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Comment by massysett | Hacker News Reader

The problem is opportunity cost. People invested in Madoff to grow their money. So if I invest $100 in Madoff and ten years later they say “we recovered $90, congrats,” yeah that’s better than nothing. But if I had put that into a legitimate investment, maybe I’d have $180.

Other folks got money out of Madoff during his scam years, and the trustee says “I’m taking that money back to pay back others.”

So much of crypto went to things that now have little economic value. Burnt out computer hardware, enormous electricity, Tom Brady’s endorsement deal. At least with the housing bubble we got some buildings (I live in a bubble neighborhood.) Crypto is like lighting money on fire. The sooner this scam is over, the better.

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Shkreli got hard time even though investors didn't lose money due to his fraud.

There isn't a performance threshold beyond which fraud ceases to be criminal.

Was that trial a bit politicized yu think? serious question

Not particularly. He had gained notoriety due to other behavior (raising drug prices to fund other drug research, his attitude during his Congressional testimony and media appearances, etc.), but it sounds like his fraud [or whatever he was specifically found guilty of] was very cut-and-dry against SEC and other relevant rules.

"On December 17, 2015, Shkreli was arrested by the FBI after a federal indictment in the U.S. District Court for the Eastern District of New York was filed, charging him with securities fraud. The charges were filed after an investigation into his tenure at MSMB Capital Management and Retrophin. U.S. Attorney Robert Capers said, "Shkreli essentially ran his company like a Ponzi scheme where he used each subsequent company to pay off defrauded investors from the prior company."

I think that is a misleading quote. He made actual profits, albeit by unscrupulous (but legal and very common) methods. There was nothing like a ponzi scheme, the prosecution just wanted to say a crime that was well known at the time. Along the way he made false statements to investors, and he was so gross and unpopular they were able to get a conviction the "victims" were not even interested in, but only on two securities technicalities and only because the jury wanted to get him on something. He was acquitted of 5 other more serious charges.

This is a great example of a public show trial, where they basically make an example of someone while allowing companies to engage in the same disgusting behavior without any attempt to discourage it.

Justice Department press releases are incredibly biased. His hedge fund failed (legal), he lied to his investors and said everything was fine (this is the fraud part), then he started a drug company called Retrophin (now NASDAQ: TVTX) which ended up being worth a billion dollars and he was able to repay investors in shares of Retrophin or proceeds from selling shares in Retrophin.

He certainly committed fraud, but it’s certainly unusual that he was prosecuted for it when nobody lost money. In fact, investors did well.

It’s hard not to feel like this is not a thing that would have been investigated had he not been a totally raging asshole.

It’s not true that nobody lost money in spite of the fact that he made this claim in court and it is repeated frequently. The court found he reduced the gains from group A to pay off losses from group B. People in group A lost money that was rightfully theirs as a result of his actions.

Shkreli is a good example of how well oiled justice runs if the defendant is politically indefensible. In the same vein the treatment that SBF got so far (eg getting invited as speaker on a NYT event that featured people such as Selenskyy) makes me fear it will be a much softer prosecution.

A couple of days ago there was a consensus group of Republican commentators confidently asserting SBF’s Democratic donations and connections meant there would no investigation/prosecution at all. Perhaps now this have pivoted to saying they’ll go easy on him?

It seems to me, all these assertions say nothing about the process of justice for SBF, and instead only illustrate that the people making them can’t conceive that there is a section of the political class who believe the law should apply equally to rich people as well as poor people.

Didn't he and his close associates donate to the Republican party members as well?

SBF said so but there is no public evidence of it, so far as I can tell. The federal government brought a charge against SBF due to his campaign contributions, so it can perhaps be expected that we will learn more about those contributions as this saga plays out.

> But Ryan Salame, another executive, gave almost $24 million to Republican and conservative causes, somewhat counterbalancing the giving to the left. Overall, according to Open Secrets, FTX donations to candidates were very slightly GOP-leaning, although contributions to individual politicians were only a small slice of the $70 million.

https://www.theatlantic.com/ideas/archive/2022/12/sam-bankma...

As Jon Stewart pointed out, they went with the classic formula of having “a guy for each camp.”

Here is where semantics get tricky and people are twisting facts. Fox who reported on this positioned it as SBF donated 40 million to democrats and barely anything to republicans. Fox has in several articles used Open Secrets and the number the report match open secrets. But they left out a big part of the story. Most of the 40 million didn't go to "Democrats," they went to democrat aligned super pacs. Open secrets also shows that FTX/SBF put 20-25 million into republican aligned super pacts. I believe one of board members of FTX, Ryan Salame, also donated about 15 million or 20 million to "Republican causes?" For me, I will just say we should probably lump all of these donations under a single entity.

The reality is. These guys were funneling tons of money into anyone who would take it. What is hard to extrapolate is, were democrats easier to buy on mass and that is why there is a higher amount? Or were republican votes cheaper?

[1] https://www.opensecrets.org/orgs/ftx-us/summary?id=D00007369... [2] https://www.politico.com/news/magazine/2022/12/09/crypto-sca...

NYT is not the government. It's a private business that looks at profit first, politics second, and impartial justice last if at all. The financial lure of a panel with SBF post-scandal must have been too much to resist. It's not even clear the panel (did it happen in the end? I'm not sure) would do SBF any good, given his tendency to self-incriminate. On the other hand I'm sure it was incredible for NYT ratings.

I don't think we'll ever see another defendant in these kinds of cases as universally hated by the public as Martin Shkreli. The transcripts from his jury selection made the news[0]. Some highlights:

"he disrespected the Wu-Tang Clan" (big problem in NYC, of course)

"he kind of looks like a dick"

"I would honestly, like, seriously like to go over there -"

[0] - https://www.spin.com/2017/08/martin-shkreli-jury-selection-t...

Elizabeth Holmes?

Shkreli did not get “hard time”, he got a basic, well-deserved prison sentence.

I find it distressing that folks keep pointing out that the investors did not lose money. Are they deliberately ignoring the fact that Shkreli had no right to take criminal risks with investor money?

I don't think GP is implying that it is OK to take risks with investor money. However it sounds right that you should get a longer prison term if you gamble and lose $8B than if you gamble and make some money on it.

On this note I am curious if political organisations will be required to give back the donations he made. It seems the right thing if they were stolen funds. But being politicians I'm curious if it will be rules for thee and not for me.

I wonder if the charities will have to give back their funding.

Yes they will have to. It is stolen money.

On the All In podcast Chamath used a term 'Fraudulent Conveyance'. The idea is that if someone receives money from a fraudulent actor, the entity that received the money has to give it back. Madoff was mentioned somewhere in the comments and the story is that people that got funds out of the Madoff situation before it fell apart had to give the money back.

We will see how it goes this time, but I suspect a lot of the donations will need to come back to the entity.

Chamath is probably just as sly as SBF; Shy of committing fraud, he dumped horrid businesses on public via SPACs.

We just had an election as well, which means most of that money would have been spent. How far can they chase it down? I can’t imagine random campaign staffers needing to pay back their wages.

Naive question here:

Wouldn’t you have to take into account due diligence when talking opportunity cost?

As in, someone who did not do their due diligence and had a higher risk tolerance would be expected to have a lower opportunity cost. In simple words, likely to lose money on this deal but willing due to the high return chance.

Relative to the amounts of money lost here the DD costs would have been a pittance.

> Other folks got money out of Madoff during his scam years, and the trustee says “I’m taking that money back to pay back others.”

What’s the limit on that? Dollars or time? I would be beyond furious if I was expected to help make someone else whole.

I don't think there's a limit when it's part of a criminal scheme.

It's infuriating for sure, but unfortunately it's the reality. If you gained from a Ponzi scheme that means you literally were given other peoples' money (directly).

I fully empathize with the absolutely epic degree it must SUCK to get a call and be told "yeah that 10% you've been earning for the past 20 years was actually someone else's money, you need to give it back."

Assuming you cashed out, wouldn't it be something like "that 10% you earned 10 years ago" because if you never cashed out then you're not liable.

My reply would be along the lines of: "Sorry lost it all in MtGox/FTX/Crypto/Vegas/Horses"

I mean, if the courts say you owe the money, you owe the money. If you lost it, looks like you got some debt to repay somehow.

The court would argue you didn’t complete due diligence and are liable for your mistake due to a crime taking place.

> I would be beyond furious if I was expected to help make someone else whole.

Such are the wages of being a beneficiary of a ponzi scheme. It would be a good incentive to do better research.

How are you supposed to get enough insight from any working fund manager to determine whether something is a ponzi? It’s not like they give you access to the books.

Mutual fund and ETF holdings are public information. Random fund manager? Good luck.

Pretty sure even private hedge funds have to disclose to their clients exactly what they hold, not Madoff's "just trust me bro" promise.

Madoff operated for close to twenty years before being exposed. He was regularly lauded for being the best by well informed people. What is an amateur supposed to do?

If the argument is, “Nobody is that good, you should know better”, does that mean Buffet’s scheme will start crumbling any day now?

> What is an amateur supposed to do?

You have two options.

1. Don't be unlucky. [1]

2. Or, you can make sure your society has socialized old age pensions, and that it puts in the work necessary to keep them solvent, and its citizens taken care of once they are past their working years.

[1] The easiest way to not be unlucky is to buy into a boring, diversified index fund. Berkshire may be a fraud, but it's unlikely the entirety of the SP500 is.

Well yeah that's why Ponzi schemes suck. Why should it be acceptable to profit from a Ponzi scheme? It's not your money at that point, whether you realise it or not.

The trustee has to prove that the transferee lacked good faith, which includes “when the information the transferee learned would have caused a reasonable person in the transferee’s position to investigate the matter further.” The companies which were required to repay Madoff money had “uncovered facts suggesting that [Madoff] was engaged in fraudulent activity” as part of their due diligence. https://www.govinfo.gov/content/pkg/USCOURTS-ca2-20-01333/pd...

>>I would be beyond furious if I was expected to help make someone else whole.

I mean, if you unknowingly buy stolen property, it will be just taken from you if the police finds out. I don't see how that's different.

I'd say there is a good chance they can claw back some of the endorsement money. A celebrity endorser is more than just some vendor, it is someone that is lending credence to the scam either wittingly or unwittingly.

> Other folks got money out of Madoff during his scam years, and the trustee says “I’m taking that money back to pay back others.”

I wonder if things like the political donations could be clawed back.

While Tom Brady's endorsement has little economic value, it was money paid to him. I believe a bankruptcy court can undo past transactions, so that cash might be recoverable.

They can’t give Tom Brady his time back.

Of the people stolen from, Tom Brady losing a day filming commercials is pretty low on the list of things I care about.

Like he got paid $X for his endorsement. I would prefer that money go to the people whose life savings were stolen.

Is it really Tom Brady's responsibility to vet each and every one of his commercial offers? That seems unsustainable. He would have needed some pretty intimate knowledge of the crypto world along with the inner workings of FTX to know that it was a fraud. To me it seems like placing too much responsibility on people who shouldn't bear that responsibility.

Your sibling comment says this:

> Didn't exactly that happen, didn't Tom Brady put his life savings in FTX? :/

Which makes your comment seem funny or sad, depending on how you look at things.

This has nothing to do with knowing it was fraud or impending bankruptcy which has nothing to do with having a bankruptcy court claw back money given to you in preference of others. This is like Brady getting a bad check. So he doesn't get paid for acting. A lot of other people didn't get paid what they were owed.

I'm sure he has a PR person, agent, manager, etc.

So yes it is their responsibility.

Didn't exactly that happen, didn't Tom Brady put his life savings in FTX? :/

That’s a tough one as Brady wasn’t an investor or executive but a supplier. Will the media companies that FTX bought ads with also need to give back their fees?

Quite possibly. Even without fraud, transactions within 90 days to a year of filing can be reversed by a bankruptcy court. Brady's transactions are more likely to be reversed because of his ongoing relationship with FTX than the media companies's transactions.

With fraud, they timeline gets a lot longer.

Did Tom Brady actually receive the payment?

Your bubble neighborhood likely cut down acres of wild land and trees unecessarily. We are all worst of for it.

> lighting money on fire

It's almost as if money is just paper and has little economic value. The same criticism you made of crypto.

> But if I had put that into a legitimate investment, maybe I’d have $180.

Or maybe zero. Investing is a casino unless you are very closely supervising your investments and have a thorough understanding of the underlying market dynamics. So better do your homework if you want to see some or all of your money back, preferably with a premium.

Yeah, you have to be a real genius to make money buying the sp500.

I think it was obvious that we weren't talking about index investing.

Do you know what opportunity cost is? Or perhaps you missed that part of the post?

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