The question is whether FTX’s leadership knowingly misled for financial gain, right? We know that thety said they weren’t borrowing (T&C) or investing (public statements) users’ digital assets, and that Alameda played by the same rules as other FTX users. They then took $8B of user-loaded money (most of which users did not ask to be lent) and knowingly lent it to Alameda, accepting FTT (approximately the company’s own stocks) as collateral, to make big crypto bets. Seems like just based on that, they might have defrauded the user in 4+ different ways. I think “we were net-lenders, and seemed to have enough collateral” might (assuming it is true) be a (partally) mitigating factor for the fourth point, but not the others?
The picture I was suggesting is: FTX leaves customer assets in customer accounts, FTX owes and is owed a ton of $ as part of its usual operation as a broker + clearinghouse, Alameda in particular owes them a huge amount of $ and is insolvent (requiring negligence on both risk management and accounting), FTX ends up owing customers $ that FTX can’t pay, FTX starts grabbing customer assets to try to meet withdrawals.
I’m still at maybe 25-50% overall chance that their conduct is similar to a conventional broker+exchange+clearinghouse except for the two points I raised: (i) extremely and probably willfully negligent risk management + accounting, (ii) selling customer assets to raise $ once they were insolvent, rather than owning up to the shortfall. I do think it’s probably worse than that, but (i) is already bad enough that I expect SBF could end up in prison indefinitely.
I’m interested in having more answers, but expect it will all become clear in time and it’s easier to just wait.
(Small point: it was bad for FTX to take FTT as collateral but I think they did so openly from all of their clients, see here.)
One bit of clarifying info is that according to Sam, FTX wasn’t just grabbing customer $ after Alameda became insolvent, but lent ~1/3 or more of the customer funds held to Alameda. And this happened whenever users deposited funds through Alameda, something we know was already happening years ago—from the early stages of FTX.
The question is whether FTX’s leadership knowingly misled for financial gain, right? We know that thety said they weren’t borrowing (T&C) or investing (public statements) users’ digital assets, and that Alameda played by the same rules as other FTX users. They then took $8B of user-loaded money (most of which users did not ask to be lent) and knowingly lent it to Alameda, accepting FTT (approximately the company’s own stocks) as collateral, to make big crypto bets. Seems like just based on that, they might have defrauded the user in 4+ different ways. I think “we were net-lenders, and seemed to have enough collateral” might (assuming it is true) be a (partally) mitigating factor for the fourth point, but not the others?
The picture I was suggesting is: FTX leaves customer assets in customer accounts, FTX owes and is owed a ton of $ as part of its usual operation as a broker + clearinghouse, Alameda in particular owes them a huge amount of $ and is insolvent (requiring negligence on both risk management and accounting), FTX ends up owing customers $ that FTX can’t pay, FTX starts grabbing customer assets to try to meet withdrawals.
I’m still at maybe 25-50% overall chance that their conduct is similar to a conventional broker+exchange+clearinghouse except for the two points I raised: (i) extremely and probably willfully negligent risk management + accounting, (ii) selling customer assets to raise $ once they were insolvent, rather than owning up to the shortfall. I do think it’s probably worse than that, but (i) is already bad enough that I expect SBF could end up in prison indefinitely.
I’m interested in having more answers, but expect it will all become clear in time and it’s easier to just wait.
(Small point: it was bad for FTX to take FTT as collateral but I think they did so openly from all of their clients, see here.)
One bit of clarifying info is that according to Sam, FTX wasn’t just grabbing customer $ after Alameda became insolvent, but lent ~1/3 or more of the customer funds held to Alameda. And this happened whenever users deposited funds through Alameda, something we know was already happening years ago—from the early stages of FTX.
The same gist comes across in interviewing from Coffezilla: https://t.co/rMljwAqhDq