I’ve heard (unverified) that customer deposits were $16B and voluntary customer lending <$4B. It would make sense to me that a significant majority of customer funds were not voluntarily lent, based on the fact that returns from lending crypto were minimal, and lending was opt-in, and not pushed hard on the website.
I disagree with the legal conclusion in the Axios article, as someone who has litigated securities fraud cases. The relevant language isn’t dispositive to me. This appears to be the key term:
None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading.
There are a few issues with trying to say this proves that using customer accounts (e.g., for Alameda) is a violation of the terms of service. First, the provision only states that FTX trading cannot be the recipient of a loan. It does not say other account holders cannot be the recipient of a loan. Second, using non-segregated customer deposits for another customer’s leveraged trading may not be a loan. This is something I would have to legally research, but the usage of a customer’s funds is probably considered something like a bailment and not a loan. For example, there’s no principal or interest.
I’m honestly not particularly interested in the terms of service, however, in determining whether Sam committed fraud. I’m more interested in how FTX was marketing its product, and whether it promised risk-free deposits. Most people do not read the terms of service, and if FTX promised account segregation and risk-and-interest free deposits, I would say that there’s a greater argument that Sam committed fraud—rather than poor risk management.
Separately, assuming you are the same Ryan Carey I met many years ago, it’s nice to speak to you again. Hope all is well.
FTX’s legitimate operation—for those who didn’t opt in to lending—was supposed to be like a valet parking service. “The terms of service didn’t explicitly say I couldn’t lend out your car to the local dragracing club” is not a good defense to an argument that the valet converted the customer’s car. You need actual permission from the car/crypto owner to do that.
It’s reported here: https://www.axios.com/2022/11/12/ftx-terms-service-trading-customer-funds
I’ve heard (unverified) that customer deposits were $16B and voluntary customer lending <$4B. It would make sense to me that a significant majority of customer funds were not voluntarily lent, based on the fact that returns from lending crypto were minimal, and lending was opt-in, and not pushed hard on the website.
I disagree with the legal conclusion in the Axios article, as someone who has litigated securities fraud cases. The relevant language isn’t dispositive to me. This appears to be the key term:
None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading.
There are a few issues with trying to say this proves that using customer accounts (e.g., for Alameda) is a violation of the terms of service. First, the provision only states that FTX trading cannot be the recipient of a loan. It does not say other account holders cannot be the recipient of a loan. Second, using non-segregated customer deposits for another customer’s leveraged trading may not be a loan. This is something I would have to legally research, but the usage of a customer’s funds is probably considered something like a bailment and not a loan. For example, there’s no principal or interest.
I’m honestly not particularly interested in the terms of service, however, in determining whether Sam committed fraud. I’m more interested in how FTX was marketing its product, and whether it promised risk-free deposits. Most people do not read the terms of service, and if FTX promised account segregation and risk-and-interest free deposits, I would say that there’s a greater argument that Sam committed fraud—rather than poor risk management.
Separately, assuming you are the same Ryan Carey I met many years ago, it’s nice to speak to you again. Hope all is well.
FTX’s legitimate operation—for those who didn’t opt in to lending—was supposed to be like a valet parking service. “The terms of service didn’t explicitly say I couldn’t lend out your car to the local dragracing club” is not a good defense to an argument that the valet converted the customer’s car. You need actual permission from the car/crypto owner to do that.