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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

#301

Post by fnordpiglet »

Digory wrote: post #291
delusional wrote: post #243

Earlier quoted context omitted.

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.

But this isn't counterparty risk, it's fraud risk, right? It sounds like "Atrium borrowed a bunch of houses from FX, but FX didn't own the houses." When you check the Recorder (the blockchain for houses), the deeds should all say "John Doe owns 123 Main St." In the world with a Recorder of Deeds, Atrium is screwed, and FX might be screwed, but John Doe is easily confirmed as the owner of 123 Main. It sounds like peop…

I think technically you would look at this as exchange risk. Securities regulations exist because of precedent, and this isn’t specifically fraud but lack of customer funds segregation from the business risks.

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

#302

Post by 22SAS »

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…

I work in the industry at a market-maker. Jane Street is a lot more than just these two people. Prop trading firms and some quantitative hedge funds are a lot different than traditional hedge funds. Jane Street is mainly an ETF market maker, and are very good in that. They make their money because some of their core strategies work very well.

Also, JS has low attrition and traders there mostly stay long-term since it's a very trader-first place than some other places like HRT, Jump. Both SBF and Ellison had short tenures at JS.

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

#303

Post by iamthirsty »

JamesianP wrote: post #296
iamthirsty wrote: post #275

Earlier quoted context omitted.

The FDIC, as of March 2021, has 119.4 billion[0], along with "... a US$100 billion line of credit with the United States Department of the Treasury.[9]"[1]. I think they've got enough to cover any consumer issues. [0]: https://www.fdic.gov/about/strategic-plans/strategic/insuran... [1]: https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...

How much is the total liability they are guaranteeing? And $119 billion where exactly? In US treasuries? If so it's about as safe as the social security "fund". What if the "customer issue" includes a govt default? All you're saying here is that we can treat an FDIC guarantee like a govt guarantee, which is probably true, but still not the same as a case where the guarantor has actual assets which the prior poster wa…

> There's not cash laying around anywhere to back it up.

Did you not read the part where they have $119.4 Billion dollars? And that was a year-and-a-half ago, it's probably closer to $130B now. It seems like you didn't read any of the source material, let alone my comment, before replying.

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

#304

Post by fnordpiglet »

wefarrell wrote: post #231
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’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.

They’re not securities and they’re regulated. Theres nothing to comply to. Perhaps crypto exchanges should be regulated?

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

#305

Post by skullone »

pmcollins wrote: post #252
skullone wrote: post #145

I checked my FTX account, only had play money in there. But, despite all the people saying "FTX is fine, withdrawls still work, it's all fine" - nope, everything is disabled, withdrawls show $0.10 avaialble to withdrawl (out of a few hundred I had in actual US cash, plus the BTC and doge transactions are all disabled. This is very serious for many people - there are some who had substantial amounts of money, includin…

FTX.us or intl?

ftx.us - checked again, at least my account is still unable to withdraw.

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

#306

Post by legutierr »

Digory wrote: post #293
phas0ruk wrote: post #278

Earlier quoted context omitted.

FTX is a centralised exchange, it is not routing all customer trades on chain. It’s not a blockchain failure, it’s just a lack of client asset segregation by a traditional centralised trading house.

So the internal trades aren't on chain. Well, that's going to leave a mark. Is there a coin that distinguishes agent and owner? Seems like you want trustless agency if you're pursuing trustless finance.

This is the whole idea behind DeFi. All trading is done autonomously on-chain, and owners retain custody throughout.

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

#307

Post by robocat »

FormerBandmate wrote: post #124
huevosabio wrote: post #69

Earlier 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...

HN discussion (138 comments so far): https://news.ycombinator.com/item?id=33549059

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

#308

Post by qeternity »

fnordpiglet wrote: post #299
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…

This is why in regulated securities markets customer assets must be held in segregated accounts. Corzine, who knew better, ended up with an orange suit for not doing this.

Did Corzine actually go to jail? This didn't sound right to me and a quick search suggests no.

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

#309

Post by mzs »

returnInfinity wrote: post #98
Animats wrote: post #16

This is embezzlement. Mr. Bankman-Fried should be arrested. Now.

We need some lawyer to confirm if he can be arrested or even prosecuted in the US. Since its a business based out of Bahamas.

He, not the company, his criminal actions victimized Americans.

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

#310

Post by based69 »

RC_ITR wrote: post #176
fdgsdfogijq wrote: post #173

Earlier quoted context omitted.

Why is this getting downvoted? its a plain speech description of what they did

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.

Doesnt fannie mae/freddie mac essentially backstop a lot of this risk too?
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