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Comment by tsunamifury | Hacker News Reader

I get what Sam did was wrong -- but uh... doesn't it look like everyone is going to get a return on their investment? Like -- uh -- weren't there far worse players through all this than Sam at the end of the game? For example the SPAC borderline scams that lost investors billions?

Something smells really strange here...

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If a store employee steals $500 from the till, gambles it on what he thinks is a sure bet, doubles the money, and returns $600 back to the till, that’s still theft, wrong, and punishable, even if the store happened to win in the end.

Perhaps not an exact analogy, but seems reasonably close.

It must be driving Sam insane though to think he could have made it all fine if he had hung on a few more months.

Eh, he had made exactly these sorts of bets before and he won those. Because it is gambling, eventually you lose a bet or two. While experienced gamblers learn to manage risk- mostly by diversifying and betting small chunks of your pot on different, uncorrelated bets, SBF never did. He continually bet his entire net worth- and his freedom- in one big gamble again and again. And it worked for a while. Until it didn't. But if he did get this bet to pay off, then he would have done it again, clearly. And eventually, one of the gambles would break like this one did.

The crime isn't that FTX lost its gambles. The crime is that FTX was gambling with money it legally couldn't use for the gambles.

Right. I was responding to the comment that "it must be driving Sam insane though to think he could have made it all fine if he had hung on a few more months." But the problem is, even if he had made this gamble pay off, by his very nature the man was determined to bet his freedom and net worth again and again on, at best, 51-49 bets. Because he wasn't actually a very good gambler.

In effect, it was an unsecured high-stakes side-bet on whether he would get caught.

I feel like it must be true that there are many others out there that were able to hang on and now we merely know about them as a wealthy person, rather than as a criminal.

The question is what the ratio is: one caught for every ten not caught?

This is probably more rare than you think since very few fraudsters seem to know when to quit. Even after getting away with massive gains there is temptation to do it again (and now the risk seems even more justified due to past experience).

And they put the money back in the till years later, after the owner of the store lost their house.

Martin Shkreli pulled off a similar feat, still went to jail for the fraud even though he made investors whole.

https://www.nytimes.com/2017/07/26/business/dealbook/martin-... | https://archive.today/gH2zT

https://en.wikipedia.org/wiki/Martin_Shkreli#Criminal_convic...

What's being punished is the fraud, not the losses. We do not want to incentivize companies putting it all on red with customer funds they don't have a right to touch as long as they win the bet, we want to punish them for even trying, regardless of whether it happened to work this time.

I get that, but whats the point of NO HARM is proven.

A big part of why investors are being made whole is also that what they are owed froze into dollars at the moment of bankruptcy. If you had 1 BTC in FTX at the point of bankruptcy, and that was worth 20,000 on that day, you do not get 1 BTC back (or what 1 BTC is worth today)- you get cash for the amount it was worth on the day of bankruptcy. So as crypto prices have gone up again, the assets that FTX owned have gone up and the amount they owe has stayed constant.

This is only possible because FTX is no longer a continuing operation- if they still owed that customer 1 BTC then the assets appreciating and the debts increasing does nothing to help them.

Most people won't get anything close to what they had. That's because bankruptcy claims are locked in USD on the date on the filing, which was pretty much the bottom of the market. And they certainly won't get any returns on the investment.

Let's say you had 1 BTC at the time of bankruptcy which was worth $20k for the sake of example. Your claim is now $20k and you won't get more than that. And even if you get 100% of that, it's only 0.4 BTC at current prices.

For people who's life savings was that $20k, that's still $20k that they'd previously written off. It's not $60k or whatever, but it's still better than $0.

The way punishment and deterrence works in the U.S. is that you pick a high profile villain and make an example out of them, and then hope that the publicity generated by their punishment works to deter similar actors. Enforcement agencies like the SEC and FBI are bureaucracies just like major corporations, and often have fewer resources and lower paid employees. They don't have the resources to go after every criminal. So they pick the most high-impact, hated, and sensational cases to go after, then rely on the media to amplify the deterrence value.

Most SPACs never made headlines on the way up; therefore prosecuting them is not going to make headlines on the way down. They'd spend a lot of resources to gather evidence and prove a court case, but it would have zero deterrence value to other potential criminals, because nobody will ever hear about the successful prosecution. It is far more cost-effective to go after SBF and FTX, which was very prominent in the 2019/2020 crypto bull run and many Americans personally lost money in its collapse, and use that to send a message to the rest of the crypto sector.

> many American politicians personally lost money in its collapse

That too, and it was a general embarrassment for the U.S. government because he was the largest donor for many politicians who remained in office. They couldn't afford to not prosecute him, because it'd make them look (even more) corrupt.

> it was a general embarrassment for the U.S. government because he was the largest donor for many politicians who remained in office

This was irrelevant. You’re describing political opportunity for legislative primary runs. Bankman-Fried was prosecuted.

What made him a sitting duck was his high profile, the stupidity of his blow-up and his inability to not maintain that high profile after he’d combusted. It was an easy, juicy case that made careers.

(It's interesting that my top-level comment which makes the point you do, that he was a high-profile target, is sitting at 1 point, while the one that says he is a general embarrassment to the U.S. government is at 5 points.

> It's interesting that...

Not really, hn is full of reactionary posters champing at the bit to connect loose threads, as your own post testifies to

Do you not understand the separation of powers between the executive branch and the legislative branch?

I agree, however selective exemplary punishment is specifically outlawed in the constitution. As well as precedent around selective enforcement.

Chamuth's SPAC that dumped together a ton of covid duds and sold it to investors then took a 90% loss to clear a bunch of billionaires books of their boondoggles ... that somehow feels so much more wrong than Sam.

Assets have been in limbo for over a year now. Won’t believe people are made whole until it actually happens.

If you steal a million dollars, put it all on a lucky red turning that million into two, and then put the original million back, you still stole a million dollars at the start.

https://www.investopedia.com/why-ftx-plan-to-refund-90-perce...

> FTX expects to pay all customers in full, although it will calculate their repayment based on cryptocurrency prices from November 2022, when FTX filed for bankruptcy amid a prolonged slump in the crypto market, rather than at the present, higher value of crypto assets.

November 2022 was a bottom they themselves created. Bitcoin has tripled in value since then so paying in USD is a huge loss for the affected customers.

And let’s not neglect the massive fees that the bankruptcy lawyers for FTX have raked in.

> The filings also show that FTX has paid lawyers a total of $350 million since bankruptcy proceedings began earlier this year and that from August to October, it shelled out somewhere in the region of $1.4 million per day.

That was from Dec. 2023 I’m sure it is much more now. That money comes from somewhere.

Yeah, that's what happens when a fraud, a crook ruins a business and bankruptcy lawyers have to take over to save whatever can be saved for victims of said fraud.

Holy shit, $350 million? how the hell is that even possible?

Trick is to be lucky like Bernie Madoff creditors. Then SIPC covers all the fees.

> No funds recovered in the Madoff Recovery Initiative are used to pay costs associated with the recovery. All trustee, legal, and accounting fees, as well as administrative expenses, are paid by SIPC.

https://www.sipc.org/news-and-media/news-releases/20231208

Still chugging along doing collections and distributions, oh and of course billing, to this day 16 years later.

Maybe they're harder on conmen who buy super bowl ads.

Honestly these prosecutions are really just driven by the media. They just are.

The fact that sam was young and had a poluamorous house in the Bahamas meant this was front page material. This then meant that prosecutors feel they must do something about it to show the world you can't commit fraud AND be widely known and get away with it.

People who commit fraud and aren't widely known aren't treated the same by our justice department.

You're right. People who commit fraud and aren't widely known don't get house arrest pending trial, they go straight to a federal holding facility.

They don't get to access the internet or play video games all day, they get to look at 4 walls and contemplate the meaning of life.

SBF benefited from being widely known. Most people aren't that lucky.

He benefited from having a well connected family.

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