Accounting prof testifies about FTX's misuse of customers' money
coindesk.com
coindesk.com
As it stands, I remain unconvinced that FTX was not a wash trading front for a money laundering operation run by an intelligence agency that is now throwing SBF under the bus as part of the larger plan to blow it all up so it's too messy for anyone to investigate. Just keep screaming fraud as loudly as possible so nobody dares question the premise.
There were a lot of red flags with FTX. It popped up out of nowhere. SBF was a relative unknown amongst his peergroup, eg MIT'14 Bitcoiners. I guess that's because he came from the econ side? I'm not MIT, but I am '14 and I was more involved than your average person with cryptocurrency back then. The first I ever heard of SBF was when he was put in front of congress in ~2019 and labeled the CEO of a massive crypto exchange I'd never heard of. Call me crazy but that set off alarm bells for me at the time, and I'm not sure it ever added up.
But by far the weirdest red flag about FTX was the dearth of Reddit posts from people asking how to get their money back when it finally crashed. There were hardly any subscribers to the FTX subreddit (~5k), and there was only a tiny trickle of posts from real users looking for refunds. Maybe this is attributable to FTX having more sophisticated "investors" (?) than other crypto scams, but the 5k subscribers made it a clear outlier. Compare the Reddit activity (both volume and sentiment) around any remotely similar crypto crash and the difference is stark. Where are all the victims?
There’s just no part of this theory that adds up to me.
If you're looking for a specific thread to pull on, I would suggest the mobilecoin transaction: FTX supposedly lost about a billion dollars to an undisclosed party that deposited an astronomical amount of mobilecoin then received a huge loan on the basis of the deposit (marked to market on a thin market which had suddenly surged) and withdrew the loaned funds, leaving FTX holding a bunch of relatively worthless mobilecoin. Shortly after this was made public one of the mobilecoin executives was murdered in San Francisco, though current reports suggest that this premeditated murder was somehow the result of a domestic dispute.
You would think that recovering these funds would be a top priority as its a substantial and fairly atomic loss which was the product of a pretty obviously fraudulent trade, but it's been total silence on that front from what I've seen.
Even by the low standards of scamcoin casinos, letting someone deposit almost the entire circulating supply of some scamcoin then giving them a withdrawable loan based on the last trade price would be uniquely and surprisingly stupid, and utterly smacks of a laundering scheme.
Of course, one would need to come up with a theory as to why someone (say, an intelligence agency as you suggest) would want to launder a billion dollars to parties connected to mobilecoin... It would have to be an operation more significant than paying RSA to use DualEC in bsafe, something as significant as CryptoAG to justify that kind of payment.
At least that's what Michael Lewis' book Going Infinite says happened.
FTX's mistake was that their liquidation engine valued collateral using something that could be manipulated. It's actually a very hard problem for an illiquid asset -- the correct valuation is the order book depth during the margin account's liquidation -- but that's always in the future so you can't know it exactly. And an attacker with two accounts can manipulate most of the things you might want to use as an approximation (like the last trade price or the order book depth right now).
The book claims that the bankrupcy trustee found the exploiter and the trustee CEO claimed they "had video of him entering and leaving his house" in (IIRC) Mauritius. However since the funds haven't been recovered the bankruptcy trustee could be bluffing or simply wrong about this. Or they can't extradite the guy. So not quite total silence, but also definitely not resolved.
BTW the book is really good, although it feels a bit rushed (obviously Lewis had a hard deadline for optimal publication date so this is totally forgiveable). There is a crapton of juicy stuff in there, like "Operation Warm Blanket". The number of powerful people who have egg on their face because of that book is absolutely unbelievable. No redactions. So many of them would have been able to quietly sneak out the back door with no public record if not for Lewis. Oh yeah and the mother of all easter eggs on the inside of the dust jacket.
The creditors list provides a bit of a peek.
Of course it’s down for maintenance right now: https://restructuring.ra.kroll.com/FTX/Home-DocketInfo
10m creditors, mostly redacted but top 50 were identified and owed $3b in total.
Can fill some more blanks on transfers of claims to hedge funds (since they can show more info) but that’s a lot of digging.
Haha this is not an opinion you should share with others. :)
But during that year I met and spoke to a lot of people in the ecosystem and I never heard of nor met SBF. But he was an econ major and approached crypto from the perspective of a trader, so that mostly explains it.
Out of curiosity, how did you not realize this prior? Academia's propping-up of cryptocurrency throughout basically its whole lifetime, but especially over the past decade has been deeply sad for me to watch. I thought these were the people evaluating things from first principles rather than merely taking things on faith (or more likely, due to some conflict of interest). Seeing that they have whole classes at MIT dedicated to it is, again, profoundly sad.
Never even heard of them before they crashed.
I would like to see a public accounting too!
I literally could not believe FTX when I found it because it was like Robinhood except had capture most of zoomer crypto heads by 2019. It was very, very, popular but you would have heard about it from finance people, not computer science people. They had little interest in the coin lore.
How can they deliver 11B? ... Get it back maybe?
SBF could end up like Martin Shekreli where they can technically pay back the money they stole but will still end up in prison because they committed fraud to begin with.
With the reports that Alemeda minted about $40B of Tether I was hoping that the government would capture that amount and then hand it to Tether to force a redemption back to USD. Saddly they don't seem to have that Tether around anymore.
For a bunch of people who worked for a respected traditional trading firm in Jane street, they dont' seem to have been very good traders at all.
The government's done a pretty good job with their end of the trial, by
- first making it clear that SBF ordered that FTX remove the borrow constraint for Alemeda that everyone else had,
- then by showing how all of Sam's purchases and political donations were done with money that he first sent to Alemeda and
- then by having the head of legal at FTX go through their terms of service that make it clear that FTX could not lend out customer money for any reasons at all except for margin accounts.
They are now closing by making it clear to the jury that "effective altruism" is not a valid defense for fraud and theft.
Side note, the bankruptcy team has announced that individuals who pulled out less than $250,000 in the weeks leading up to the collapse will not be pursued for claw backs, which is great news for small retail investors.
They also announced that FTX and FTX.US customers would precede vendors in the payback hierarchy which is good news for those of us who bought bankruptcy claims. Now seeing them valued in the 45cents on the dollar range.
Scott Galloway has talked about this a few times because he bought a bunch of claims. It's one of those ways that rich people get much richer. The Anthropic investment is likely to guarantee anyone who bought claims will do well.
?? Wrong comment to reply to?
That seems to blow away the claim that he was a entry level employee.
No fund puts "an entry level employee" in charge of betting billions of dollars that lead to a $300M loss.
I really have a hard time believing that he developed a mature career in such a short time.
I haven’t read the book, but where did Michael Lewis get the information that SBF was in charge of all these major projects? From the known fraudster building his fraud? Or from Jane Street?
[1] https://finance.yahoo.com/news/ftx-ceo-sam-bankman-fried-pro...
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All post about Palestine are being taken down under the premise that they are off-topic.
Why is this post ok?