Alameda took 1B hit in mobileCoin trade to prop up FTX

https://www.ft.com/content/5e9dc424-aef4-4981-a4d7-e3c40e1e6085

by kalimanzaro • 4 years ago

170 156 4 years ago

dpflan4• 4 years ago

I find the collapse, the PR, puff-pieces, SBF chatting away during NYT DealBook summit, celebrities white-washing to be incredible to watch. I am wondering how large the impact is on investors: Why is Bill Ackman talking about how cool Helium is within the last month? It does seem like a (last?) gasp for reassurance and hence liquidity for the larger/st investors involved in cryptocurrency/web3 madness. How much money is being lost that desperation is required to pump the ponzi still...

negamax• 4 years ago

Good point. Also Cathy Wood suddenly buying more $COIN and $GBTC seems like similar forces at play. Many are caught off guard and seem to have lost big on paper

dpflan4• 4 years ago

Indeed, the compound growth required for BTC to reach Wood's $1M target by 2030 from where it is now, seems incredibly unlikely...

gitfan862• 4 years ago

They are all trying to frontrun the next boom cycle in hopes of having good returns for 2023. Their returns for 2022 are garbage. Can you imagine giving ARK 1% of your wealth as payment for them losing 60% of your wealth? Their hope is that the fed cuts rates in early 2023, and that causes a ton of money on the sidelines to come back into the market into speculative assets.

throwup• 4 years ago

The interesting thing is that FTX had almost no retail customers in the US[1], yet most of the coverage has been US-focused, due to the VC investors and US political donations. It really was just investors (in the company itself) that got hit the hardest. It just goes to show how easy it is to buy media coverage. If the media talked about things that affected their readers rather than their owners, the FTX news cycle wouldn't have lasted one day before everybody moved on.

[1] https://cdn.i-scmp.com/sites/default/files/d8/images/canvas/...

benjaminwootton• 4 years ago

As I post on many threads, I have barely heard a single story about retail losing money on FTX, whereas I personally knew a handful who lost money with LUNA. I assume institutions are holding the vast majority of the bags here.

itronitron• 4 years ago

Yeah, I wonder if the investors bought the media coverage in addition to paying for it (intentionally or not.)

makestuff• 4 years ago

So FTX was just a bunch of institutional traders trading against each other? Sounds a lot like a dark pool.

ac293• 4 years ago

The interesting thing is that FTX had almost no retail customers in the US[1]

This is only true if you believe the massive amounts of customers in the Cayman Islands, Virgin Islands, etc were not just US persons' shell companies.

dmix5• 4 years ago

All media is super US focused.

“World news” is code word for “non-US news” since US is the default, which makes sense.

skybrian• 4 years ago

This is kind of a weird argument. There's no reason US reporters or commenters shouldn't write about things that happen in other countries, if they find it interesting. The FTX scandal is fascinating for lots of reasons.

(I've also seen coverage about how it affected the Bahamas.)

fasthands9• 4 years ago

This is what has befuddled me.

I still wager the main con was more similar to classic VC frauds where you pump up your user numbers and trade volume in order to get more investment dollars (which you can then spend on anything). Advertising on sports arenas and stuff gave them a lot of plausibility as the "big player" to people (like me) who dont trade crypto at all.

candiddevmike• 4 years ago

My new conspiracy theory is all of the smaller coins were an easy way to extend the Ponzi scheme by inventing valuation out of thin air. Now that those have been unmasked and everyone's asking hard questions around liquidity or pulling their coins into their own wallets, the major players are over leveraged to the gills (because you can't make "real money" on customer money without risky bets). The only way out is to get BTC's price back to the good ol days and keep the Ponzi going.

onlyrealcuzzo• 4 years ago

My new conspiracy theory is all of the smaller coins were an easy way to extend the Ponzi scheme by inventing valuation out of thin air.

I don't think this is a conspiracy theory...

At the very least, we know that some of largest institutions were regularly pumping up assets for solvency reasons.

balderdash2• 4 years ago

That’s why in “legacy” (stocks/bonds/futures) risk/portfolio management side not only is there a market quote next to your position, but also #of trading days at x% of avg. daily volume to exit…and as a supervisor/risk manager you’re going to assign a lot of risk to that illiquid position (regardless of where the “price” is)

EMM_386• 4 years ago

My new conspiracy theory is all of the smaller coins were an easy way to extend the Ponzi scheme by inventing valuation out of thin air.

That's exactly what happened. I invent $GRBG coin, reserve 1 billion of them, and sell 1 to my friend for $1. Boom, $1 billion "market cap".

Then you wash trade between each other, raising the price enough so the suckers start to notice, and then cash out at the top.

bombcar• 4 years ago

I suspect the strange news/media outfall is because nobody quite knows yet WHO is at fault and since the money lost is from larger investors, they themselves are perhaps worried that they are at fault somehow, so there's really no "narrative" at play.

Something similar happened during the implosion of the mortgage crisis; it wasn't clear how the contagion had spread until later.

a11yclub• 4 years ago

I personally think all of crypto is a scam but bitcoin, anyone who plays with alt-coins is just trying to get rich quick... You could say the same for bitcoiners, but it I think it's different.

zampano• 4 years ago

What makes bitcoin different other than it being older than the rest of the pack?

jgalt212• 4 years ago

The Ponzi can keep going for a while. The Fed Balance Sheet is still within 95% of its all time high.

These huge asset price moves are more a function of investor preferences and people trying to get in front of the Fed rather than there being a lot less money around. The (real) Art Market, for example, still seems quite healthy.

https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

TacticalCoder• 4 years ago

I find the collapse, the PR, puff-pieces, SBF chatting away during NYT DealBook summit, celebrities white-washing to be incredible to watch.

What I find way more incredible is that we've got someone who committed many crimes: wire fraud, running ponzis, pumping and dumping shitcoins which were considered for some as securities, funneling money out of the US to the Bahamas using tens if not hundreds of companies, naming his company "Alameda Research" to dodge banking restrictions, lying up until the very last moment when things blew up that everything fine, lying about US customers deposits being FDIC insured, bribing people (several people came out and said SBF downright offered them $1m to paint FTX in a positive light), using the stolen money to buy properties in the Bahamas to the tune of $300m, etc.

And yet... This is resumed by many with: *"Cryptos are all ponzis".

What's the reasoning? Everybody in crypto is a fraudster so investors and depositors all deserve to be wiped out by a scammer? And he should walk free?

While the guy who wrote "tornado cash" is in jail?

While Aaron Swartz got sentenced for putting online research papers (paid with taxpayers money btw)?

Is that what you're saying? That's it's all a gigantic fraud so it's on par for the course and SBF is not worse than the guy who bought two DOGE and three SHIBA INU coin?

loeg• 4 years ago

You seem to repeatedly raise the idea that we can't or shouldn't use the FTX fraud and collapse to criticize the rest of the crypto space, or that doing so somehow excuses SBF. You are wrong on both counts.

adoxyz• 4 years ago

The whole premise of crypto is that it's unregulated, so yes it should 100% be assumed that you're probably going to get swindled.

There was a story about how Sequoia (or a different VC) gave FTX millions while SBF was playing games during the call with them. I mean, if nothing else, if you can't expect the tiniest ounce of professionalism from a company you're investing in, I find it hard to feel bad for you when you're scammed out of that investment.

dpflan4• 4 years ago

OK, maybe not all ponzis, some maybe less ponzi than others, or maybe even not at all. Are you saying that 1 individual was problematic, blatantly told Matt Levine he is involved in ponzi schemes, ran one of the largest such, began absorbing smaller ponzis, and that because of this 1 individual saying the industry is all ponzis is a stretch? I agree with that, sure, absolutism is hard to prove. But, the evidence of what has happened and what exists at the largest scale in the industry is a huge fraud -- it is a decent assumptive base.

nashashmi• 4 years ago

This is a storyboard for a John Oliver episode

object-a2• 4 years ago

Total hunch here, but:

Based on everything reported, it seems very likely he will go to prison, or at least stand trial, for everything that has happened. It's not clear why it's taking so long, there might be jurisdictional/logistical issues with the fact that he's in the Bahamas.

The Dealbook interviews and news stories don't seem to be helping him... if anything they generate more outrage and provide more contradictions in his story. He's trying to pitch himself as incompetent rather than criminal, but by constantly talking about the case I think he's undercutting himself.

If I was an investigator, I wouldn't interrupt someone when they're incriminating themselves.

acdha• 4 years ago

I don't see anyone arguing that he should get leniency. It's more in the opposite direction: given how common scams are in this space _and_ how basically every time the response is some combination of “yeah, everyone knew that [but didn't say anything]” or “yes, but this new venture is totally different” it seems reasonable to question whether anything in the field is what it's actually being portrayed as. At the very least it seems like a good argument that there needs to be some big improvements in self-regulation and things like real, public audit reports.

JumpCrisscross4• 4 years ago

Everybody in crypto is a fraudster so investors and depositors all deserve to be wiped out by a scammer?

Nobody deserves to be wiped out. But anyone wiped out in crypto is on their own. They chose to sidestep centuries of knowledge on financial regulation. If they want their money, they need to pay for lawyers.

and he should walk free?

The wheels of justice grind slowly but fine. The day after any fraud, HN is filled with conclusions that the fraudster will walk free. (Holmes until the day of her sentencing.)

SBF is almost certain to be charged. It just won’t happen this week.

a4isms• 4 years ago

These statements can all be simultaneously true:

1. It is foolish to walk down a dark alley flashing wads of cash;

2. Anyone who robs another person who is walking down a dark alley flashing wads of cash deserves to be punished harshly;

3. If there's a pawn shop at the end of the alley that is knowingly selling guns to robbers, fencing the goods they rob from citizens, and enticing citizens to walk down the alley, they also deserve to be punished harshly;

4. If citizens are regularly being robbed, we should look for structural ways to create safety, such as lighting alleyways, reinstating bicycle patrols for police, &c.

The fact that it's foolish to invest in these ponzi schemes and outright robberies in no way dilutes the blame that these fraudsters deserve, along with the industry that has sprung up around them to profit from that fraud. And none of that invalidates the notion that regulations and enforcement seem like an awfully good idea.

sottol• 4 years ago

It looks like some of these larger cases take a while to prosecute. Not saying there's no favoritism here, but FYI the Enron scandal unfolded in late 2001 and the current and former CEO Lay and Skilling's trial started more than four (4!) years later in early 2006.

jcpham2• 4 years ago

FTX advertised direct to consumers through Fortune cookies via openfortune.

I know because I saved one on my desk and I'm looking at it.

The crypto fortune cookies were the biggest red flag I've ever seen in my life.

nradov• 4 years ago

Everyone in crypto is a fraudster so investors and depositors all deserve to be wiped out. But the scammers also deserve to go to prison for wire fraud and related crimes. Both things can be true. There is no contradiction in the reasoning.

Alexey Pertsev is in jail for allegedly operating an illegal money transfer business in violation of AML/KYC laws. If he had merely developed the Tornado Cash code without actually using it then he wouldn't be in jail.

I agree that the Aaron Swartz case was a travesty of justice.

40acres• 4 years ago

I don’t understand the criticism of the Dealbook interview. I want to hear SBF side and found that he’s definitely hanging himself with his public statements. If the media were to “deplatform” him that would be an incredible disservice. I thought ARS asked fair questions.

dpflan4• 4 years ago

Sure, he can mint himself enough rope, but the opportunity can give weight to a narrative that is desired, whatever it may be.

benatkin3• 4 years ago

Ah yes, mobilecoin. I haven't heard much about it since the Signal announcement. I hoped Signal reversed their decision but apparently not: https://support.signal.org/hc/en-us/articles/360057625692-In...

dmix5• 4 years ago

The FTX trade happened in April 2021 and it looks like it was because the value of mobilecoin spiked and someone in FTX bet on it at a high price before it dropped.

https://imgur.com/a/dgeaIzK

I don’t think this was some FTX investment directly to mobilecoin itself (they were buying coins, not loans/investment that would expose them to FTXs recent drop). Despite the headline making it seem that way. In the year plus since the Apr 2021 price spike mobilecoin price is pretty stable.

So I’m not sure why Signal should drop them other than because of the general volatility in crypto.

skorpeon873• 4 years ago

So I’m not sure why Signal should drop them other than because of the general volatility in crypto.

The affiliation to a cryptoscheme casts the entirety of Signal in a disreputable light. Not least because it gets Signal tangled up in stories like this one.

Melting_Harps3• 4 years ago

Ah yes, mobilecoin. I haven't heard much about it since the Signal announcement. I hoped Signal reversed their decision but apparently not: https://support.signal.org/hc/en-us/articles/360057625692-In...

Yeah, I remember that; I highly respect Moxie too but his web3 analysis seemed to exclude using an alt with no proven history in Signal for payments [0]. His involvement was being an advisor and perhaps even its former CTO, whih would explain a lot.

I wonder if Meredith will intervene considering they are openly talking about how Signal needs to be able to carry it's costs moving forward [1] and I'm guessing the mobilecoin deal came with some stake under Moxie in it's foundation?

0: https://www.coindesk.com/tech/2021/04/09/signal-founder-may-...

1: https://fortune.com/2022/11/29/signal-president-meredith-whi...

benatkin3• 4 years ago

his web3 analysis seemed to exclude using an alt with no proven history in Signal for payments

I never suggested that nor do I think that. I just don't like the feature.

nullc3• 4 years ago

Come on. Mobilecoin was just a straight up method of transferring value from the non-profit into the pockets of private parties. It couldn't be more clear short of them saying it outright.

A purely premined purely centralized "cryptocurrency" with no selling point except that all signal users would be forced onto it which, once it was launched, made someone a billion dollars and then it was abandoned and forgotten. (The almost unusable demo grade integration in signal continues to exist, if you look really hard for it.)

michaelteter• 4 years ago

Accepting highly volatile assets as collateral seems obviously very risky for a lender/exchange.

I wonder if SBF has a good knowledge of banking history. No doubt, there are examples in the past of banks making similar mistakes.

bboygravity• 4 years ago

It wasn't a mistake, it was deliberate fraud.

gitfan862• 4 years ago

Legally I think they are better going after the embezzlement angle instead of fraud.

It is a fact that FTX funds were used to buy a house that his parents had in their name and that they used. SBF can say that the house purchase was an "accident" but most jurors understand that you don't just "accidently" have a house in your name that you live in.

lordfrito6• 4 years ago

At the very best it's gross negligence on a scale never before seen.

When does gross negligence become fraud? Does it require intent? Do they need to show intent? Basically show he knew what he was doing even though he plays dumb?

Mistletoe2• 4 years ago

It depends when you asked. Prior to FTX’s fall he was a genius that knew everything. Now he has adopted some sort of Lennie from Of Mice and Men act that would have made John Malkovich blush. He doesn’t know anything- the balance sheet, how to code, the trades, where any of the money is…

doomrobo• 4 years ago

Agreed. But I think you mean Lenny from Of Mice and Men

jandrese2• 4 years ago

He's a classic confidence man and probably a narcissist. He probably thought he was the smartest man in the room because he surrounded himself with yes men. I don't doubt that he knew what he was doing was unethical and probably illegal, but since everyone else in the world was dumber than him they would never know. Then reality came crashing in all at once and you're seeing these interviews where he claims it was all a big misunderstanding and you should feel bad for him because the big mean market was so unfair to him. Absolute horseshit. Dude flagrantly played with fire and got burned.

JumpCrisscross4• 4 years ago

Prior to FTX’s fall he was a genius that knew everything

To folks who bought into crypto. The rest of us has been calling the whole space a scam from the start. I don’t think I’ve had a better track record in calling shorts in my life.

AlexandrB• 4 years ago

I wonder if SBF has a good knowledge of banking history.

Famously, SBF said he "would never read a book"[1]. So I suspect his knowledge of banking history is spotty, at best.

[1] https://lithub.com/crypto-nerd-sam-bankman-fried-who-just-lo...

More from that interview:

“I’m very skeptical of books. I don’t want to say no book is ever worth reading, but I actually do believe something pretty close to that,” explains SBF. “I think, if you wrote a book, you fucked up, and it should have been a six-paragraph blog post.”

TheRealPomax• 4 years ago

When they're both your own company, one didn't "take a hit" to prop up the other, you simply committed more fraud in order to try to hide the problem.

sschueller• 4 years ago

I just don't understand how you can expose yourself to such risk if you are supposed to be this super smart MIT graduate.

I don't understand much about finance but if I had the CEO responsibility I would make damn sure I am not exposed like that.

I just don't believe that it was an unfortunate event and SBF is innocent. How can you be so oblivious and I also think the top investors should be held accountable, they had to know the risk.

Like with a terrorism charge you have the one committing the act and you also have the ones that aided and abeded. The enablers.

NotYourLawyer2• 4 years ago

It’s fine if you have automated margin calls every 30 seconds and you can blow out somebody’s position quickly enough not to lose money. Which is what FTX allegedly had set up… for every trader except Alameda.

HDThoreaun4• 4 years ago

No it's not really. It would not have been possible to sell the shit coin collateral for the amount loaned against it at any point. By the time FTX had liquidated half the collateral the coins liquidity would be gone and the rest of the coins would be worthless. There was no point in time where these loans were solvent, they were just pumped so they looked solvent on paper.

skippyboxedhero3• 4 years ago

The issue here was the risk-management system didn't work for this trader.

What it sounds like, although it isn't totally clear, is that this guy worked out how to exploit their margin call system by running up an illiquid coin using FTX money, cashing out, and leaving FTX holding the bag.

balderdash2• 4 years ago

Really the question in my mind is whether it’s: negligence, gross negligence, or fraud…

jaywalk• 4 years ago

Probably a mix of all three.

dragonwriter3• 4 years ago

I just don't understand how you can expose yourself to such risk if you are supposed to be this super smart MIT graduate.

SBF publicly stated (well before the collapse) that he operated his life under a complete disregard of risk in pursuit of optimized expected value with no risk premium.

While this is probably a rationalization, and he might well have actually been something of a risk junkie, even taken at face value its not surprising how he ended up exposed to massive risk that most people would have seen aa unwarranted even given the large potential rewards if it all worked out.

Terretta2• 4 years ago

YOLO

// Not being cute. If you believe you are young enough and clever enough to have time and energy to hit reset and try again on a Game Over, then it's an actually valid point of view -- if you cannot go less than zero. Given extreme rewards even with unlimited downside, if the downside is actually limited by bankrupt at zero, that caps the downside so taking the risk makes a lot of sense if you believe you can start again "near the top" (having developed non monetary resources and techniques to build wealth fast).

wmf2• 4 years ago

It's not even completely crazy. You start a startup at age 25, shoot for the moon, it fails after 5 years, and then you start another startup. The part he did wrong is the criming which will prevent him from trying again.

s17n• 4 years ago

So if I'm understanding this correctly, a trader managed to: 1. Buy a bunch of mobilecoin, a thinly traded coin, below $10. 2. Single handedly pump the coin price to $60, due to the market's illiquidity 3. Instead of trying to sell at $60 (which wouldn't work because there wasn't actually a market for the coin), the trader simply borrowed dollars from FTX at the $60 value 4. The coin price eventually returned to $10 but the trader had effectively cashed out at a higher price by borrowing from ftx against the (now worthless) collateral 5. Presumably, the trader then simply defaulted on his loans to FTX and kept the money.

Is this right? Crazy if true.

TuringNYC• 4 years ago

Sounds right, but there is also point 5

5. Trader who borrowed ("cashed out") is now being margin called by lawyers who are managing the FTX bankruptcy.

6. Investigation of whether this was an insider deal to funnel away money from FTX, because no legitimate margin desk, CVA or MVA process would allow such a thing.

notch656a2• 4 years ago

Just a guess for possible other steps:

-1. They acquired fake/stolen KYC credential

0 . Their collateral was anonymized

7. The investigation fails to uncover who it was.

super2564• 4 years ago

I mean, it wasn't even FTX who bought the bankrupt position, but Alameda. (since Alameda was the backstop provider)

Bankrupt positions were usually sold for 1% under market price to backstops, so if mobile coin traded at 60 dollars and trader goes bankrupt, Alameda bought the position for 59.4 dollars per mobile coin (what a sweet deal!). The trade is done for trader. I am not convinced that if you go bankrupt, because you bought some GME at $120, you can go after the counter party who sold you GME at that price. (You can try, but it's some bad faith stuff).

This trade underlines again why the commodities exchange act is so vital to the whole country, and shows just how crappy FTX liquidation model is. [1]

Also, I really like trade because it's smart and funny.

[1] CME Group CEO Terrence Duffy said it too! Here: https://youtu.be/V4SWraem1e0?t=2963

TylerE• 4 years ago

He could even pay them back and keep 5:6ths of the loot free and clear.

shorthistory2• 4 years ago

How would that work? He would still be liable for the full amount and the cost of servicing the margin loan. Or are you suggesting the bankruptcy proceedings will settle for a lower figure?

throw389274• 4 years ago

Here's a personal anecdote which may have served as a warning to their collapse. I bought ~1000 mobile coins when they were a couple dollars, sold most of them at $60 and bought BTC, however it was at precisely that time FTX refused to let me withdraw them.

They claimed it was because my country was introducing new legislation to regulate cryptocurrencies and it was to prepare for the new rules. They however jumped the gun and just blocked my country the moment it was announced, which was a couple months before the new rules were actually set to go into effect.

I tried logging in from other countries with a VPN, but my account was already flagged, and their customer support said I had to show a valid passport or government issued ID from another country to prove I was not in the country where I was, which was obviously not possible. I was never able to withdraw my BTC.

I suspect this was the start and they were already short funds (which may already be a known fact now, I just haven't been following too closely), and they were just looking for excuses to take whatever they could from their users.

hayd• 4 years ago

Thieves.

mrep• 4 years ago

Can't read the article but how did they cash out? Use the mobilecoin as collateral to buy btc and transfer the btc out?

Example: take $6 in mobile coin and pump to 60, then borrow $30 using the $60 as collateral and buy $30 worth of bitcoin and finally transfer that bitcoin out. You then have a 5x return ignoring cost to pump?

LatteLazy• 4 years ago

At this point I think we should stop pretending they were separate entities...

JaggerFoo• 4 years ago

The article is short on details of the trade, mostly filler on already reported FTX downfall and other downfalls.

Sandworm5639• 4 years ago

Very weird, the information is not sourced at all and this is FT, not a random website.

Two people familiar with the matter said...

who are they? Current/former employees/someone who knows that trader? Is this from some of the bankruptcy proceedings filed docs?

turmeric_root• 4 years ago

generally this is used to protect the identity of sources

bogomipz• 4 years ago

The article states:

"FTX lent to traders so they could make big bets on crypto with just a small initial outlay, known as trading on margin. If the traders made losses, FTX would automatically sell the cash or margin they had put up, thereby protecting the exchange."

Can someone say what is meant by "sell the cash" here? I'm guessing this is not literal. Cash is an asset, what wouldn't they just deposit the cash in their account?

temp_account_32• 4 years ago

https://archive.ph/ATPHq

Alameda took 1B hit in mobileCoin trade to prop up FTX

Related Stories