from Hacker News

FTX’s collapse was a crime, not an accident

by mcone on 11/30/22, 8:35 PM with 569 comments

by richbell on 11/30/22, 11:02 PM
CoffeeZilla covered this in a recent video. The effort to paint over such blatant fraud and negligence and pretend it was all a mistake from a well-meaning kiddo is disgusting.
https://youtu.be/0rL35_WV3lE
by neilv on 12/1/22, 1:51 AM
At the same time, Coindesk.com front page includes this:
https://www.coindesk.com/layer2/2022/11/30/a-self-regulatory...
> A Self-Regulatory Organization Is the Best Way to Advance Crypto While Protecting the Public
> The financial industry, collectively, has greater domain expertise than can be expected of regulators. This reality invites transparent, fully accountable, self-regulation.
I'd think anyone could see that it's virtually all scams atop schemes atop scams, and find grounds to shut it all down.
Of course people who would like to run these scams and schemes would like to self-regulate it.
by Animats on 12/1/22, 1:52 AM
Here's the NYT article.[1]
It was an remote interview with Bankman-Fried. The reporter (interviewer?) was David Yaffe-Bellany.[2] He came from Bloomberg.
When, as a reporter for a major paper, do you call a CEO a crook? That's a tough call. Especially when the CEO is in total denial at the time. Especially when such an article will crash what's left of the company. I wonder what discussions took place within the NYT editorial staff.
The interview was on Sunday, Nov. 13. The Binance buyout deal was supposedly happening as of Nov. 8, Binance was making backout noises on Nov 9th, and the deal was dead by Thursday Nov. 10. There was still talk of other deals past that point.
It wasn't clear as of Nov. 14th that there had been out and out theft. The hard info on that came later. Take a close look at who knew what when.
[1] https://www.nytimes.com/2022/11/14/technology/ftx-sam-bankma...
[2] https://yaffebellany.com/
by scoofy on 12/1/22, 1:27 AM
"It was a crime" seems to be the cope du jour that for those who invested in an asset intentionally designed to avoid regulation.
I don't want this to come off as dunking on anyone who has touched by this tragedy. I feel for the people I know involved in this, just as I see these events as part of the inherent risk structure of the space.
Am I wrong here? I really want to know if these cries of foul are substantively different than, say, the required reserves to prevent these types of collapses. Or say, the existence of FDIC insurance in cases of mismanagement or even outright illegal trading by banks?
by skybrian on 11/30/22, 11:20 PM
The New York Times did another interview with Bankman-Fried today, very much against the advice of his lawyers. I didn't watch it, but from a tweet summary [1], it sounds rather amazingly self-destructive.
Getting the lies on the record seems useful?
[1] https://twitter.com/edmundlee/status/1597957472761057282
by indigodaddy on 12/1/22, 1:01 AM
Watching the NYT SBF interview tonight, in which SBF is constantly characterizing billions of customer dollars being funneled illegally to Alameda as, “we didn’t realize that Alameda’s ‘position’ in FTX was so large…”
This is just straight up nonsense correct? Or does he have something to grab hold to here?
by pessimizer on 12/1/22, 12:10 AM
It was a "crime", but we treat the financial industry and anybody with money with such kid gloves that it doesn't really matter that it was a crime. I have no confidence that his prosecution won't end up as difficult as Rob Blagojevich's (notoriously corrupt ex-governor of Illinois), in that Illinois ethics law has been so carefully crafted to allow bribery to and from officials that it was surprisingly difficult to convict him, and irt the details of the process probably unfair. Blagojevich's actual crime was not having being popular with people who had clout, not his open selling of a US Senate seat.
This dude, however, is attending speaking engagements with the NYT and sharing the stage with war criminals after his obvious fraud in a shady-ass industry. He's probably still got plenty of friends, and his co-speakers are an example of what impunity and getting off scot-free when everyone knows you're guilty might look like for him.
by themagician on 12/1/22, 12:27 AM
What amazes me about FTX is the speed and severity of the collapse. Never seen anything like it. The website and app simply disappeared overnight. The never sent statements via email or postal mail. If you had any money in the only proof you have some transactional emails and lines in the statements from the banks which you used to fund your FTX account.
It really is remarkable. I would think the hardest part about getting indictments at this point is collecting enough information to actually present to… anyone.
If you don't have physical or digital copies of statements, transactions, and account numbers and the company you are dealing with just comes up with some bogus, "We were hacked, it's all gone, we are now bankrupt, goodbye," and then proceeds to delete their website and disconnect their phone how do you prove that you even have a claim?
by jmull on 12/1/22, 12:53 AM
I think the crypto people keep driving the NYT-is-in-bed-with-SBF narrative to distract from the real issue: the great bulk of crypto efforts are essentially scams that want to lure real money in with the promise of riches.
They are all feeling the crunch now and want to turn the narrative away from ones that will cause people to stop putting real money in.
by NelsonMinar on 11/30/22, 11:53 PM
Note this op/ed is published by CoinDesk, the cryptocurrency journalism outlet that broke the story about FTX's financial situation that precipitated their collapse. Different authors but same publication. https://www.cnn.com/2022/11/24/media/coindesk-scoop-ftx-reli...
by gamblor956 on 11/30/22, 11:15 PM
In today's NYT Dealbook, SBF claimed that "unspecified third parties" were behind the "hack" around the time they went bankrupt, that they spent "thousands of hours" on compliance, that dealing with the CFTC is "too much work", that they had "too many boards" overseeing their work (internally), and that customers might be made "whole" if FTX were recapitalized like Bitfinex was. Also, he claims he took all the money FTX/Alameda loaned him and then used contributed it back to them so he's super duper not sure where all the money is. (This last bit by itself isn't usually illegal; law firm and accounting firm partners do this all the time when they first buy their stakes, but FTX appears to have double- or triple-booked this money: first when received, possibly again when loaned out to SBF, and again when recontributed back to the company.)
He claims he has no hidden funds, he's down to his "last credit card" and last $100k in his bank account.
I expect many of his statements today to be used against him in court. Assuming he hasn't "died" by then.
by shp0ngle on 12/1/22, 9:18 AM
The way mainstream is covering SBF is downright bizarre and it starts to confirm conspiracy theories to many people.
by woodpanel on 12/1/22, 2:16 AM
Great article. It even goes there and mentions BCCI.
And with this four-letter acronym alone the clandestine literate [1] might be able to draw his/her own conclusions about the how, the why and the kid gloves with which the media handles SBF.
Imagine a three letter state agency looking for ways to secretly pay off shady foreign allies from terrorists to cartels. What kind of infrastructure would you need to do that on a geopolitical scale? Sigh, if there only existed such a technology irony off!
No, that doesn't mean SBF is crypto's James Bond, but it does shed an intriguing light on certain stablecoins as well [2, 3]
[1] https://www.washingtonpost.com/archive/opinions/1991/08/11/t...
[2]: https://asia.nikkei.com/Spotlight/Datawatch/Tether-cryptocur...
[3]: https://www.ledgerinsights.com/tether-shadow-ftx-saga/
by asimpletune on 12/1/22, 1:07 PM
So I’ve been watching the NYT dealbook interview and want to add some clarity that I think is missing here. Let me add a disclaimer that I don’t condone SBF at all. I just want to use his words to provide clarity. Everything below is paraphrasing.
Q: Did you co-mingle funds?
A: I did not mean to.
Q: It says in the TOS that you would not do that. How is it ok then?
A: It says elsewhere in the TOS that customers can take margin positions, so in some cases the co-mingling was to be expected.
Q: How did then such a large amount of money get co-mingled then, because it seems that a much larger amount of customer funds were affected than just the accounts trading on margin?
A: In the early days, we did not have a bank account, so when customers wanted to trade on our platform, they deposited money to alameda who then credited the money to us. I don’t know for sure, but it seems that the money that was credited wasn’t always put in the right account (ie safe money, per the TOS)
So as I’ve understood so far, it seems SBF is claiming there was just incompetence and mismanagement. A lot of regulation in finance is to prevent people from being able to do this. Anyways, to those who have said, “stealing money that I traded for magic beans is still stealing”, I think it’s a little more complicated than that.
by lordnacho on 11/30/22, 11:37 PM
Pretty long article to say some simple things.
Well said, though. It's pretty straightforward they shouldn't have used the customer funds, or tied Alameda so closely to the exchange.
It's still a bit slapstick though. I can see some young kids with no organisation falling into "oh let's borrow some from the customers, I bet banks do it all the time". It's still wrong of course but with the whole nerd act you might wonder whether there was any genuine thought about whether it was allowed. Even if you don't know the rules, you have to follow them.
The whole thing beggars belief. How they got that big, while playing video games, having no oversight, with backing from real names. And then blew up seemingly in the space of a few days, but possibly "mortality wounded" for a long while before.
by 1vuio0pswjnm7 on 12/1/22, 7:19 AM
"In interviews, he talked a stream of nonsense tailored to snowjob outsiders about an industry that's already full of jargon and complicated tech."
He is still talking. For example,
16 Nov 2022
https://www.youtube.com/watch?v=6DezodR9hNI
(Sounds like he is in the bathtub.)
20 Nov 2022
[another to be published phone call with the YouTuber above]
30 Nov 2022
https://www.nytimes.com/live/2022/11/30/business/sam-bankman...
https://slate.com/technology/2022/11/sam-bankman-fried-new-y...
Internet discussion seems to center on criminal charges but there will be numerous civil suits first. Poetic justice would be if he has to ask his parents for money. Every time he opens his mouth, plaintiffs lawyers are listening.
In the 16 Nov interview he reveals that he told his lawyers to "go fuck themselves". He said "I don't think they know what they are talking about" and "They only know what they're talking about in the extremely narrow domain of litigation."
Maybe he should be put on a suicide watch if he isn't already.
If I understand correctly, he will be on The Crypto Roundtable next.
https://podcasts.apple.com/us/podcast/the-crypto-roundtable-...
He is booked to appear on Good Morning America next week.
How many times can someone say "like" in 20 minutes. Listen to an SBF interview and find out.
by yawnxyz on 12/1/22, 1:12 AM
For a fraudulent app, I'm surprised at how well FTX as a platform worked.
I only played around with it for a while, buying/selling $250 worth of coins to try it out. I thought it was fairly well-designed, fast, etc. and on par with other tools like Schwab or Robinhood.
To hear that the entire thing was a fraud makes me think that they put a lot of engineering/design effort into making the FTX platform work. It was a fully-functioning product, not some Theranos-like facade!
by paulpauper on 11/30/22, 8:52 PM
It took almost 3 years to indict Enron executives after its bankruptcy. This could be a while.
by crtified on 11/30/22, 9:18 PM
No doubt it was both, to some degree. The latter doesn't excuse the former.
And the whole matter is only made worse by (or, perhaps, 'highlights') the surrounding incestuous cesspool of other crypto exchanges and funds, and the 'crypto media' arms which they own and run. Several of whom are almost certainly engaging in, at the least, grey-area practices, in order to accrue vast and lightly regulated profits.
The fact that many of crypto's best-known names are basically digital bankers-for-profit, illustrates how the scene went off the rails some time ago. From a tech perspective.
by barathr on 11/30/22, 11:34 PM
This seems a bit like a "doth protest too much" article -- while the things FTX did are no doubt shady, this article seems to be trying to heap scorn on FTX as if it is unique in the cryptocurrency space. (And there are factions within that world -- is FTX in a different faction than Coindesk? I'm not sure.)
It seems quite possible that a couple of years from now we'll find out that most major cryptocurrency companies were doing things similar to FTX. With that possibility, this article could be an attempt to avoid FTX bringing down other companies in the space.
by dmix on 11/30/22, 11:31 PM
I watched the full NYT interview today and he's either an amazing well-coached liar (very possible) and or he really is a kid in way over his head, who got to take advantage of reputation circles (VCs, media, politicians, etc) to make reckless massive gambles without any adult risk-adverse old-school finance guys in the room.
Basically demonstrating zero personal responsibility for the the money he had control over.
Maybe more will come out to show he's is in fact a modern Bernie Madoff, with a grand hidden scheme at work to directly enrich himself, but that's not 100% obvious yet. I'm looking forward to what comes out in the future.
by Kukumber on 11/30/22, 11:47 PM
I have the feeling that it was a failed attempt at poisoning Binance, it was indeed a crime, an organized crime with the help of government funded institutions, that's pretty obvious at this point, based on the massive echo from the press
Alternatively, the random death of crypto billionaires is barely mentioned and talked about
Randomly generated personas on a dedicated mission to ruin some people, or rather to prepare us for something, but what? digital EURODOLLAR, because digital YUAN is soon?
by csours on 11/30/22, 11:39 PM
Bad corporate culture is not always a crime in and of itself, but it does encourage crime. If a company has bad corporate culture, you can find crimes associated to that culture.
I will also say that many people in crypto did not want to look down and see that they were standing on air. This does not excuse FTX or SBF. They had lawyers that told them to implement corporate controls and they ignored that advise.
by RustLove on 12/1/22, 4:49 AM
None of Theranos enablers seemed to suffer at all after Theranos went down. Why do any of their board members still have careers? Why is Stanford's Channing Robertson still advising companies?
I presume the dozens of people, news organizations, celebrity endorsers, politicians, and investment gurus who hyped FTX won't suffer a bit either. And I think that's wrong.
by neonate on 11/30/22, 10:58 PM
Videoless: http://web.archive.org/web/20221130220547/https://www.coinde...
by oldgradstudent on 11/30/22, 11:47 PM
Of course it was an accident.
They never intended the fraud to be found out, just like any fraudster and Ponzi scheme operator in history.
by neuroma on 12/1/22, 6:40 AM
I wrote to a journalist called Dan Diamond who had written an article covering how FTXs 'collapse' would set back health philanthropy. He would not directly answer my reasonable questions except to say "I'm a health journalist ".
Like, if I write about how it's a sad a murderer is going to jail because they worked in a charity shop on Thursdays, that seems like distraction to the point of complicity.
It really sniffs of agenda. Crypto folk are too familiar with paying for articles. But this was in Washington Post.
by fredgrott on 12/1/22, 2:39 AM
Keep, in mind if you are consumed a certain podcast over this summer, we learned that certain SV VC firms were circulating token issuance schemes that involved being outside of US jurisdiction to avoid oversight to game the systems.
It's probably one of the clear headed things that JC has done in that at times he does shine a light of truth on something rather than the usual PR bluster he is known for.
It's way bigger than the exchanges, there will be some VC firm fallout over this as the SEC will get involved.
by arkis22 on 11/30/22, 11:57 PM
This isn't just comingling accounts and bad accounting. They borrowed between firms. They absolutely knew where liquidity was, and where liquidity wasn't - liquidity follows profits. Their solvency was based on their own manufactured tokens.
They took money from clients because they thought they could pay it back because they think they are smart and they are not smart. Their accounting was good enough to keep track of large loans to insiders though.
by tromp on 12/1/22, 9:34 AM
> August institutions including the New York Times and Wall Street Journal
TIL that august can be used as an adjective:
```
    au·gust adjective \ȯ-ˈgəst, ˈȯ-(ˌ)gəst\
    : marked by majestic dignity or grandeur
    her august lineage
    an august mansion
```
http://www.merriam-webster.com/dictionary/august
by drawingthesun on 12/1/22, 8:50 AM
When is SBF going to be arrested? I cannot believe he did this and lost US customers money yet he can walk free.
by andirk on 12/1/22, 1:06 AM
> recent data implying immense trading losses even when times were good.
I was torn whether the collapse was due to intentional or negligent handling of moneys and this makes it clear that it was intentional AND he was pretty bad at trading. He got in to the whole space by arbitrage trading from an office down the street from my house. He enjoyed risk, had some good ideas, then got plain greedy. Combo greedy with bad trading and you get imminent collapse.
The live coverage (as of 30 Nov 2022 @ 5p Pacific) https://www.nytimes.com/live/2022/11/30/business/sam-bankman...
by Waterluvian on 12/1/22, 1:23 AM
A lot of people using the OTPP to push narratives need to read up on it a little. It’s a massively successful pension fund that’s out there crushing it for public school teachers (32 year average return of 10%). The amount they lost here is not even a blip. It’s just part of the process of investing $240B of assets. You can captain hindsight it all you want but they are completely correct to make some higher risk investments along with the lower risk ones too.
I’m not suggesting that the OTPP is the best pension fund around. Just that there’s no story here. They invested a penny in a high risk venture and lost it badly.
by lettergram on 12/1/22, 1:15 AM
The dude took our $1B in a personal loan with customer wealth. He then used it to donate to random politicians, invest in effectively crazy one off ideas, etc.
by m0llusk on 12/1/22, 1:44 PM
A crime? Like there was only one? Seems more like a great pile of crimes all blended together to form a kind of crime emulsion.
by jongjong on 12/1/22, 3:55 AM
The fact that many members of the elites keep trying to protect obvious fraudsters makes me doubt the legitimacy of the elites themselves.
Looking back at the last 3 years of media insanity, I wonder what kinds of people are running the show.
by mmcnl on 12/1/22, 10:53 PM
It's amazing how many people fail to recognize a ponzi scheme exchange right in front of their eyes, and then be surprised when it collapses.
by konfusinomicon on 12/1/22, 2:06 AM
i wasn't invested through ftx but I did use blockfolio for years, which was acquired by ftx and now is now seemly not working which is too bad because whenever I felt like becoming depressed I would just open it and look at the sea of red and remember the days when it was lush green fields of cash I was looking at
by Yuyudo_Comiketo on 12/1/22, 1:32 PM
This story reeked of fried bankers from the very start. Alas, olfaction failed too many wannabe investors.
by additall on 12/1/22, 11:41 AM
But many journalists have crypto assets themselves? :)
Let's face it: this whole massive money pie appeared because (mostly educated) people started gambling thinking there's an easy way up. And they do so at scale because becoming wealthy nowadays is super hard comparing to, say, 50-70 years ago.
by ejlangev on 12/1/22, 12:28 AM
This article, while probably true an accurate, seems designed to make SBF the fall guy by portraying him as a uniquely bad actor in the crypto space. In reality, the crypto space is full of fraud that is probably criminal and he is just the latest example. That doesn't excuse his behavior and he should probably go to prison for this but it would be a shame if people get taken in by thinking of him as just a bad apple.
by patmcc on 12/1/22, 8:20 AM
...were we not all assuming this was the case?
by quyleanh on 11/30/22, 11:30 PM
A bit off topic, but I hope this thread will not be flagged as mine days ago.
Negative discuss about FTX is seems sensitive... I still don't know why many people still defense for FTX and SBF. Thousands of people lost all their money.
by babypuncher on 11/30/22, 11:16 PM
Whatever you want to say it was, I thought it was pretty fun to watch.
by bandyaboot on 12/1/22, 12:04 AM
I have to admit, I’m really having a hard time caring about whatever drama is happening in the pretend money world.
by mdotk on 11/30/22, 9:45 PM
Finally, some reporting by media that hasn't been bribed.
by alienalp on 12/1/22, 1:28 AM
The whole FTX situation is like a joke. Bunch of junkie kids probably manipulated by sophisticated criminals. Most likely we will never learn about where most of lost money ended up.
by DevKoala on 12/1/22, 5:05 AM
This comment section is hilarious. Some don’t want to acknowledge the obvious, and instead try to tip toe around the subject with funny excuses such as, “MSM are not crypto experts”, “his 40M in donations to democrats do not hold any value anymore”, “his family ties to Democrat and academic leadership only makes his inner circle judgement more impartial”, etc.
There are none so blind as those who will not see.
by hinata08 on 11/30/22, 11:15 PM
"a crime"
I'm surprised by 'DeFi' nerds who promoted cryptos to escape government interventions during bull markets, but who invoke state institutions like justice when they have lost everything.
Crypto wasn't dead to me until I saw that post.
I hope governments won't do any investigation into this, as it's what anyone who gave money to FTX invested for.