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FTX tapped into customer accounts to fund risky bets, setting up its downfall

wsj.com

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Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#111

Post by colinmhayes »

jrm4 wrote: post #30
guardiangod wrote: post #15

Earlier quoted context omitted.

>ponzi scheme This is not a ponzi scheme. This is a good old "not firewalling your customer's money and your investment money" that everyone suffered from in 2008. The situation is cataphoric enough without people mis-using terms.

What makes it not a ponzi? Is the idea that "the possibility that number may go up" the only thing to distinguish it?

So my understanding is that alameda needed more capital to fund its operations that had a track record of success, so sbf created ftx and gave customer assets to alameda to invest. So the business thesis here isn’t “use new user money to pay old users” it’s “steal all the users money to invest and hope the investments continue to be profitable.” I guess they started ponzi-ing once alameda went bust but that wasn’t the original plan, although that’s probably true for most ponzi’s.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#112

Post by NelsonMinar »

duncancarroll wrote: post #110
NelsonMinar wrote: post #63

Earlier quoted context omitted.

Banks are highly regulated in exactly how much of the deposits they can use and what kind of risks they can take with it. This is complicated: https://en.wikipedia.org/wiki/Capital_requirement Also in the US at least banks are FDIC insured, so if the bank is breaking the law and gambling inappropriately consumers are still protected. "How is crypto different than a bank" is a reductive and foolish comparison. There a…

> "every cryptocurrency system is a fraud at its heart." I'm not sure I agree with you on that part. Fraud is defined as "wrongful or criminal deception intended to result in financial or personal gain." Encryption-based currency by itself does not meet that definition. Can people use crypto to commit fraud? Yes, just the same as they could use fiat or anything else that has perceived value. imho the main value of cr…

You misquoted me; I said "almost every cryptocurrency system" for a reason.

A thread where we're discussing a guy using $10B of $16B of cryptocurrency customer deposits to finance his private hedge fund gambling is not a good place to try to make your argument.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#113

Post by beachy »

bin_bash wrote: post #9

This is one of the reasons downturns in markets are good. If the market would've just kept growing then SBF likely could've kept his ponzi scheme afloat without anyone noticing. The 2008 recession is what really stopped Bernie Madoff.

It’s only when the tide goes out that you learn who has been swimming naked.

Warren Buffett

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#114

Post by zenapollo »

arcticbull wrote: post #80
zenapollo wrote: post #70

Earlier quoted context omitted.

> Banks lend your deposits out. Banks do not play the market with your deposits. Anything close to that ended in 2008. True that the Volcker rule of Dodd-Frank 2010 eliminated banks using deposits for prop trading as well as other gambling loopholes. That is, until it was weakened in 2019 by R Congress and Trump admin. https://www.americanprogress.org/article/hollowing-volcker-r... In any case, I would agree that the…

> Fed printing press Fed doesn't print money, Treasury prints money. Money is created when banks lend. The FDIC DIF (deposit insurance fund) is $125B and funded entirely by private contributions from member banks. They have a $100B line of credit at Treasury if things go pear shaped but generally they have the authority to seize failing institutions and sell the accounts to other banks without touching the DIF let al…

I did not know how the FDIC was backed, thank you.

However, yes the treasury is an actual printing press, but the money supply is controlled by The Fed. They tell the treasury how much to print, they can provide unlimited liquidity to banks, and they are the largest backer of govt debt.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#115

Post by NickC25 »

IanCal wrote: post #97
NickC25 wrote: post #85

Earlier quoted context omitted.

>Presumably FTX expected that its risky bets would pay off and that return would then fund the interest promised. So did Bernie. >Otherwise, would you consider corporate debt a ponzi scheme? Depends on what you count as corporate debt. I'd have no problem buying the debt of a mature, massive company like Apple or Microsoft, because they have hard assets, steady cashflows, successful products on the market. The debt o…

> So did Bernie. No, he just straight up didn't invest peoples money, he paid out "gains" just from other deposits. That's why it was a Ponzi scheme - that's what they are.

Initially, he did invest their money, he just didn't get the (I believe it was) +/- 10% that he promised investors (and was getting like clockwork) before the 08 crash.

Once he started not being able to make those returns did thing start to unravel. His own kids were in denial right up until the end - almost nobody, even inside Bernie's firm, knew it was fraudulent.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#116

Post by JALTU »

jcpham2 wrote: post #96
shmatt wrote: post #29

Earlier quoted context omitted.

>The first $10,000 USD value in your deposit wallets will earn 8% APY (This is what FTX was offering customers) And now we know the accounts weren't actually covered by real money (or "value" as they called it). So when person X was asking FTX for their money back, FTX would send person X+1's money to cover Sounds like a Ponzi to me

FWIW I have difficulty distinguishing the difference between a Ponzi scheme and "The Time Value of Money" concept itself. Every place I see that offers interest on crypto deposits, I fear they have no business plan to generate the profits to pay the interest on a deflationary fake internet money in the first place. My fear is they are just Ponzi-ing on Wayne! seeking the next highest interest rate holding the biggest…

Time value of money is not the same. It’s actually simple and elegant and flexible, and to your point, you want to see the borrower have a plan, so to speak. Or cash flows. Or collateral. Or all of the above. And still, you can lose. But the concept of the price of money is separate from that.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#117

Post by colinmhayes »

reso wrote: post #105
bhaskara2 wrote: post #61

Earlier quoted context omitted.

Arrested by UN? Genuinely curious

SEC often asserts jurisdiction over anything where American domiciled investors have suffered a large loss. That bar will definitely be met here.

The entire point of FTX is that Americans were barred from using it. Now Americans certainly ignored that rule by using vpn’s, but I’m not sure that gives the sec jurisdiction. The Americans using the exchange were explicitly breaking the TOS

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#118

Post by squeaky-clean »

CamelCaseName wrote: post #75
shmatt wrote: post #29

Earlier quoted context omitted.

>The first $10,000 USD value in your deposit wallets will earn 8% APY (This is what FTX was offering customers) And now we know the accounts weren't actually covered by real money (or "value" as they called it). So when person X was asking FTX for their money back, FTX would send person X+1's money to cover Sounds like a Ponzi to me

It's only a ponzi scheme if you have no underlying business but transferring money between people. Presumably FTX expected that its risky bets would pay off and that return would then fund the interest promised. Otherwise, would you consider corporate debt a ponzi scheme?

The original scheme by Ponzi himself was based around profiting from arbitrage from postage stamps. He promised 50% returns within 90 days and couldn't keep up with his claims in a legitimate manner.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#119

Post by elefanten »

trident5000 wrote: post #41

This seems to be a slam dunk for prison time. Only thing I can think of is if these companies are international so he doesnt get prosecuted in the US under US laws. Thats his only hope.

Well, his ultimate hedge is that both his parents are Stanford law professors. Slam dunk unlikely.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#120

Post by AustinDev »

SQueeeeeL wrote: post #71
rdtwo wrote: post #3

So they stole 10 billion. It’s always a good deal to invest other people’s money into risky bets then take all the profit. If you lose you stick them with the losses. A lot of people should go to jail but probably won’t.

They only should go to jail if the US had that actual ideology. Remember, every decision made by the state is political, these people not getting punished is everything working exactly as intended

No idea why you're being downvoted. It is a fact that he donated ~40M to politicians this election cycle.[1] If I had to guess the donations were part of a hedge to avoid accountability for this scam he ran.

[1]https://www.opensecrets.org/elections-overview/biggest-donor...

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