A software change allowed FTX to use client money • Hacker News Board

Re: A software change allowed FTX to use client money

#81

Post by MonkeyMalarky » Wed, Dec 14, 2022, 2:30 AM UTC

alar44 wrote: post #31

hn_throwaway_99 wrote: post #23

> Only Singh, Bankman-Fried and a few other top FTX and Alameda executives knew about the exemption in the code, according to three former executives briefed on the matter. A digital dashboard used by staff to track FTX customer assets and liabilities was programmed so it would not take into account that Alameda had withdrawn the client funds, according to two of the people and a screenshot of the portal that Reuters…

Really? I feel like intent would be really hard to prove. "Hey, due to the way our accounting works I need you to subtract X from our dashboard." "Ok boss." Are programmers expected to know finance law? If I build a program for a dairy farmer am I supposed to know the laws of the interstate dairy trade? I can't believe that would be the case.

I don't know about finance but for HIPAA and CCPA, the answer is yes. Is there an accounting equivalent to the yearly, mandatory 20 minute compliance training videos?

Re: A software change allowed FTX to use client money

#82

Post by 8note » Wed, Dec 14, 2022, 2:30 AM UTC

polygamous_bat wrote: post #20

swiper_lux wrote: post #17

Brings up a question: what is the chance of blaming some of this on an "innocent" coding error? Can you get jail for not writing unit tests, swallowing an exception, a type conversion you did not expect?

I believe that really depends on (a) how much harm it caused downstream, (b) how much of it is caused by your actions. Per Matt Levine's column today, it's not the whole problem that FTX had sloppy accounting – rather that SBF went around advertising the "sophisticated risk engine" which in reality was crap. This action accounts for fraud. I don't see you being jailed for your random GitHub project being sloppy. Howe…

The relevant deadly chemotherapy example: https://youtu.be/Ap0orGCiou8

Re: A software change allowed FTX to use client money

#83

Post by __derek__ » Wed, Dec 14, 2022, 2:30 AM UTC

tedk-42 wrote: post #37

anon291 wrote: post #27

Earlier quoted context omitted.

People need to understand that money is debt. That is the source of all currency (yes, even gold and other 'hard' currency). If people cannot freely create it, then it's useless. The key is that you ought to be able to gauge the money creator on their trustworthiness, which hopefully you know as a member of a small community. Or, if you are creating money on the open market to large numbers of people, often it's usef…

Money is money. Debt is money from the future. Seems you don't understand.

Money is money from the future. If I give you one dollar today, you value it not because you can instantaneously exchange it for a soda, but because you can exchange it for a soda tomorrow.

Re: A software change allowed FTX to use client money

#84

Post by gruez » Wed, Dec 14, 2022, 2:31 AM UTC

8note wrote: post #70

gruez wrote: post #29

Earlier quoted context omitted.

There's many reasons to hate smart contracts, but this isn't one of them. The article is talking about changes to a codebase that's closed source and deployed with little scrutiny. None of this is applicable to reputable smart contract projects, which are open source and require some sort of consensus and/or vote for code changes. Using this as an argument against smart contracts makes as much sense as using the elec…

Aren't they Russian elections though? A bad actor can steal the voting tokens, and decide the vote. Even without that, I can't assume that the voters are aligned to my interests

>A bad actor can steal the voting tokens, and decide the vote. Even without that, I can't assume that the voters are aligned to my interests

Right, but all those attacks are harder to pull off and more visible than what the parent implied (ie. someone can unilaterally make changes without anyone finding out). Like I said in my previous comment, there are many issues with smart contracts, but the objection raised by OP is just really badly conceived.

>Even without that, I can't assume that the voters are aligned to my interests

This seems like an impossible demand to me. What type of system (democratic/non-democratic, crypto/non-crypto) ensures that the decision made will always align with everyone's interests?

Re: A software change allowed FTX to use client money

#85

Post by andrewstuart » Wed, Dec 14, 2022, 2:32 AM UTC

totalZero wrote: post #80

andrewstuart wrote: post #75

The real problem behind all these crypto companies is the people who make the money have no concept of what "integrity" is. They aren't coming from a baseline assumption that their job is to protect and interests and the money of their clients. Traditional banks, for the most part, have DNA built around protecting customer interests and customer money. Crypto companies have none of that attitude - behind every one of…

It's not just crypto. The entire fintech space has an ideology that lines up far better with Silicon Valley than with Wall Street. The Wall Street mentality would dictate a very different course of action than the Silicon Valley mentality in many of the situations described in the cases brought by the DoJ and the SEC, and yet the Silicon Valley mentality seems to have been the guideline used by SBF/FTX -- perhaps bec…

A license should be required to prove you understand your ethical obligations to handle anyone else's money.

It's sad that the entire crypto industry happened too fast for the regulations to keep up, with the unsurprising result that vast amounts of customer money have been lost and stolen - the precise reason for regulation.

I would not be surprised if many people have taken their own lives as a result of crypto losses arising directly from lack of integrity of the companies managing the customer money.

Re: A software change allowed FTX to use client money

#86

Post by 8note » Wed, Dec 14, 2022, 2:33 AM UTC

xwdv wrote: post #24

akavi wrote: post #15

Earlier quoted context omitted.

I've been at many startups during a fundraising round, and I don't think I've ever seen or heard of an investor auditing the codebase.

I offer this as a service. Typically when there’s a big acquisition and an audit of the codebase is needed, I gather up a group of developers each paid about $250/hr to go through the codebase and conduct audits looking for any red flags and giving an estimation of existing technical debt.

This sounds both really painful and really fun.

Is there a line item for "this code feels like there's something wrong, but I can't tell what" ?

Re: A software change allowed FTX to use client money

#87

Post by totalZero » Wed, Dec 14, 2022, 2:37 AM UTC

andrewstuart wrote: post #85

totalZero wrote: post #80

Earlier quoted context omitted.

It's not just crypto. The entire fintech space has an ideology that lines up far better with Silicon Valley than with Wall Street. The Wall Street mentality would dictate a very different course of action than the Silicon Valley mentality in many of the situations described in the cases brought by the DoJ and the SEC, and yet the Silicon Valley mentality seems to have been the guideline used by SBF/FTX -- perhaps bec…

A license should be required to prove you understand your ethical obligations to handle anyone else's money. It's sad that the entire crypto industry happened too fast for the regulations to keep up, with the unsurprising result that vast amounts of customer money have been lost and stolen - the precise reason for regulation. I would not be surprised if many people have taken their own lives as a result of crypto los…

I totally agree.

Licenses/certifications do exist. SBF had the FINRA Series 7 and 55.

https://brokercheck.finra.org/individual/summary/6204362

The loophole is that employees at hedge funds and investment advisers don't face the same licensing requirements as employees at banks and brokerages who deal directly with customers. There are people who trade billions of dollars of customer funds a week without any required regulatory exam or license.

Re: A software change allowed FTX to use client money

#88

Post by wildrhythms » Wed, Dec 14, 2022, 2:37 AM UTC

0xcde4c3db wrote: post #76

tedk-42 wrote: post #37

Earlier quoted context omitted.

Money is money. Debt is money from the future. Seems you don't understand.

> Debt is money from the future. By the same token, money is debt from the past. The origins of debt are ultimately material. Alice has a bushel of apples today, but Bob won't have a bushel of oranges until next month. The function of money is to decouple the general function of debt from its material details. In other words, you can have debt without money, but you cannot have money without an underlying debt.

Do you actually believe all of the world's debt can be repaid?

Re: A software change allowed FTX to use client money

#89

Post by jeroenhd » Wed, Dec 14, 2022, 2:42 AM UTC

totalZero wrote: post #80

andrewstuart wrote: post #75

The real problem behind all these crypto companies is the people who make the money have no concept of what "integrity" is. They aren't coming from a baseline assumption that their job is to protect and interests and the money of their clients. Traditional banks, for the most part, have DNA built around protecting customer interests and customer money. Crypto companies have none of that attitude - behind every one of…

It's not just crypto. The entire fintech space has an ideology that lines up far better with Silicon Valley than with Wall Street. The Wall Street mentality would dictate a very different course of action than the Silicon Valley mentality in many of the situations described in the cases brought by the DoJ and the SEC, and yet the Silicon Valley mentality seems to have been the guideline used by SBF/FTX -- perhaps bec…

This is why I'm very wary watching foreign developments in the payment space. Living in a country where contscyless payments and free instant transactions were a thing long before Apple and Google arrived with their products, these services seem to add very little except for a foreign third party. Sure, PayPal was around in case you needed to buy something online in another country, but I don't believe it's as deeply ingrained.

At the same time I read stories about other countries where people think it's completely normal that some third party app has replaced the bank's role as a payment processor, even going so far as to include these services within the banking environment itself.

The way I see a large amount of fintech is that business savy people see their banks struggle to get up to standards that were common elsewhere ten years ago and try to make a quick buck throwing together an implementation before the banks can get themselves together. These companies solves the needs of the end customer, but only patch over the underlying problems that keep building up because there is no reason to address them anymore.

How much can you really trust a company built on profiting off the failings of a basic institution underlying almost all commerce?

Re: A software change allowed FTX to use client money

#90

Post by rootusrootus » Wed, Dec 14, 2022, 2:42 AM UTC

JumpCrisscross wrote: post #5

falcolas wrote: post #4

> Bankman-Fried had directed subordinates to update the software in mid-2020 to enable Alameda to maintain a negative balance on its account, the SEC complaint said. And thus do we have another piece of evidence for why morals and ethics matter, even for software developers. I doubt they'll end up with liability, but I do hope they at least recognize and think about how their actions enabled this whole mess.

> doubt they'll end up with liability They're each going to run up five, maybe six, figure legal bills.

Last time I got educated on this subject (required class for a CCW about 20 years ago) just getting arrested was predicted to net you a five figure legal bill. Get indicted, now we're six digits and climbing.

These guys are going to spend a good bit more than that.