Indeed, even by 2019, anyone who took a cursory look at Alameda’s materials would have known that they were engaged in Ponzi schemes or something equally fraudulent.
As you can see in that Twitter thread, Alameda was promising a guaranteed 15% rate of return on investments, with “no downside.” This is impossible. Only the likes of Bernie Madoff would pretend to have a risk-free return at that level. And the materials look so amateurish (with a number of grammatical errors) that the person posting on Twitter originally thought it was “so egregious my first thought was that it was fake.”
This was fairly close to the time of Alameda’s founding. As of 2019, how much were CEA folks (including Will and Tara) involved with Alameda’s obvious fraud?
Tara left CEA to co-found Alameda with Sam. As is discussed elsewhere, she and many others split ways with Sam in early 2018. I’ll leave it to them to share more if/when they want to, but I think it’s fair to say they left at least in part due to concerns about Sam’s business ethics. She’s had nothing to do with Sam since early 2018. It would be deeply ironic if, given what actually happened, Sam’s actions are used to tarnish Tara.
Strong agree, but in that case, it seems very unlikely that Will was unaware of these serious “concerns about Sam’s business ethics” back in 2018, and it seems all the more incumbent on him to offer an explanation as to why he kept such a close affiliation with SBF thereafter.
The returns shown in the document are not indicative of fraud—those sorts of returns are very possible when skilled traders deploy short-term trading strategies in inefficient markets, which crypto markets surely were at the time. The default risk when borrowing at 15% might have been very low, but not zero as they suggested. The “no downside” characterization should have been caught by a lawyer, and was misleading.
Nobody with an understanding of trading would have [EDIT] I would not have concluded they were engaged in Ponzi schemes or were misrepresenting their returns based on the document. There are plenty of sloppy, overoptimistic startup pitch decks out there, but most of the authors of those decks are not future Theranoses.
Good points, Brian . . . I’m sure there are lots of overoptimistic pitch decks, and that a 15% return might be feasible, and maybe I’m just looking at this with the benefit of hindsight.
Even so, an investment firm normally doesn’t do anything like this, right? I mean, I assume that even Renaissance Technologies wouldn’t want to offer one single investment opportunity packaged as a loan with a legally guaranteed 15% rate of return with “no downside.” https://www.bloomberg.com/news/articles/2021-02-10/simons-makes-billions-while-renaissance-investors-fume-at-losses#xj4y7vzkg They might brag about their past returns, but would include lots of verbiage about the risks, and about how past performance is no guarantee of future returns, etc.
Thanks for your reply. I do think it would be unusual to see such promises, particularly from a firm looking for large investments. And I would expect to see a bunch of disclaimers, as you suggest. There might have been such language in the actual investment documents, but still. The excerpt shared on Twitter would have set off red flags for me because it seems sloppy and unprofessional, and it would have made me particularly concerned about their risk management, but I wouldn’t have concluded it was a Ponzi scheme or that there was something fraudulent going on with the reported returns.
It will be interesting to see if all of the FTX/Alameda fraud (if there was fraud, which seems very likely) took place after the most recent investment round. Investors may have failed not in financial diligence but in ensuring appropriate governance and controls (and, apparently, in assessing the character of FTX’s leadership).
Also from the Sequoia profile: “After SBF quit Jane Street, he moved back home to the Bay Area, where Will MacAskill had offered him a job as director of business development at the Centre for Effective Altruism.” It was precisely at this time that SBF launched Alameda Research, with Tara Mac Aulay (then the president of CEA) as a co-founder ( https://www.bloomberg.com/news/articles/2022-07-14/celsius-bankruptcy-filing-shows-long-reach-of-sam-bankman-fried).
To what extent was Will or any other CEA figure involved with launching Alameda and/or advising it?
Indeed, even by 2019, anyone who took a cursory look at Alameda’s materials would have known that they were engaged in Ponzi schemes or something equally fraudulent.
See https://twitter.com/DylanLeClair_/status/1591521505464455168
As you can see in that Twitter thread, Alameda was promising a guaranteed 15% rate of return on investments, with “no downside.” This is impossible. Only the likes of Bernie Madoff would pretend to have a risk-free return at that level. And the materials look so amateurish (with a number of grammatical errors) that the person posting on Twitter originally thought it was “so egregious my first thought was that it was fake.”
This was fairly close to the time of Alameda’s founding. As of 2019, how much were CEA folks (including Will and Tara) involved with Alameda’s obvious fraud?
Tara left CEA to co-found Alameda with Sam. As is discussed elsewhere, she and many others split ways with Sam in early 2018. I’ll leave it to them to share more if/when they want to, but I think it’s fair to say they left at least in part due to concerns about Sam’s business ethics. She’s had nothing to do with Sam since early 2018. It would be deeply ironic if, given what actually happened, Sam’s actions are used to tarnish Tara.
[Disclosure: Tara is my wife]
Strong agree, but in that case, it seems very unlikely that Will was unaware of these serious “concerns about Sam’s business ethics” back in 2018, and it seems all the more incumbent on him to offer an explanation as to why he kept such a close affiliation with SBF thereafter.
The returns shown in the document are not indicative of fraud—those sorts of returns are very possible when skilled traders deploy short-term trading strategies in inefficient markets, which crypto markets surely were at the time. The default risk when borrowing at 15% might have been very low, but not zero as they suggested. The “no downside” characterization should have been caught by a lawyer, and was misleading.
Nobody with an understanding of trading would have[EDIT] I would not have concluded they were engaged in Ponzi schemes or were misrepresenting their returns based on the document. There are plenty of sloppy, overoptimistic startup pitch decks out there, but most of the authors of those decks are not future Theranoses.Good points, Brian . . . I’m sure there are lots of overoptimistic pitch decks, and that a 15% return might be feasible, and maybe I’m just looking at this with the benefit of hindsight.
Even so, an investment firm normally doesn’t do anything like this, right? I mean, I assume that even Renaissance Technologies wouldn’t want to offer one single investment opportunity packaged as a loan with a legally guaranteed 15% rate of return with “no downside.” https://www.bloomberg.com/news/articles/2021-02-10/simons-makes-billions-while-renaissance-investors-fume-at-losses#xj4y7vzkg They might brag about their past returns, but would include lots of verbiage about the risks, and about how past performance is no guarantee of future returns, etc.
Thanks for your reply. I do think it would be unusual to see such promises, particularly from a firm looking for large investments. And I would expect to see a bunch of disclaimers, as you suggest. There might have been such language in the actual investment documents, but still. The excerpt shared on Twitter would have set off red flags for me because it seems sloppy and unprofessional, and it would have made me particularly concerned about their risk management, but I wouldn’t have concluded it was a Ponzi scheme or that there was something fraudulent going on with the reported returns.
It will be interesting to see if all of the FTX/Alameda fraud (if there was fraud, which seems very likely) took place after the most recent investment round. Investors may have failed not in financial diligence but in ensuring appropriate governance and controls (and, apparently, in assessing the character of FTX’s leadership).
Archived version (that gets around the paywall)