Alameda meeting where Caroline Ellison admitted the firm took FTX customer money | Hacker News Reader

Alameda meeting where Caroline Ellison admitted the firm took FTX customer money

businessinsider.com

54 pointsperihelions57 comments

> CHRISTIAN DRAPPI: Who else was, like, aware of this? I mean, I'm guessing you and Sam certainly were. Like, I'm guessing probably very few people.

> CAROLINE ELLISON: Yeah, I don't -- yeah, I'm not even sure if I know exactly who was aware. I mean, I sort of say, like, to some extent you can, like, you could piece it together if you, like, looked at like, pointer or looked at like some spreadsheets for a bit or something. So it's sort of possible for a lot of people to be aware of it, but I guess that most people weren't.

> DRAPPI: I mean, like, more like explicitly aware. As in told, like, this is what we're doing in terms of, like, meetings that were had. I'm sure, like, this wasn't just like a YOLO thing, right? Like, you know --

> ELLISON: Yeah, I mean, I guess I talked about it with, like, Sam, Nishad, and Gary, I think.

That is a lot of “like” - almost every other word. I don’t know why I’m surprised but I am.

I was surprised, too--I'd recommend listening to the clips of the tape, if not the whole recording, if you haven't.

You hear about the ties to MIT and Jane Street and all the money and you think "polished," while the recording paints a rather amateurish picture.

I find it mildly infuriating when people repeatedly use the phrase "like". What part of speech and grammar is this called? I perceive it as interrupted thought from unpreparedness.

It's called a filler: https://en.wikipedia.org/wiki/Filler_(linguistics)

One thing I don't understand is how did none of these employees _immediately_ jump ship once it became apparent that they would start using customer funds. These aren't dumb people, Ellison worked for Jane Street prior to FTX. Had I been in her position I would have written my resignation letter to Sam in a heartbeat once this became apparent (and probably another letter to the FBI/SEC)

Caroline wanted a conventional love with an unconventional man: https://www.dailymail.co.uk/news/article-12612105/Sam-Bankma...

HER TYPE IS GUYS WHO CONTROL “MOST MAJOR WORLD GOVERNMENTS”: https://www.gawker.com/money/are-these-caroline-ellisons-tum...

A good trader should be skilled in mathematical thinking, comfortable with risk, and quick to react and make judgments in uncertain environments. The speaker also discusses the importance of handling emotions when trading and losing money, and notes that they have had to work on developing their emotional resilience: https://www.summarize.tech/www.youtube.com/watch?v=Qd2enI4Rv...

She had a nice blog on tumblr, which is down. Archived here: https://caroline.milkyeggs.com/

A lot of times, these folks convince themselves that "they just need a bit more time to hit the big score."

Anyone that has spent any time in a casino, knows what I mean.

I'm pretty sure that's what Nick Leeson was thinking, as he was taking down Barings Bank.

https://en.wikipedia.org/wiki/Nick_Leeson

> A lot of times, these folks convince themselves that "they just need a bit more time to hit the big score."

Or look no further than SBF himself.

“I fucked up big multiple times,” Bankman-Fried wrote. “you know what was maybe my biggest single fuckup?” “The one thing everyone told me to do [...] chapter 11.” Bankman-Fried said that if he hadn’t filed for Chapter 11 bankruptcy, “everything would be ~70% fixed right now,” and “withdrawals would be opening up in a month with customers fully whole[0]

[0]https://www.vox.com/future-perfect/23462333/sam-bankman-frie...

> These aren't dumb people, Ellison worked for Jane Street prior to FTX

I guess you'll have to uPdAtE yOuR pRiOrS.

In the interest of curiosity, in 2023, is it possible to hire 22 year olds and also maintain a flawless image of excellence? It seems unfair, but true, that the glow fades quickly as a company hires people who don't know anything only because they are still starting their careers.

> “uPdAtE yOuR pRiOrS”

LOL. One thing I’ve learned so far halfway through the middling Michael Lewis book is that the lives of people who talk in Bayesian jargon and obsess about Magic: The Gathering don’t make for exciting reading even if you have a world-class author and the best editors. Sometimes a boring person is just a boring person.

Most peoples lives are incredibly boring.

Did you read the article? The person who recorded the meeting did in fact quit within 24 hours.

> In Comments

> Please don't comment on whether someone read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that".

https://news.ycombinator.com/newsguidelines.html

I don't agree with that guideline. I think people should be ruthlessly shamed for making comments on articles they haven't read. I will truly never understand the mindset of somebody who would venture into the comment section to discuss something they haven't read.

Is it relevant whether or not you agree with a guideline? This site is provided to its users under the terms its owners decide to put forth. This is one of them. I think it says something about a person when they read that guideline and say "yeah but I don't wanna, so I'm ignoring that one."

If you want to change it, lobby YC/dang to do so.

And because you can't understand something, you will break the agreements of the community. I think people who look at collective agreements and ignore them should be ruthlessly shamed for disconnecting from the community and deciding their internal discomfort is the thing that needs to be addressed by the community in that moment.

I will never understand the mindset of someone who wants to be a part of community but then doesn't want to follow the agreements of the community. Why are you here? Just to make sure people know that You Don't Approve?

You're entitled to your opinion. Personally I think guidelines like "be kind" and "avoid generic tangents" are far more important. Your comment is completely focused on targeting me. I was trying to have a conversation about what's in the article under discussion.

You weren't trying to have a conversion. By your own admission, you were trying to "ruthlessly shame". If you think you can have conversations with people you are ruthlessly shaming, perhaps this interaction can demonstrate that those are radically different things.

You could, and should in the future, easily rephrase your comment to "In the article it says the person recording did quit within 24 hours." This way you preserve the essence of your comment without violating community rules. This would also be kind, extending the benefit of the doubt to others, and avoid tangents, like this one, about the basic rules.

There's more to comment on than just the topics confined to the context of the article. This, for instance.

  Drappi quit within 24 hours of the meeting, he testified Thursday. Binance ultimately did not buy FTX, which declared bankruptcy when Bankman-Fried relinquished control two days after the Alameda all-hands meeting.

They did and recorded the whole thing. In a few more days the game was up.

I think _fat_santa was referring to the earlier period when the fraud began, but of course this call shows that most of them did not know.

Some did and knowingly participated in the fraud. Some knew about this or other shady practices and left the firm, as far back as 2019 IIRC. Lots of different responses, but unfortunately no leakers.

There eventually was one leak. That's what ended the whole thing. There was a coindesk article with a leaked image of their balance sheet. CZ commented on it and things went downhill from there.

True, but probably not from inside. They were circulating that to raise funds.

If you're wondering why Ellison didn't quit, it's probably a combination of personal conflicts of interest and some hope that they could Martingale their way out of it. It seems like most of the rank and file didn't know/did in fact resign when it was clear that they were working for fraudsters.

Funnily enough, Matt Levine gives a decent argument towards their JS background giving them bad instincts as much as it helped build FTX[^1].

[^1]:https://newsletterhunt.com/emails/39708

Man, JavaScript just keeps getting blamed for everything.

I took this at face value before diving in. I assumed "lack of strong typing -> disregard for safety, checks out"

I think they meant Jane Street, but I can be mistaken.

Sorry, I'm German, I have no sense of humour.

How do you reconcile this

> hope that they could Martingale their way out of it

with this

> their JS background giving them bad instincts

Surely, the instincts they got from JS is that you almost surely can't Martingale your way out of it if your trading expected value is negative which, if we don't mention the fraud for a second, seems to be what their biggest problem was.

> if your trading expected value is negative

However, if you take the formula, assign yourself a positive trading edge and a large positive expected value you can justify placing whatever bet you want as a mathematical certainty.

The most un-spoken about thing in all this is how exactly they went from +100bn to -8bn in a year.

I think that assumes that SBF and/or Ellison (I'm a bit less convinced Ellison thought they could trade their way out of the hole) saw negative expected value.

I'm more inclined to believe that SBF, who's personal philosophy was a highschool-level understanding of Utilitarianism, completely misevaluated the EV Alameda + FTX's operation[^1], and that he took the wrong lesson away from JS -- that you can bet it all on something with +EV and if it doesn't work out, better luck next time.

There's his interview with Tyler Cohen that's somewhat particularly telling[^2]:

>And in fact it seems like Bankman-Fried, maybe more than anybody else I’ve ever heard of, really did think that way. In March 2022, Tyler Cowen asked him:

>>COWEN: Should a Benthamite be risk-neutral with regard to social welfare?

>>BANKMAN-FRIED: Yes, that I feel very strongly about.

>>COWEN: Okay, but let’s say there’s a game: 51 percent, you double the Earth out somewhere else; 49 percent, it all disappears. Would you play that game? And would you keep on playing that, double or nothing?

>And Bankman-Fried said yes! And Cowen went on:

>>COWEN: Then you keep on playing the game. So, what’s the chance we’re left with anything? Don’t I just St. Petersburg paradox you into nonexistence?

>>BANKMAN-FRIED: Well, not necessarily. Maybe you St. Petersburg paradox into an enormously valuable existence. That’s the other option.

>That’s insane! You keep flipping a slightly weighted coin. Every time it comes up heads, the population of humans in the universe doubles. If it comes up tails once, every human in the universe is dead forever. How many times would you flip? Bankman-Fried’s answer was … as many times as it takes to kill everyone? Okay! Great! Nice utilitarianism you’ve got there.

So, while I don't disagree that if you gave SBF or Ellison or anyone at Alameda a trade w/ obvious -EV that they'd take it. But I also think that what we see as clearly -EV was not being calculated as such at Alameda+FTX. I'm most inclined to believe that they saw it as either making trillions and saving the world or _not risking enough_ and not saving the world.

[^1]: I don't know, maybe by factoring in a chance they solve AI extinction (lmao) by earning a trillion dollars and funding the right research groups, overestimating the chance that their bets pay off due to early success, or betting that using customer funds to fuel mass adoption which is key to making both operations profitable.

[^2]: Quoted in Matt Levine's 10/5 newsletter: https://www.bloomberg.com/opinion/articles/2023-10-05/ftx-mi...

They're dumb, and overconfident, and reckless.

Short, snide answer, wouldn't normally chalk it up to just that, but I feel like given all we've seen and read from this, that's a fair assessment of this whole debacle.

She might have thought she could fix it before it became a big problem. At some point it becomes like slowly boiling a frog, where you don't notice how big the problem is, or you rationalize it. Or it could just be the case that she didn't think she would get caught, and frankly she might not have if not for that pesky CZ tanking their FTX tokens.

The way that the crypto market jumps to sky-high prices makes people like this feel invincible, and above the rules.

Working for Jane Street doesn't guarantee having a functioning brain.

Millions of dollars. More than they can make anywhere else.

Sure, but those millions will do you no good when you relatively inevitably are sitting in jail and have forfeited those sums and more in fines & restitution.

These are supposed to be intelligent people, yet they seem to not realize that there are also intelligent people on the investigation/prosecution side, and/or that events (e.g., crash from organic causes or competitors' interference) can make obvious their crimes?

Maybe not so intelligent, and certainly not ethical.

Given how many scams succeed out in the open, and how little of rich people actually face consequences for running them, I can understand how someone may decide to roll the dice.

Yes, I can certainly understand it for someone who has a poor situation and few prospects

But for people who have a good socio-economic background, great education, and ability to make an honest living, it is not only foolish, but reprehensible to decide instead to harm others for a living. Disgusting.

I agree, it's hard for me to understand why someone with good prospects would be dishonest, except that IMO greed knows no bounds. That, and I'm guessing most of these people are psychopaths, if tested (there is a test for it: it's a brain abnormality).

You see billionaires' unbounded greed all the time, for example:

https://www.wired.com/story/koch-brothers-are-cities-new-obs...

As another user pointed out - Elizabeth Holmes got 11 years. What are the odds that Caroline won't be out before she's 40 and still have millions in the bank?

> Ellison worked for Jane Street prior to FTX. Had I been in her position I would have

How did they come to "start using customer funds"? Prices went down and they lost a lot of money, likely in the region of $20bn-$40bn in the 6 months before they went for the customer funds.

They were "buying the dip" and it never came, only the next move down was with even bigger positions and even bigger losses.

She knew exactly what she was doing - she might actually be more guilty than SBF.

Ellison thought crypto prices would rise again, allowing Alameda to balance things out, but that "did not work out," she responded, before giggling.

How did no one in their entire finance or accounting department catch this very early on? It's a very simple process to compare assets to liabilities... usually accounting is monitoring bank balances on a daily/weekly/monthly for their bank to book reconciliation. The entire company must have been full of criminals for them to have gotten away with this for so long.

The VC money backing SBF deserves the loss for not putting the default clause into their A raise to force a professional audit within 18 months of the raise.

The sad part is the depositors that got caught in this mess.

If SBF was not a trading platform, but say, a medical device company, this story would have had a much more palatable set of victims.

Not a full answer but I think it hints at it.

> The new CEO of the collapse cryptocurrency trading firm FTX, who oversaw Enron’s bankruptcy, said he has never seen such a “complete failure” of corporate control.

> John Ray III, in a filing with the U.S. bankruptcy court for the district of Delaware, said there was a “complete absence of trustworthy financial information.”

> “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray said. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

> https://fortune.com/2022/11/17/ftx-bankruptcy-filing-john-ra...

I don't doubt Ray's mostly right, but remember he has huge incentives to make the problem seem as bad as possible: payment justification, reputation-burnishing, self-importance, etc.

They had no controls around cash and asset management. There was nothing to reconcile. Perhaps it’s criminal but it is certainly incompetence.

Can anyone make an informed guess how many years Ellison will face in prison?

Since Elizabeth Holmes got 11 years as the head honcho of Theranos, I'm gonna wager "less than 11".

Elizabeth Holmes only defrauded VCs; Caroline stole, gambled with and lost customer money.

Bernard Madoff got 150 years for that.

Madoff got charged with securities fraud, investment advisor fraud, mail fraud, wire fraud, money laundering, false statements, perjury, making false filings with the SEC, and theft from an employee benefit plan.

Holmes was charged with wire fraud and conspiracy to commit wire fraud.

Ellison is charged with wire fraud, money laundering, and conspiracy.

I feel like Madoff are in a way different league than Holmes and Ellison. Ellison also didn't come up with the scheme (unlike Holmes and Madoff), and didn't even get equity if I read things right. She might be able to just don on her Sunday finest, cooperate with the feds and play the "I was manipulated by this megalomaniac douche" angle, since they were in a relationship and all.

Wait, didn't Holmes try that tactic too?

Holmes' machine got used by consumers, although she was found not guilty on the charges related to that.

And didn't FTX/Alameda ever lie to investors to convince them to invest? Like telling them they're separate? I'm surprised.

None, she made a deal in exchange for testimony right?

She will still get time though.

Four to five, serves three. By then the spigot will be open again (interest rates lowered to prevent economic collapse) and VC will be all over her new startup.

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