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A software change allowed FTX to use client money

reuters.com

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Re: A software change allowed FTX to use client money

#121
post #45
post #18

Earlier quoted context omitted.

This is not crypto, this is Enron, Theranos and Madoff. In DeFi, you check the code once, and that's what gonna run (exception being proxy contracts, but those are a red flag in itself).

Remember what happened with the 2016 Ethereum DAO? Even expert programmers aren't able to check smart contracts for all possible issues.

The DAO “hack” was just a legitimate transfer of wealth from weak hands to smarter hands. Code is law. All “bugs” are law too. The only people who stole anything where the devs who reversed the ethereum blockchain…

Re: A software change allowed FTX to use client money

#122
post #62

Earlier quoted context omitted.

Developers should know to ask questions when a weird request is made. Developers presumably know how to think and have a vague idea of what the business does to know that a ask to futz with internal financials programmatically is fucking wierd.

IME, it depends on your chain of command. I've literally been reprimanded in my career for asking questions. My boss at that time was crap. I didn't choose him. Asking questions can very likely get you fired. Also got reprimanded for disobeying an order at once; my boss — same one as above — would not take "no, we are in a regulated industry, and I cannot do that" for an answer. I ended up going behind his back, gett…

You want Engineer in your job title? Then you say no, and you damned well ask questions, and you damned well make sure to leave the moment they make it impossible for you to act ethically.

Re: A software change allowed FTX to use client money

#123
post #30
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…

>But at the end of the day, expecting code to replace the core human emotion of trust, the source of money, is ridiculous. No, the point is for code to replace the institutions/people that people trust (ie. trusting the bitcoin network's consensus code, rather than a central bank), not "replace the core human emotion of trust".

Which works great until the core developers decide to rollback the “code is law” blockchain because there was a transaction they didn’t like. As it turns you still need to trust humans even in the world of “code is law”

Re: A software change allowed FTX to use client money

#124

> 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…

> Singh will definitely get prison time as well Remember Alamada wasn’t a normal customer. It was acting as a market maker/counterparty of last resort to many other FTX customers. In that case there could be situations where ‘normal customer liquidation rules’ shouldn’t apply - it can go in the red temporarily to enable others to trade (and FTX to make commission). From the facts in the article (which are obviously n…

> Remember Alamada wasn’t a normal customer. It was acting as a market maker/counterparty of last resort to many other FTX customers. In that case there could be situations where ‘normal customer liquidation rules’ shouldn’t apply

This might be a reasonable argument in a vacuum, except that:

> [SBF] told investors and prospective investors that FTX had top-notch, sophisticated automated risk measures in place to protect customer assets, that those assets were safe and secure, and that Alameda was just another platform customer with no special privileges. [emphasis added]

And also:

> Bankman-Fried also told investors, and directed other FTX and Alameda employees to tell investors, that Alameda received no preferential treatment from FTX. For example, Bankman-Fried told the Wall Street Journal in or around July 2022: “There are no parties that have privileged access.” Likewise, in a Bloomberg article published in or about September 2022, Bankman-Fried claimed that “Alameda is a wholly separate entity” than FTX. In the same article, Ellison is quoted as stating about Alameda: “We’re at arm’s length and don’t get any different treatment from other market makers.” Bankman-Fried made similar statements directly to investors. [emphasis added]

(The above are direct quotes from the SEC complaint [1] against SBF.)

Singh might argue that he wasn't aware of the private statements to investors. But the WSJ and Bloomberg stories show the "arm's length" claim was something they consistently messaged to the public at the highest levels. To argue that Alameda's role as market maker of last resort justified a privileged status would be inconsistent with all their prior public claims to the contrary. "We lied to the public repeatedly about our risk management" isn't a defense; it's a confession.

[1] https://www.sec.gov/litigation/complaints/2022/comp-pr2022-2...

Re: A software change allowed FTX to use client money

#125
post #31

Earlier quoted context omitted.

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.

If Jamie Dimon asked a developer at the bank "hey can you have Chase ATMs allow these 10 accounts that are in my name to withdraw unlimited funds?" everyone involved would be in jail. This is not dissimilar.

>If Jamie Dimon asked a developer at the bank "hey can you have Chase ATMs allow these 10 accounts that are in my name to withdraw unlimited funds?" everyone involved would be in jail.

This isn't true

I worked for a large bank. I managed data for their mortgages. We bought another bank and processed their mortgages with our systems. There were several thousand accounts that we called "friends of the " because they had really weird terms.

A noteworthy example is: $10m Home Equity loan, with 2% interest for 40 years, and the owner could refinance any anytime without any fees

In English, this means we can't repossess their loan, they pay a super low monthly payment, and the final amount is never really due.

Re: A software change allowed FTX to use client money

#126

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…

I've never been near code handling money, but "never put anything in writing that you wouldn't want to see in the New York Times" is something I've heard repeatedly at a big tech company too. It seems like pretty standard advice nowadays.

The "move fast and break things" slogan was by Zuckerberg at Facebook, though they've since abandoned it.

Re: A software change allowed FTX to use client money

#127
post #37
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.

I'm just gonna reply to myself rather than this thread of 'intellectuals' that have latched on thinking they're super woke about 'money'.

This is really sad. Especially the guy who 'advised' to stay away from crypto. I don't need advice to know it's for idiots

Re: A software change allowed FTX to use client money

#128
post #31

> 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 think it depends a lot on the jurisdiction. In some countries there are laws around ethics and disclosure especially if you work in a certified occupation (i.e. a licensed profession, such as traditional engineering).

Software probably makes things even more hazy but in traditional engineering world there are very clear cut rules around professional ethics, personal liability and disclosure.

Re: A software change allowed FTX to use client money

#129

Earlier quoted context omitted.

If Jamie Dimon asked a developer at the bank "hey can you have Chase ATMs allow these 10 accounts that are in my name to withdraw unlimited funds?" everyone involved would be in jail. This is not dissimilar.

>If Jamie Dimon asked a developer at the bank "hey can you have Chase ATMs allow these 10 accounts that are in my name to withdraw unlimited funds?" everyone involved would be in jail. This isn't true I worked for a large bank. I managed data for their mortgages. We bought another bank and processed their mortgages with our systems. There were several thousand accounts that we called "friends of the " because they ha…

I fail to see the equivalence. These are just loans with weirdly favorable terms. If the other bank had shareholders, then this would be a breach of the fiduciary duty. Otherwise it's just bad business? Bad business != fraud.
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