. But I’m sure millions of others do enjoy that.

HN is my fav social media lol.

Meanwhile, all of my friends have erased their Twitter accounts (some migrating to Mastodon, others to other social media sites, others happily forgoing social media at all), all of the organizations I'm a part of have stopped using Twitter for official communication, the subreddits I follow have banned Twitter links, and my product has removed its Twitter integration. Large swathes of the internet are defederating from Twitter.

[1] https://www.nytimes.com/2022/12/13/technology/elon-musk-twit...

It's almost like it there are fundamental inherent flaws that need to be fixed to continue on and we can't keep treating things like business is usual if we want to enable continued growth vs stagnation due to power concentration like we've seen in non-capitalist systems in the past.

You're going to see the big players like Sequoia get some retribution here and to a magnitude that's significant enough to be usable and recoverable, meanwhile you're going to see all sorts of others life savings evaporate, resulting in a far less recoverable scenario, with little to nothing recovered--at least that's how this tends to play out, historically. Everyone will of course lose, but you'll see disproportionate losses and disproportionate recoverability. Disproportionate wealth as a proxy to power does this.

At the same time, I have trouble finding sympathy for anyone involved. SBF is a sociopath, thief and liar.

Those big-name investors should have known better and I'm sure in many cases they did. They probably should start lawyering up too, because they've got investors of their own who have been harmed either through malfeasance of actionable incompetence.

And the 'small time' investors -- mom-and-pop, widows and orphans investing the life savings on the platform -- all crypto is a scam, a Ponzi scheme, at the very best it's a casino or playing the numbers. Always has been. Always will be. All they had to do was open their eyes or maintain critical thinking in the face of promoters trying to bamboozle them.

And yet dumb money says I'm wrong. BTC up 4% on the day....

Stealing non-securities you're supposed to store for me is also a crime.

Yes. But! As an individual I care if the laws protect me. Have they been clever enough to only scam people like me, would they still go to prison?

As long as the answer to that is yes, I don’t mind if something else they have done is easier to prosecute.

Normally it takes 3-10 years for a VC investment to reach an exit. In crypto, they get tokens that they’ve been able to dump to retail almost immediately. A16Z has a particularly suspicious shitcoin pipeline via their Coinbase board seat.

I hope SEC also ends up prosecuting investors who participated in these token offerings, and ideally also employees who got paid in tokens [1]. But I have no idea if there’s a legal basis because American securities law is designed to protect investors and doesn’t necessarily seem to account for the A16Z-style case where they’re essentially co-conspirators in the fraud: supplying crypto founders with money for marketing which pulled in retail dollars which ended up straight back to the VC’s and founders’ pockets.

[1] What difference does it really make if you’re a founder selling unlicensed securities, or an employee who signed a contract where you get paid in those unlicensed securities and then you dump them on retail investors? The SEC should look at these schemes which were popular with companies that hire on HN too.

However, it doesn't seem that Sequoia et al had seats on the board, at least from this early 2022 press release [1].

Holding shareholders that are not directors accountable is extremely difficult. This is called "piercing the corporate veil" (worth a google) and is done only vary rarely and in cases of clear and outrageous misconduct attributable to the shareholders themselves—it's so rare because it's antithetical to the entire premise of the "limited" corporation.

[1] https://www.prnewswire.com/news-releases/ftx-us-derivatives-...

That really depends whether the investment is structured as a secured loan (senior debt) or not. Secured loans get paid out in full, before the unsecured creditors such as customers.

> but the courts decide allocation order

Mostly that is defined by the laws of the jurisdiction, not the individual court.

In the Bahamas, the ranking of creditors and shareholders are as follows[1]:

  Creditors with a mortgage or fixed charge: assets secured in this way are outside the scope of the insolvency.
  Costs of insolvency proceedings: all costs and expenses properly incurred in the company's winding-up (including liquidator's fees).
  Employees' debts: sums due to employees under the terms of their employment contract.
  Preferential payments, such as unpaid taxes, contributions to occupational pension schemes and liability for compensation for injury or occupational disease.
  Creditors with a floating charge.
  Unsecured creditors.
  Shareholder loans.
  Shareholders' equity.

  Under the Bankruptcy Code, the priority of allowed claims and interests is, in descending order:

  Secured claims.
  Administrative expenses and priority claims.
  General unsecured claims.
  Subordinated claims.
  Equity interests.

  Outside of bankruptcy, creditor ranking is determined by state law and in certain circumstances, the agreement of the parties, such as in an intercreditor agreement. In bankruptcy, the priority of creditors' claims and interests in a debtor's estate is set out in the Bankruptcy Code.

The costs of insolvency proceedings, or administrative costs, may be determined by the liquidator. The liquidator will generally milk the system (within their legal limitations) as much as possible (extremely high charge-out costs per hour, etcetera), so customers will often get didly squat. A senior liquidator might be charged out at say USD800 per hour, down to the secretary who might be charged out at USD120 per hour. The liquidator’s goal is to charge as many hours as possible, without being so extreme that the court pulls them up on it, or to finish up quickly if there is no more money left to suck.

[1] https://uk.practicallaw.thomsonreuters.com/9-518-5211

[2] https://uk.practicallaw.thomsonreuters.com/7-501-6870

[3] https://www.investopedia.com/terms/s/senior-convertible-note...

I’m not sure it’s fair that the big boys get investor treatment and the retail suckers who were led to believe they’re investing get… nothing so far.

[0]: https://en.wikipedia.org/wiki/Elizabeth_Holmes#U.S._v._Holme....

[1]: https://en.wikipedia.org/wiki/Sunny_Balwani#United_States_v....

You have to specifically prove every instance fraud in a criminal case, so harm that is spread very widely but very shallowly (millions of people who lost $10) doesn't scale up for a fraud case, but harm that is narrow but deep (an investor who lost millions) can be easily done.

That's not what I meant.

What I meant is that before FTX's implosion, anything you would read, hear, or see about SBF would make it seem as if he actually believed in it!

interested, source?

Sure, he did more full-blown interviews than most people accused of serious crimes, but that's mainly because most of them listen to their lawyers.

If media outlets actually felt particularly kindly disposed towards SBF, they'd be deploying the rhetorical tricks used to defend their favourite politicians (can we trust the investigators? aren't the big losers in FX the sort of financial institutions that were taking calculated risks anyway? and how many of them go to jail when they lose their customers' money? aren't other crypto institutions much worse and what's their role in Alameda's collapse? maybe he actually he could win all that money back, he's made billions before?) not talking about how a one time darling of the Effective Altruism movement and former billionaire is under investigation after his brokerage collapsed after he allegedly transferred its customers' funds to prop up his other failing company. No matter how much biographical detail gets included beforehand, that's not a rosy picture.

For the last few months, any time something bad happens with FTX, there are dozens of people who show up complaining that the media went easy on SBF. They most often use the word "puff" or the phrase "puff piece," as if the comments were all written by the same bot farm.

Then when someone calls them out on it, they're suddenly silent. Which makes me agree with you that this is people trying to deflect from the greed at the root of this, trying to portray themselves as victims, and if the big media had just given them some warning, they wouldn't have lost billions of dollars.

> I declined, which obviously in retrospect was the right choice. I told him that I like my Substack just fine and make plenty of money, though he was happy to offer more. But I also told him that given the extent to which we agree on a lot of important issues, I thought it was a lot more valuable to these causes for me to maintain credibility by not accepting any of his money.

Meanwhile the CEO of The Block received a $43M "loan" from SBF[1].

[1] https://www.coindesk.com/podcasts/the-breakdown-with-nlw/sbf...

I think the issue was there was no pressing follow up to his evasive replies. e.g Sorkin's interview. He was basically allowed to get away with "I didn't knowingly do it."

It's naive to think that affinity is not influencing, if not driving, the way that journalists regard and write about their subjects.

I'll disagree on the point about ability to explain crypto protocols/algorithms. You're either in tech and have a body of knowledge that preps you to understand the details and then you might care about it, or you don't really care about how it works. I don't think there's a group of "elites" of any kind that care too much about you explaining how crypto works.

I noticed the behavior living in oil country concerning gas prices. When gas prices go up, that's bad because it makes everything costs more. When gas prices go down, that's bad because it makes the oil and gas industry fire everyone and then no one has jobs.

Apparently there's a Platonic ideal price for gas, just no one can tell me what that is.

Also with various shootings. Right after, it's too soon to talk about current gun laws. Too long after, it's pointless to talk about because there hasn't been an incident in so long. We missed the window yet again. But no one will tell us when that window opens.

Same thing here, apparently there's a perfect amount of time for charges. The Goldilocks zone, the golden hour, when the planets align and you can charge criminals for crimes and you'll magically have enough evidence and not too much time has passed. But try to pin down anyone on a concrete time frame and you'll get almost as much deflection as SBF tried to give the world.

That's not quite what the grandparent poster was talking about.

One strain of thought on FTX/SBF has been conspiratorial. Allegedly, SBF was "a big Democratic donor" with connections in high places, so he would evade any serious US-based law enforcement action.

This view is likely related to FTX's (previous) attempts to present itself as the lawful-good crypto exchange, actively lobbying for US regulation. Such efforts necessarily come with a lot of political deal-making, making the idea of a corrupt bargain more superficially plausible.