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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

#221

Post by paganel »

somuchfordonor wrote: post #10

> Alameda’s CEO is Caroline Ellison, a Stanford University graduate who like Mr. Bankman-Fried previously worked for quantitative trading firm Jane Street Capital. Alameda is based in Hong Kong, where FTX was headquartered before relocating to the Bahamas last year. Are the folks at Jane Street making money because they are smart, or because they use that perception to perpetuate some scam? I interact with a lot of H…

> Alameda’s CEO is Caroline Ellison

Just search for that Ellison young lady online. She's partly responsible for fraud that saw $10 billion of other people's money go into the ether. How come that kid (she looks to be under 30 years of age) was put in charge of a multi-billion dollar company is way, way beyond me.

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

#222

Post by klodolph »

cmeacham98 wrote: post #197
gfd wrote: post #188

Earlier quoted context omitted.

Only tangentially related, but don't put cash in safety deposit boxes. Police can take them under civil forfeiture laws: https://nypost.com/2021/06/12/fbi-aims-to-keep-valuables-86m... https://www.businessinsider.com/fbi-raid-1400-boxes-us-priva...

Civil asset forfeiture is one of those things that feels really unjust in the US, and I'm somewhat surprised there hasn't been a Supreme Court case ruling it unconstitutional per the 4th Amendment. I'd love to hear a steelmanned argument in favor of it, maybe I'm missing something obvious?

Civil asset forfeiture is a surprisingly complicated network of related legal issues, unfortunately. It can be incredibly complicated to litigate. Asset forfeiture cases often involve the federal government and have to be litigated in federal court, which is difficult and expensive.

If you want to think of laws as an ecosystem, then think of civil asset forfeiture as a highly evolved species with all sorts of specialized defenses.

It seems to be slowly being ground away. The modern version of civil asset forfeiture was as a tool to take away the profits of drug kingpins in the 1980s and bootleggers during prohibition. Seems like the modern drug kingpins are companies like Johnson & Johnson, though.

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

#223

Post by Animatronio »

kwertyoowiyop wrote: post #204
tootie wrote: post #190

Earlier quoted context omitted.

And the FDIC can afford to do that because there are laws dictating liquidity requirements to banks and disclosure requirements to inspect and enforce those rules.

It’s almost as if our existing financial system, built upon the lessons from hundreds of years, is worthwhile! :-)

That's what makes it so boring, whereas DeFi is so exciting it gives you a heart attack seemingly every other day.

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

#224

Post by Spooky23 »

gfd wrote: post #188
chlodwig wrote: post #162

Earlier quoted context omitted.

Not exactly, because banks tell you that they will loan out your money and you might not get it back, that's why you get interest on the account. They can't go horse betting, but they can loan it out. You don't have "title" over the USD in the bank reserves. This is like if you put $100 in Chase's security deposit box , and they opened it up, took the cash, and lent it out, and then when you come to get it, they say,…

Only tangentially related, but don't put cash in safety deposit boxes. Police can take them under civil forfeiture laws: https://nypost.com/2021/06/12/fbi-aims-to-keep-valuables-86m... https://www.businessinsider.com/fbi-raid-1400-boxes-us-priva...

Asset forfeiture sucks, but I’d be more worried about run of the mill bank incompetence. Banks don’t really want to be in that business and screw up often.

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

#225

Post by shapefrog »

newfonewhodis wrote: post #156
chlodwig wrote: post #151

From the article: "FTX Chief Executive Sam Bankman-Fried said in investor meetings this week that Alameda owes FTX about $10 billion, people familiar with the matter said. FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call, one of the people said." In the FTX International terms of service ( h…

I put $100 in my Chase account. Chase goes horse betting with my money and loses it all. My account shows $0. That's basically what happened here.

If the 50-1 shot horse won the race, they would have put your $100 back in your account and put $4900 in their account

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

#226

Post by crakhamster01 »

I have no sympathy for Sequoia et al and the various celebrities that lost their money betting on FTX. I feel terrible for the average retail investor that got duped by the string of endorsements that made FTX seem "legitimate".

I'm hoping the little guy is able to get their money out before investors do, but history makes this seem unlikely.

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

#227

Post by josaka »

Customers with assets in custodial accounts of an exchange that goes bankrupt are likely general unsecured creditors, and the assets are probably property of the bankruptcy estate. https://www.creditslips.org/creditslips/2022/02/what-happens...

This means that, in the line of people to get paid out of those assets, you're not even at the front. Custodial accounts leave you with little protection.

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

#228

Post by vkou »

zenapollo wrote: post #84
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…

Of course you're right that they are very different. But "at it's heart" all money is imagined. Dollars are simply backed by all the most powerful institutions on the planet. The reason I asked is because it seems to me that people are clutching their pearls and saying this is stealing. But as I see it, the difference between FTX and Chase Bank are that Chase has a lot of rules and regulations, and a good insurance p…

At heart a snake oil salesman and a doctor are no different, but only one of them actually helps people.

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

#229

Post by klodolph »

nostrebored wrote: post #210
tootie wrote: post #190

Earlier quoted context omitted.

And the FDIC can afford to do that because there are laws dictating liquidity requirements to banks and disclosure requirements to inspect and enforce those rules.

You would’ve been correct two years ago. We’re doing zero fractional reserve banking now. Hearing this should convince people that they should get their money out now, but nobody seems to care.

I don’t know about others, but I suspect that if the FDIC ran out of money, congress would figure out a way to fund it even if it meant printing money. I am okay with this.

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

#230

Post by iamthirsty »

nostrebored wrote: post #210
tootie wrote: post #190

Earlier quoted context omitted.

And the FDIC can afford to do that because there are laws dictating liquidity requirements to banks and disclosure requirements to inspect and enforce those rules.

You would’ve been correct two years ago. We’re doing zero fractional reserve banking now. Hearing this should convince people that they should get their money out now, but nobody seems to care.

While you're correct[0], still the FDIC is guaranteeing it up to $250k.

[0]:https://www.federalreserve.gov/monetarypolicy/reservereq.htm

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