FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes
If that's true, Bankman-Fried should go to jail. It wasn't FTX's money to lend.
FTX tapped into customer accounts to fund risky bets, setting up its downfall
261–270 of 746 posts
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#262Trading halt announcement at FTX.US.[1] Announcement says withdrawals still up. But Twitter messages indicate withdrawals are not working. FTX Japan shut down by order of Japan Financial Services Agency.[2] FTX.intl processing some withdrawals, according to blockchain.[3] A few lucky people got to exit. Way too much happening to mention here. Just use Google to search "FTX" and limit search to 1 day. Margin calls all…
> JP Morgan says expect 50% drop across the board in crypto. Around 10 AM PST, somebody just pulled a billion dollars out of Tether. Meanwhile, aggregate of the cryptocurrency market is up 5.38% over the last day, Tether recovered landing on 0.9999 USD after 4-5 hours of the drop hitting bottom at 0.9818 USD, which was nowhere near previous all-time low Tether has hit previously. In other words, everyone screams "pan…
Because CPI looks better than expected. The entire market goes up.
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#263From 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’m pretty ignorant when it comes to this space. Do they not have any kind of compliance structure? In hindsight it seems pretty obvious that this sort of thing would happen without it.
compliance to what? all those regulations are just hindering the operation of the free market, and we started this whole crypto thing to avoid them on purpose?
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#264Earlier quoted context omitted.
It feels like a very Adam Neumann move.
Sequoia did a nauseating, hilarious puff piece on him a couple months ago and this guy sounds like Adam Neumann’s second coming. https://www.sequoiacap.com/article/sam-bankman-fried-spotlig...
I managed to get this screenshot at least:
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#265Earlier quoted context omitted.
Because Chase actually does something sort of similar (primarily mortgage lending), but they employ a ton of people to think all day about managing risk. So I think people don't like the comparison, since the true difference is FTX did horse betting, while Chase does something much more rational.
To add to that: Chase tells you what they're doing. FTX told its customers it wouldn't lend it out, and then it did. Additionally, customer accounts at Chase are insured by FDIC up to $250k. Chase tells you they're going to bet with your money, manages the risk well* on most days*, and even if they lose your money you get it back anyway. FTX did the opposite of all that.
Chase is also more restricted in how the investment banking side of the business can use funds from the retail banking side, precisely because banks in the 1920s did play fast and loose with investing customer deposits, which caused a bunch of depositors to lose savings in the 1929 crash and associated bank runs.
The amount of interaction between the two sides that's allowed has increased and decreased over the years, but it hasn't been unrestricted since the Glass-Steagall Act of 1933: https://en.wikipedia.org/wiki/Separation_of_investment_and_r...
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#266> 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.
I take it her last name isn't the Ellison right? If so, that could be a hint.
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#267Earlier quoted context omitted.
So if the chain is supposed to enable "trustless" finance, what enabled Alameda to take anything? Seems Alameda and its clients should be screwed, but FTX's holders should be relatively easy to identify and restore. But everyone seems to say that's not the case. So what broke down here? Why isn't the ledger ledgering?
The ledger ensures that the handing over of the "thing" can happen without trust in any intermediary. You still ultimately have to trust the counterparty to deliver what they promise. Think of it like HTTPS. Nobody can sneak anything into the request, but the counterparty you're contacting could still be a fraud.
There are fully-decentalized exchanges which have to have much less counterparty risk (because anyone could take the other side of your deal, so you don't want to trust them). As a simple example, imagine a contract which I send 1 ETH to, and if you send it 1000 USDC it'll send you the ETH. The big counterparty risk with that system is that the price of ETH will skyrocket and someone else will call the contract to make the trade before I can cancel it, but that kind of thing is hard to avoid in any system.
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#268Earlier quoted context omitted.
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
Is it legal to defraud people in other countries from the US? I can't imagine that it is.
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#269> 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…
SBF tried to throw Ellison under the bus in his latest tweet storm saying that he was shutting the fund down and that her tweets (some of which appear to have been either straight lies or attempts to manipulate the market) weren't approved by him.
I would suspect that both of them get into legal trouble.
Btw, I would say generally: quant investing isn't a scam, Jane Street make most of their money from ETF AP...that isn't complex, most of the high capacity strategies are quite simple (index replication being one, stat arb being another). The more complex HFT strategies tend to be (at their root) about detecting when someone is moving the market: for example, XYZ fund gets new money from investors, they deploy that into stocks, and HFT is about detecting that and calculating whether that is going to move the market (and XYZ fund now deploys various execution algos to stop HFT funds detecting that they have a huge order that will move the market).
There is nothing wrong with this work and, contrary to what people think, it is valuable. If you look at what it cost to invest capital even ten years ago, it was expensive. As in: $10-20 for a single trade. That has gone down to pennies, and created trillions of value. Saying they are all scammers because one guy is a scammer is not really a valid criticism.
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#270Earlier 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?
No civil asset forfeiture: cop pulls a drug dealer over, the drug dealer bribes the cop and is on his way.
With civil asset forfeiture: cop pulls a drug dealer over, the drug dealer offers to bribe the cop, the cop laughs and takes all his stuff anyway, books him, and the police department buys a martini machine.
Kind of a weak case, but that was the best steelman I could think of.