FTX founder Sam Bankman-Fried says he can’t account for billions sent to Alameda

https://www.wsj.com/articles/ftx-founder-sam-bankman-fried-says-he-cant-account-for-billions-sent-to-alameda-11670107659

by mfiguiere • 4 years ago

99 99 4 years ago

wsj.com

wcunning• 4 years ago

https://archive.ph/DVizJ

dmix6• 4 years ago

who were told their money was theirs was in fact lent to Alameda.

Even if we assume for a second that this wasn’t some sort of overt theft scheme and not only just an accounting failure with double counted deposits, what was the least bad scenario here?

That SBF et al were so obsessed with their altruistic charity stuff that they thought they could gamble their billions and turn it into 100 billion and become neo-Bill Gates?

Some kids who had no rules making crazy high risk bets on other crypto stuff, blindly believing in their ability and leveraging their parent company’s name to over extend themselves… Then FTX came to the rescue with customer deposits and hoping growth would cover the downside, while not telling anyone or changing controls as far back as April 2021?

nullc3• 4 years ago

Most charitable, and I think likely true, is that most of the funds never existed in the first place. FTX took in 2-3 billion from investors and retail, told customers had big winnings on large leverage bets. 1 billion was squandered, 2 billion was withdrawn by customers. And poof they couldn't process withdraws anymore even though their accounts say they're still 8 billion in the hole.

In that theory the real story is that they were just running a casino offering extremely leveraged side-bets on the prices of all manner of nonsense (they've even been sued for manipulating the underlying prices to benefit themselves by triggering liquidations). But to make this all appear legitimate they claimed these bets were fully collateralized, but the secret being that they'd accept illiquid magic beans as the collateral (and not just their own, but other random trash too).

Now they're stuck because it's hard to explain what happened without explaining that the collateral was just a pretext and the real business they were in was a bucketshop. So they're stuck feigning surprise that the obviously worthless stuff they took as collateral turned out to be worthless.

richbell3• 4 years ago

But to make this all appear legitimate they claimed these bets were fully collateralized, but the secret being that they'd accept illiquid magic beans as the collateral (and not just their own, but other random trash too).

This is a key lie that SBF has been allowed to peddle in these interviews. He claims that, had he not panicked and announced bankruptcy, FTX would have been fine; however, the lawyers and suits that took over have decided to burn it to the ground instead.

He handily omits that the liquidity he's claiming would have saved the day is the now worthless magic beans. It reminds me of how people dishonesty reference "market cap" for NFTs and cryptocurrencies with incredibly high valuations extrapolated from a handful of sales.

dmix6• 4 years ago

That makes a lot of sense, thanks.

SBF twice talked about how they had “real legitimate income” covering their actions but it sounds like their books were such a mess that even though they were taking very obvious serious losses on trades by Alameda he still (best case) somehow thought their assets covered it or (worst case) dual booked deposits purposefully to inflate their balance sheets and propped up their now illiquid asset to keep the casino running until loses get covered by future growth.

vba6163• 4 years ago

The "least bad scenario" I read is that if we assume the money was lost through "well-intentioned but incompetent bumbling" then nevertheless the company "lied, constantly, about how carefully it was keeping track of risk and customer money".

They were supposed to have automated systems to instantly liquidate margin positions like Alameda's so FTX wouldn't lose money. Without favoritism or human judgement.

Now SBF is going around apparently saying "aw shucks, I made an error in judgement and also in arithmetic". Ok, noted, but that shouldn't have mattered?

dmix6• 4 years ago

"aw shucks, I made an error in judgement and also in arithmetic"

Fascinating isn't it. A CEO playing the dumb young dude who didn't know better.

paulpauper• 4 years ago

wow...the ftx.com domain redirects to some weird legal page

https://restructuring.ra.kroll.com/FTX/

toomuchtodo• 4 years ago

This is standard fair for firms put into receivership.

richbell3• 4 years ago

“They were wired to Alameda, and…I can only speculate about what happened after that,” Mr. Bankman-Fried told the Journal.

In a sane world, this would be an obvious confession to criminal negligence and violating his fiduciary duty. SBF paints this as one big stupid mistake, yet reporting from other sources paints a compelling argument that the chaotic structure and lack of oversight was a deliberate construction. It's highly suspect for a company, let alone a finance company, to not have a CFO.

Are we really supposed to believe that he was so busy he wasn't apprised of what was going on with both of his companies, even though he had plenty of time to funnel hundreds of millions into political donations and luxury properties?

breput• 4 years ago

His uh...(ex) intimate partner[0][1]...was running Alameda. This guy is dumber than a bag of hammers, but he might be smart or vengeful enough to try to shift some blame upon Caroline Ellison.

[0] https://beincrypto.com/bizarre-fairy-tale-story-sam-bankman-...

[1] https://nymag.com/intelligencer/2022/12/sam-bankman-fried-ma...

SanjayMehta• 4 years ago

There's an absolutely fascinating short clip off reddit featuring this lady:

https://www.reddit.com/r/Wallstreetsilver/comments/ysakai/ca...

The way she says "stop losses" makes me think she really has no idea what she was doing.

andirk5• 4 years ago

I've been thinking the blame handoff to her is his only way out. And as far as we currently know, she may have been heavily involved or even in charge of these shenanigans.

Since their beginnings were down the street from my house, I also keep wondering if I've met them. But then I remember that they're squares who can barely down a beer in favour of pharma pills.

raverbashing• 4 years ago

Yeah. This is not an answer that I would accept for stuff that involves way less money or responsibility

"I can only guess", sounds like a 17yo that never had to buy his own toilet paper. Ah no but he can play videogames while in a meeting, he's an investment genius somehow /s

vba6163• 4 years ago

"I can only guess", sounds like a 17yo that never had to buy his own toilet paper

Some people, and I was one of them, who weren't paying much attention, read that he had worked for Jane Street, and said to themselves, "ah, he must be a relatively mature adult, unlike the other crypto bros".

But in hindsight, it seems that his role there did not prepare him for running a multibillion dollar business and why should it have?

Working for a big company means you in fact don't have to buy toilet paper (for the office). And if you aren't particularly mature or self-aware, you might take it for granted.

From "Money Stuff":

"If, later, you leave to start your own firm...you certainly won’t take its risk-management systems. And then when your colleagues say to you “hey, let’s set up some risk systems and hire an accountant, like we had at Jane Street,” you can reply “nah, I’d prefer to ignore that stuff, like I did at Jane Street.” You’re both right! Someone else at Jane Street set up those systems so you didn’t have to worry about them. But now you’re in charge, and if you don’t worry about them no one will, and then you end up not knowing how much money you have, or how much you’re making or losing, or how much you owe your customers."

dvt3• 4 years ago

Giving narcissistic sociopaths like SBF an audience is absolutely disgusting—from "citizen journalists" like Tiffany Fong that are engagement farming this tragedy for clout, to Mario Nawfal's cringe-inducing Twitter spaces, to Kim Dotcom's insufferable attempt to regain any kind of relevance, to Bitboy Crypto trying to convince his followers that he saw through SBF the whole time (even though he shilled FTT just last year)—in typical crypto fashion, everyone is trying to take advantage of this situation for their own gain. Oh yeah, there's also Kevin O'Leary who said SBF ain't that bad of a guy. But then again, a16z just gave Adam Newmann $350M, so maybe it's just par for the course. And who can forget about the NYT, writing several puff pieces about SBF, with gems like:

Critics of Mr. Bankman-Fried in the crypto community have questioned the idea that someone with his intelligence could have blundered into losing billions of dollars, suggesting that he took the money knowingly.

Gross. Anyone with their wits about them knows SBF literally gambled with other people's money. Full stop. Maybe he's not indictable by the US government and will never see a day in jail, but that doesn't mean everyone needs to give him a platform.

nullc3• 4 years ago

Giving narcissistic sociopaths like SBF an audience is absolutely disgusting

Their goal should be informing the public-- putting SBF up does that, he's not duping anyone else now.

The fact that he may be getting off on the attention isn't any of our concern.

But yeah the puff pieces are obnoxious. This is a case where no one (in the US, probably anywhere) is getting fired for coming out guns blazing. There isn't any good reason I can see to hold back here, there won't be any more "donations" of customer funds to media orgs.

Too much modern journalism isn't just unwilling to speak truth to power, it's unwilling to speak the truth about scammers that put on a power nose and glasses.

richbell3• 4 years ago

Their goal should be informing the public-- putting SBF up does that, he's not duping anyone else now.

Arguably, allowing SBF to make unsubstantiated claims and not challenging them is the opposite of informing the public.

Like you've said, many institutions are unwilling to challenge even the most vile scammers, and it's because interviewing the scammer generates clicks and the scammer won't agree to come on if they know they'll be challenged. It isn't just journalism either: lot's of auditing firms more-or-less rubber stamp their larger customers because giving them a hard time means they won't be hired again; heck, the ratings agencies were key factors that lead to the 2008 collapse, for similar reasons.

pempem• 4 years ago

What can modern journalism do when it was all bought by the 'power' its supposed to be speaking truth to?

The consolidation of media has been a massive issue throughout the world but predominantly in the US and started a long way back. There are two movies that are imho great watches reflecting the topic:

Network: https://en.wikipedia.org/wiki/Network_(1976_film) Christine: https://www.esquire.com/entertainment/movies/a51606/christin...

dmix6• 4 years ago

What does “giving a platform” even mean? Asking him to explain himself while the slow moving process of banks, regulators, courts, and criminal investigators take apart his company?

Do you think this will somehow stop any of that from happening? That he can talk his way out of losing $5 billion?

stephc_int13• 4 years ago

There is this growing belief, especially among genZ kids, that what happens online, what is seen by an audience, is the prevalent reality.

And this is not entirely false, in practice.

dvt3• 4 years ago

Asking him to explain himself

There's nothing to explain, and more importantly, no one is challenging him on bullshit answers. He gets asked questions like "So what happened to the 8+ billion dollars FTX is missing?" to which he's answered (several times now) with a variation of "Well you see, running an exchange is complicated, and we mislabeled accounts. Really, though, the money is actually almost all there, and people can be made whole" with zero pushback.

musk_micropenis• 4 years ago

farming this tragedy

There's no tragedy here. Let's be absolutely clear - every single person who lost money in this abomination was as greedy as SBF, trying to milk a cryptocurrency ecosystem they never believed in nor understood.

Nursie• 4 years ago

Was it marketed to regular people, the financially naive? Were misleading statements and advertising used?

Then people who were told it was a safe way to invest lost significant money, they were defrauded. Some lost life savings, kids college funds, retirement funds, you name it. There are likely thousands of small tragedies here.

Being ripped off due to naivety does not make one as culpable of fraud as SBF. This is pure victim blaming.

People invest in things they don’t understand every day, and we have regulations to prevent predatory fraudsters taking their money. The crypto space needs to be regulated the same way. Preferably regulated right into the dirt.

easterncalculus• 4 years ago

Not everyone involved chose to be - for example, the Ontario Teacher's Pension Plan invested $95M into FTX. Thousands of teachers' retirement plans are impacted through no fault (or very possibly, knowledge) of their own.

https://www.forbes.com/sites/mikemcshane/2022/11/15/a-crypto...

c0m3• 4 years ago

This is such a bizarre view. Allowing him to explain himself in his own words (a) lets him create lies that are difficult to worm his way out of further down the road and (b) lets journalists cross reference what he's saying with anonymous sources - who may be less willing to cooperate with the law lest the sources incriminate themselves - and challenge SBF with that information, a process which beautifully crystallised during SBF's latest interview with Coffeezilla in a Twitter space where he was challenged on several statements which appear to be lies, and led to extremely uncomfortable squirming from SBF.

This position of yours is so weird. Yes, if someone does quality journalism, like Fong and Coffeezilla have done, then they do earn clout from that. What's the problem there? The person who is at the centre of the story should be allowed to give their side of the story, "Bad person bad, no I won't talk to them" is not useful journalism.

Also, this should go without saying but the bizarre stalking that Bitboy did is obviously unacceptable harassment, and the vulture-like tactics of others is not helpful and not what I'm condoning here.

gregjor6• 4 years ago

Was't "blockchain technology" supposed to prevent this exact thing -- no record of money transfers? Instead it just enables obfuscation and fraud. I really hope the IRS/FBI have more success tracking down where that money went. No one can spend that much on Adderall.

smsm423• 4 years ago

No, blockchain technology was never intended to prevent this kind of fraud. How could it? If $N bln is missing, how any blockchain could tell you where it went if those dollars have never been represented on that blockchain? The blockchain can only record operations made within the chain, blaming it for fraud that happened outside the chain is like blaming differential equations that they don't prevent robbery. It's not something that is possible for this technology, and it was never intended to solve it. If all the transactions everywhere happened on the blockchain, then you could make claims that it should be traceable (even then it doesn't mean it actually is, though) - but it's clearly not the case.

gregjor6• 4 years ago

I think you missed the sarcasm in my comment even though I tried to make it obvious. Fraud is fraud, technology can’t stop it.

In the popular mind, away from the “crypto community,” regular people equate crypto with claims for the revolutionary blockchain. That enables scammers and predators. Technology cannot bear fault or blame because it has no will or action.

jongjong• 4 years ago

FTX was not a blockchain, but a centralized exchange. If it had been a decentralized exchange (DEX), all funds would have been traceable. This would never have happened.

Most people in the crypto space are familiar with custodial risks and know the difference between a decentralized and a centralized platform.

The FTX collapse didn't affect the true crypto community who kept the bulk of their assets on-chain; the consequences mostly fell on the shoulders of speculators and the entities who cater to them.

It will surely scare away a few of them from the crypto space, but we don't need them anyway. Crypto doesn't need more speculators. Crypto space actually benefits from these periodic cleansings. If MtGox collapse didn't end crypto, then this surely won't.

akiselev• 4 years ago

Now know as the “no true cryptobro” fallacy

andirk5• 4 years ago

Yup and this has almost nothing to do with blockchain technology and everything to do with common capitalistic greed. And money in the hands of someone who's really bad at gambling.

gregjor6• 4 years ago

Aside from crypto pretty much nothing has anything to do with blockchain. Crypto and blockchain remain linked as near-synonyms in the public mind. The only real-world remotely useful application of blockchain remains crypto. No one outside of the "blockchain community" or "blockchain adjacent community" (whatever that means) knows about any other use for blockchain "technology."

I agree that the FTX crash had everything to do with greed, and in SBF and company's case, incompetence. And I don't get how supposedly savvy investors both within and outside the "crypto space" got sucked in by such a charlatan.

dragonwriter4• 4 years ago

Mr. Bankman-Fried’s remarks suggest that FTX customer funds flowing into Alameda bank accounts could have been recorded in two places—both as FTX customer funds and as part of Alameda’s trading positions.

But we know that they weren’t recorded in the first place, since the balance sheets maintained by FTX when SBF was in charge, as reported in the bankruptcy filing, had $0 (both as assets and liabilities) for customer fiat deposits, and no recording of customer crypto deposits. (pp. 13-14 of the bankruptcy filing) [0]

[0] https://pacer-documents.s3.amazonaws.com/33/188450/042020648...

user_named• 4 years ago

Wouldn't that mean that he basically embezzled all customer deposits, by design?

dragonwriter4• 4 years ago

At a minimum, failed to account for them in a way which very much enabled embezzlement, but, yes, the massive set of accounting and other record keeping irregularities at the FTX family of companies would look like a deliberate setup to enable fraud and embezzlement even if you just looked at what wasn’t recorded, and not at SBFs explicit instruction to others to use self-destructing messages for company business to avoid a permanent record.

Everything was set up in a way which complicates being able to prove exactly who involved stole what (lack of records of assets and debts, particularly customer accounts, lack of records of bank accounts controlled by the various corporations, lack of records of who the employees of the various corporations were, and what their terms of employment were, unprotected group email account with keys for corporate crypto wallets–which coincidentally a large sum was transferred out of right around the time of the bankruptcy, etc.), but in a way which makes it very hard to imagine that it was anything but deliberately structured for exactly that purpose.

rhaway84773• 4 years ago

What I don’t understand is that SBF’s own explanation is fraud. His argument against it being fraud is that he was too dumb to know that he was committing fraud. I don’t think that’s believable at all, and even if that’s the case, I don’t think it makes his fraud any less criminal.

newguynewphone• 4 years ago

the son of 2 tax experts that have helped draft tax legislation, is insinuating that he doesn't know the basics of what makes his actions fraud, and how he wants to distance himself from Alameda, even though he is a 90% owner, just sounds fishy

pdntspa• 4 years ago

To say nothing of the fact that he was fucking its CEO. Imagine the pillow talk...

kryogen1c2• 4 years ago

the son of 2 tax experts

I'm no SBF apologist, but this is about the silliest argument you could make. What does what his parents did have anything to do with anything? I don't know anything about my parents' field of expertise.

Dma54rhs• 4 years ago

I had the same thought but actually his parents took part of it, they are not just his innocent parents.

plandis2• 4 years ago

Does legal fraud require intent?

Ballas• 4 years ago

According to LegalEagle, yes: https://youtu.be/WqDvsbElFXg?t=879

So it does seem that this will be his defense and is probably why he is doing so many interviews...

fisherjeff• 4 years ago

On a related note, I am very curious to find out what kinds of representations he made to his investors around accounting and risk management. Would not be at all surprised if he goes down on very similar charges as did Elizabeth Holmes.

iampivot2• 4 years ago

Is this guy going to jail for a long time?

HPMOR• 4 years ago

Yeah, probably

diogenescynic4• 4 years ago

I bet it’s less than 7 years total and probably serves less than 5. Our justice system is weak on white collar crime and SBF is politically connected.

tptacek2• 4 years ago

That's a dumb bet. The crimes he'd be on the hook for all have sentences that mostly hinge on 2B1.1(b), which scales sentences by the dollar amount of the crime. He'll easily be into double digit years just based on the dollar amounts involved here, if he's convicted.

He'll also be charged federally. There is no federal parole.

bovinejoni2• 4 years ago

It wasn’t weak on madoff or holmes, both politically connected

iampivot2• 4 years ago

Is his crimes worse than Elizabeth Holmes? She got 11 years.

dragonwriter4• 4 years ago

I bet it’s less than 7 years total and probably serves less than 5.

Unless his sentence is commuted, its not possible for a 7 year federal sentence to result in release in 5; there is no federal parole, and good conduct time is limited to 54 days per year.

ARandomerDude• 4 years ago

The second largest donor to Biden’s campaign[1] going to jail? I doubt it.

1. https://www.nasdaq.com/articles/cryptocurrency-ceo-donated-s...

camgunz2• 4 years ago

There are three reasons I think your post here is naive (maybe too combative here, sorry):

- politically, the smart thing to do is bury SBF. There's no upside to sparing him.

- throwing the book at him sends a message to all other would be scammers, again at no cost

- powerful people can be powerfully vindictive when you expose them to risk and embarrassment

I agree Democrats shouldn't have taken SBF money, or any crypto money. It's always been an obvious scam and it's incredibly bad for the planet. But I admit the facts are esoteric, and we really wanted to beat Trump, because he's also really bad for the planet (remember that one time he spent years weakening NATO and building up Putin, and then Putin invaded Ukraine and set the world economy on its head and threatened to starve/freeze hundreds of millions of people?) No good option here, is what I'm saying.

c0m3• 4 years ago

https://en.wikipedia.org/wiki/Viktor_Ko%C5%BEen%C3%BD

If he stays in the Bahamas, probably not if this high profile case is anything to go by.

mlindner• 4 years ago

It's nice that he keeps talking to the press giving more and more self-incriminating and contradictory information to prosecutors.

I assume of course that all these press people will recant their praise for him once that happens. /s

Cameri• 4 years ago

Why isn't he and his girlfriend behind bars already?

water8• 4 years ago

He’s the second largest contributor to the democratic party this year

timmytokyo• 4 years ago

He was smarter than that. He claims he gave just as much money to Republicans. He just used dark money for Republicans because he thought it would look better.

[0] https://www.msn.com/en-us/money/companies/sam-bankman-fried-...

pharrington• 4 years ago

The Feds don't arrest you until they have a case fully prepared that they're 99.99% sure will get a conviction.

balderdash• 4 years ago

If you’re prosecuting this guy, all these interviews he’s doing are PURE GOLD, why would you want him to stop?!

andirk5• 4 years ago

1) Smart guy gets good at arbitrage trading, gets a taste for it

2) Starts a trading desk company

3) Loses some bets when he has never lost before, so he bets the farm (keep in mind the farm in this case is every piece of currency that he can conceivably reach regardless of laws, ethics, morality)

4) Loses his hail mary bets. Game over.

Dude needs to be a man/woman and spend the rest of his life working to repay everyone he hurt all while justice crushes his freedom forever.

baandam• 4 years ago

Dude needs to go to jail. This is EXACTLY the story of Nick Leeson blowing up Barons Bank.

Hopefully this asshole gets more than 4 years though but I doubt it.

Leeson didn't have the political connections to get all this fluff swirling about him. He just had to go on the lam.

sschueller• 4 years ago

What about all the enablers that knew he was incompetent but still invested millions? Likepeople providing bomb making materials to terrorists.

chitowneats• 4 years ago

Kind of like Germany gutting its energy infrastructure, making itself wholly dependent on nat gas from a revanchist, authoritarian regime?

Hope you're doing well, Herr Scheuller.

kwertyoowiyop• 4 years ago

Why is everyone giving him such a hard time? I mean, who among us hasn’t misplaced a few billion dollars at some point in our lives? At a company we ran?

1B05H1N• 4 years ago

The fact that he hasn't opted to speak through a lawyer speaks to his incompetence.

germandiago• 4 years ago

This guy should go to prison. He violated the contract with users and ruined them.

FTX founder Sam Bankman-Fried says he can’t account for billions sent to Alameda

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