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The choice is not between incompetence and fraud, much as SBF would like you to think so.

A company giving money to the parents of the owner is fraud.

A company giving money to another company owned by the owner when not in their interests to do so is fraud.

A company giving customer funds out as loans is fraud.

Incompetence is not an excuse and never has been, just as ignorance of the law is not an excuse.

Most of what you wrote, I agree with but this is wrong

> A company giving customer funds out as loans is fraud.

No, this alone is no where near enough for fraud.

Banks do this all the time. So does anyone company that issues gift cards.

This is absolutely fraud.

FTX was not a bank, it was an exchange. People were not giving FTX money to lend out to others in exchange for interest (as they would a bank). People were buying products (cryptocurrencies) from FTX that FTX agreed to hold on their behalf. FTX doing anything with these assets other than holding them on behalf of customers is fraud.

FTX's own Terms of Service explicitly said it was not permitted to lend out customer funds.

SBF himself repeatedly stated that FTX did not lend out customer funds.

> People were not giving FTX money to lend out to others in exchange for interest

Depending on state law, if you put down a deposit for e.g. flowers, the florist is free to spend the cash however they see fit, including loaning it out to someone. Lending customer funds per se does not prove fraud. Bankman-Fried lying about it does.

Sorry, was FTX a florist? I'm confused by your remark. Can you show some evidence that FTX was selling flowers, and that they had been using customer deposits for flowers on business expenses?

It’s an analogy. Lending out—or even spending on working capital—customer deposits isn’t necessarily illegal. The context is what makes it fraud or business as usual.

And the context is that FTX is not taking deposits for flowers, they are purchasing and holding assets on their customers' behalf, so your florist analogy makes absolutely no sense.

> they are purchasing and holding assets on their customers' behalf, so your florist analogy makes absolutely no sense

No, they were accepting customers' cash in exchange for something undefined. Crypto being unregulated, we can conclusively say that something was not "purchasing and holding assets on their customers' behalf."

FTX is, in many respects, more like a florist than a financial firm. Certainly for purposes of this case. (My florist's books are better organized.)

Nope, their TOS prohibited commingling. An LLC isn’t a license for fraud requiring government regulation.

> their TOS prohibited commingling

One, it's unclear if that's criminal commingling versus breach of contract by FTX.

Two, that's what I mean--absent additional representations, the lending out of customer deposits on its own does not constitute fraud or even anything illegal. That's the point of the comparison to a florist. In terms of consumer protections, my deposit with my florist is about (albeit not precisely) on par with customers' at FTX's. This is what you get when you stick your finger to the regulated system and put your money outside it.

Bankman-Fried lying about it does.

Which I understand as, it's gota be determined the extent of the lying to determine the extent of the fraud ; some you-didnt-read-the-contract-well-enough responsability may incumb on the customer(s).

holding assets on their customers' behalf

Who said he was, him?

Of course Im playing devil's advocate here to illustrate the logic of the law as presented by our friend here.

They're not supposed to co-mingle client money and company money. They did that with no controls and used it for all sorts of things without the permission of their clients, who thought it was invested in very specific assets. They are an exchange letting people buy crypto assets.

Not sure on the rules for banks but FTX was not a regulated bank!

The law makes a distinction between "misrepresentation of material fact" and fraud, though. Fraud means knowingly making a misrepresentation of material fact.

Something like pretending your parents were employees for example?

It depends on the specifics. If they are listed on payroll, that might be not be neither a misrepresentation or fraud. If you had good reason to believe they were hired, but weren't, I'd imagine that would land as an honest misrepresentation. If you knowingly "pretended" they were employees but they weren't, that's probably closer to fraud.

Do you know the particulars in this case? It doesn't look like the article covers that specific aspect and I'm not terribly familiar with this case.

I imagine what the judge will be looking at is whether they did any meaningful work for the company and whether house purchases were included in the contract and why.

> A company giving money to the parents of the owner is fraud.

None of those points are actually fraud on their own, except potentially one. The companies use of customers funds would likely fit the definition of fraud, this is unlawful gain.

A company can legally give out loans. Companies give out signing bonuses, salaries, gifts etc, the problem comes down to whether it fits the definition of fraud.

"A company giving customer funds out as loans is fraud."

This is what banks do though, no?

Banks have to follow various rules when they do it, and if they don't follow them, executives go to prison.

Was FTX a bank? Can you show marketing materials or any documentation indicating that FTX was a bank?

Banks are fractional reserve but brokers like FTX are full reserve.

> brokers like FTX

FTX (excluding FTX USA co) were unregulated - they were not a bank or broker just a plain old LLC.

None of these things are fraud - ignorance of the law is not an excuse.

I hope you’ll reconsider your position when his now inevitable conviction is announced.

Even if it all just was extraordinary incompetence, it doesn't seem like it would set a good precedent for that to be a successful defense. If this works, it seems like we'd see a lot more places purposely accounting for things poorly because there's a precedent that they can get away with it by saying they didn't know any better...

Before I really knew who this person was I remember him making news by being on a podcast basically saying it's all made up and a ponzi scheme. I could be remembering it wrong but everything I've read since then seems criminal.

https://archive.ph/fGLat#40%

https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...

As soon as you add "purposely" to the mix, you clearly moved over into fraud...

I think you are ultimately correct that extraordinary incompetence would still be some crime. Question does seem legitimate that it isn't necessarily fraud?

Manslaughter is not murder, but it's still a crime. Executives are often held to the "knew or should have known" standard. So, yes, in his position, extraordinary incompetence is still a crime.

My point is that if accidental incompetence is allowed but purposeful incompetence isn't, it becomes makes it a goal to try to seem genuinely incompetent, which seems like a bad thing

I can kind of see the hazard, if I squint. But that would still be a crime, in a lot of cases. And if you look incompetent, there are serious questions to ask on why you are getting backing.

Consider, if a bus system lets a genuinely incompetent driver on the street, there are all sorts of fines they will face. Rightfully so. Same for a hospital that has a genuinely incompetent doctor.

Now, if you are incompetent at things that are not your core competency, things are different. But, in general, incompetency at the level we are looking at here should raise as many questions on why so many others ignored red flags.

The original comment I was responding to went into great detail about how the defense is claiming that all of the mishaps were due to incompetence rather than malice, so my responses were my views on that sort of defense strategy. It sounds like you don't think this sort of defense is valid at all, but I'm not sure why you're arguing with me like I was the one who presented that idea.

It is valid for some crimes, not others. I don't know if it is valid in this particular case.

But, even if it is, that wouldn't excuse purposefully being incompetent.

So, your concern about this encouraging the appearance of incompetence feels off. You could maybe actually be incompetent, such that you would have a legal defense. However, if you are, how did you get to the point of causing harm?

A sibling post earlier pointed out that manslaughter is not murder. That is basically what I'm posting. Just incompetence to fraud, as manslaughter is to murder.

Does the existence of manslaughter pose a hazard of people pretending to accidently kill others? Maybe? But evidence is lacking that it is a major hazard.

Why is it bad to testify in your own case? I have heard this from time to time but have not understood it. Is it not your chance to tell it like it is?

The burden of proof is on the prosecution. If they can't prove that you did something wrong, you are more likely to get off.

Your lawyers can poke holes in the prosecution's case ("cast doubt" on it). Make it look like a weak case.

Getting on the stand and explaining an alternate timeline actually give the prosecution MORE evidence, from the horse's mouth. They can find new things you did wrong, they can find inconsistencies in your story, inconsistencies between what you said today and what you said last week. You're likely to commit perjury.

You're not expected to convince the jury of an alternate timeline, you just need them to NOT believe the very specific one the prosecution lays out.

It is a bit like the "Don't Talk to the Police" meme

https://news.ycombinator.com/item?id=36371237

My understanding is that, in general, you don't want to testify period. Even just being called as a witness is a difficult thing to do, as you are entering an arena that you are almost certainly not practiced at. You will slip up and say some things wrong. And you will have a hard time keeping your composure and actually connecting with the attorneys, judge, and jury.

For a witness, this really just means more stress than you were likely expecting going into the process. For someone actually involved in the trial, I imagine it is everything multiplied.

If you're not very charismatic, or rather, very not charismatic, you can undermine your own defense.

Also the prosecution then has the ability to rain questions on you.

When you are super guilty, that typically doesn't go well.

Yep. They will ask some questions they can prove the answers to, and those will usually be the ones that implicate you. If you lie, they'll call all your other testimony into question, as well as get you at least one perjury charge! If you don't lie, you admitted to the crime you committed, and could have saved a lot of hassle by pleading guilty to begin with. If you plead the 5th, it's officially the same as if you'd never testified to begin with, but juries may still be biased to see that as you attempting to hide something you're guilty about. Better to avoid testifying at all.

It's bad for SBF to testify because he's such a weird person. If he can't present himself sympathetically the jury may interpret that as lack of remorse.

Yeah it'd be a very bad idea for him to get up on the stand, but I'm putting large odds on it happening despite his lawyers' warnings.

But who knows, maybe having his bail revoked gave him some perspective of how seriously he should take this and that he isn't a legal genius.

In general it's hard for the prosecution to bring up evidence of prior, unrelated convictions or wrongdoing. If you take the stand they are allowed to bring it up to impune your credibility as a witness though. Doesn't really apply to SBF, but it's an additional reason to those others have stated for anybody with a criminal past.

I think this is an interesting analysis. My speculation is that the evidence will show much more intent than expected. I think the cooperation agreements are reflective of that and suggest those folks knew what they were doing wasn't right.

Edit: I am skeptical that that significant money will be recovered. Madoff ran a rather simple scheme where he skimmed money for himself and to pay earlier investors. I don't believe he actually lost that much money, just never made anywhere near the paper returns. I think FTX actually lost a lot of real money, but I am not that close to the facts.

One other thing I'm watching is for someone to ask where Former Alameda CEO Samuel Trabucco is.

> Everyone agrees that FTX paid $100's of millions to celebrity endorsers and arena naming deals.

Don't forget the fortune cookies. I know that I and some others on HN (https://news.ycombinator.com/item?id=33599123) never will.

You see a lot of "knew or should have known" in indictments of professionals who do sketchy things. I don't think you can hide behind gross incompetence in situations like that.