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Fraudulent trading activity at Mt. Gox

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Re: Fraudulent trading activity at Mt. Gox

#101

Post by phillmv »

opendais wrote: post #79
ryanjshaw wrote: post #68

Earlier quoted context omitted.

My day job involves regulatory reporting of OTC and ETD products, although I deal with the technical aspects not the business side so my comments contain some speculation (but the other responses to your question here seem better at that addressing those aspects). A number of new regulations have come into place in the past few years to help prevent recurrences of recent financial scandals and meltdowns, and to ultim…

Eh. The regulations are improved but when this happens: http://www.ft.com/cms/s/0/08cafa70-e24f-11e3-a829-00144feabd... "The UK’s Financial Conduct Authority fined the British bank £26m on Friday and reprimanded it for nine years of lax controls for its failure to rein in an options trader who in 2012 drove the gold price lower to avoid paying £2.3m to one of the lender’s clients." They were caught once in 2012, but…

Libor is an example of lack of regulation, though. There was no oversight involved; some dude at Reuters called up some handfuls of banks and then averaged out the responses, and it was self-regulated via an industry group.

Regulations are about shifting incentives and in the case of Libor the banks involved were both investment and commercial banks and thus had enormous temptation.

Anyhow, you can't eliminate bad actors and thus reducing their frequency and intensity is the whole point. These crises have negative costs to everyone, and for most of these the inefficiency cost of regulations is utterly dwarfed by the cost of big crises.

Won't argue against how much easier the justice system is on you if you're rich.

Re: Fraudulent trading activity at Mt. Gox

#102

Post by opendais »

phillmv wrote: post #101
opendais wrote: post #79

Earlier quoted context omitted.

Eh. The regulations are improved but when this happens: http://www.ft.com/cms/s/0/08cafa70-e24f-11e3-a829-00144feabd... "The UK’s Financial Conduct Authority fined the British bank £26m on Friday and reprimanded it for nine years of lax controls for its failure to rein in an options trader who in 2012 drove the gold price lower to avoid paying £2.3m to one of the lender’s clients." They were caught once in 2012, but…

Libor is an example of lack of regulation, though. There was no oversight involved; some dude at Reuters called up some handfuls of banks and then averaged out the responses, and it was self-regulated via an industry group. Regulations are about shifting incentives and in the case of Libor the banks involved were both investment and commercial banks and thus had enormous temptation. Anyhow, you can't eliminate bad ac…

It was why I wasn't using Libor as the primary example. ;) But ya, it would have been stronger if I hadn't noted it at all I suppose.

Anywho, best of luck :)

Re: Fraudulent trading activity at Mt. Gox

#103

Post by sytelus »

olalonde wrote: post #37
sillysaurus3 wrote: post #9

The reason I'm inclined to believe this report's implications about Karpeles is because I spent a long time in Mt. Gox's IRC support channel talking with support reps, and they were paid to lie. They didn't know they were being paid to lie, but they were instructed by management to say "don't worry, all user coins are safe" right up until the day the Mt. Gox crisis report was leaked. They could have said "we are inve…

I agree with pretty much everything you said but is it true that regulations would have prevented someone like Karpeles from doing the same with say, gold? What regulations prevent this? I'm asking genuinely because I have no idea what regulations exist in that world and I keep hearing that argument from smart people so I guess it's probably true.

One example of laws is insider trading. If you ran Bitcoin exchange, there is nothing preventing owners to exploit information that only they have. It's huge blind spot.

In reality, however, you don't need elaborate specific regulations. Most fraud prevention laws appears to be specific on surface but they always have one subjective caveat that if company knowingly acted in bad faith, the executives could be on trial.

So once a law is enacted saying X is regulated, it just means that enforcement authorities can come after you even if there is a wide spread suspicion of fraud. Then its just matter of invading company's internal documents, emails, databases to find that it acted in some bad faith and broke some law. Outcomes in top cases is typically dectated by public anger, events like proximity of next elections and lobby politics. Law is usually flexible enough to achieve that outcome.

Re: Fraudulent trading activity at Mt. Gox

#104

Post by brianpgordon »

drcode wrote: post #13
panarky wrote: post #10

Step 1: create USD out of thin air. Step 2: buy BTC at $1200. Step 3: sell BTC at $200. Step 4: profit!

Yes, this is exactly right, but you should clarify: Step 1: create USD_FAKE out of thin air. Step 2: buy BTC at 1200 USD_FAKE on MtGox. Step 3: sell BTC at 1100 USD_REAL on Bitstamp. Step 4: profit!

Also:

Step 1: Spend users' deposited BTC until you can no longer cover withdrawals.

Step 2: Freeze Bitcoin withdrawals.

Step 3: Wait while the internal Gox BTC price plummets as people try to get their money out.

Step 4: Buy up the "bad" BTC at the deflated prices until it's all gone. Nobody will ever know the difference.

Re: Fraudulent trading activity at Mt. Gox

#105

Post by nwh »

judk wrote: post #98
nl wrote: post #87

Earlier quoted context omitted.

Isn't this almost exactly the opposite of the problem here? What appears to have happened here is something completely unrelated to the technology. The same thing could have happened in any financial exchange. There were two difference that made it possible here: 1) the investors may have been technical experts but were financially naive and dramatically underpriced the risk, and 2) the market was completely unregula…

MtGox customers surely ate not technical experts. Technical experts would hold their own wallet instead of handing it over to some guy in Japan who was publicly known to be unable of running a secure website, let alone a financial exchange.

One of the core developers lost over 330 BTC to Mt Gox. Tell me they are not technical experts.

Re: Fraudulent trading activity at Mt. Gox

#106

Post by shutupalready »

grkvlt wrote: post #71
spacefight wrote: post #36

Well researched findings there. Imagine a world, where the same logs would be public of what and by whom happens on the stock exchanges where all the high frequency trading is happening these days...

So, the world we live in right now then? All trade data, even HFT sourced, is available from exchanges. The only possible exception is dark pools or other crossing networks, but in general it is quite possible to know who bought what from whom, when and for how much.

> All trade data, even HFT sourced, is available from exchanges.

You mean it's available to government regulators, but not to the general public, correct?

If stock and option trades are part of the public record, there are lots of questions I'd like to answer for myself. Otherwise, we're just taking the word of other people (the regulators).

Here's one question: I'd like to know who specifically was behind the huge volume in put options on United and American Airlines stock immediately before the 9/11 attack. Someone was essentially shorting those two airlines, and only those two. (For example, Bloomberg data showed that on 6 September 2001, the Thursday before the attack, the put-option volume in UAL stock was nearly 100 times higher than normal: 2,000 options versus 27 on the previous day.) The 9/11 Commission report concluded that, "A single U.S.-based institutional investor with no conceivable ties to al Qaeda purchased 95 percent of the UAL puts on September 6 as part of a trading strategy", but they refused to identify who it was.

Everything is not so transparent unless there's some public repository for all this information that I'm not aware of.

Re: Fraudulent trading activity at Mt. Gox

#107

Post by logn »

christianbryant wrote: post #63

Exactly the reason why technology must be open and transparent. Sadly, decision makers that define economic policy and allow organizations to reach this level of misuse (or misconduct) know little to nothing about what these technologies are capable of, or to what extent they can be compromised and manipulated. Kudos to the tech makers and users who do understand for maintaining a watchful eye and not hesitating to r…

I think the problem here is basically misconduct in an unregulated industry. The US and other governments have taken some positive steps towards recognizing BTC and finding ways to bring it into the regulated landscape. I would share your outrage if governments simply outlawed BTC and went after users and entrepreneurs as criminals. However, we're basically all in agreement that BTC is risky and unregulated but legal, and in cases where laws are being enforced against individuals/companies in BTC it's actually to legitimize it as a whole.

Re: Fraudulent trading activity at Mt. Gox

#108

Post by logn »

judk wrote: post #98
nl wrote: post #87

Earlier quoted context omitted.

Isn't this almost exactly the opposite of the problem here? What appears to have happened here is something completely unrelated to the technology. The same thing could have happened in any financial exchange. There were two difference that made it possible here: 1) the investors may have been technical experts but were financially naive and dramatically underpriced the risk, and 2) the market was completely unregula…

MtGox customers surely ate not technical experts. Technical experts would hold their own wallet instead of handing it over to some guy in Japan who was publicly known to be unable of running a secure website, let alone a financial exchange.

The issue is much deeper than just Mt Gox. It's the entire cloud ecosystem. There would have to be a whole paradigm shift back to P2P and local computing before people stop trusting a Mt Gox. Just because BTC was a radical new P2P currency doesn't mean that all users suddenly realized that they should stop trusting cloud providers. And until there's a distributed BTC exchange, I don't think you can fault the users here.

Re: Fraudulent trading activity at Mt. Gox

#109

Post by Tycho »

judk wrote: post #97
nroets wrote: post #58

Earlier quoted context omitted.

(I assume you're referring to QE1, QE2 and QE3) It's say a supermarket advertises bread for $1. Anyone who reads the ad, will consciously or unconsciously believe that the dollar has value. Now multiply this effect by all the similar advertising over many years and you'll see that the dollar is the strongest brand ever. When the financial crisis hit in 2008, the public starting saving and they choose the most stable…

And to close the point, the US Government doesn't go bankrupt, because they never actually get called out to show their accounts of (fake) money. Their new money is as good as the rest, meaning that their actions dilute all dollars equally, instead of only wiping out accountholders at one institution.

I wasn't really talking about the dollar, I was talking about the effect on the assets being purchased (MBS securities, and indirectly other assets on the financial markets). Notice how much the stock market and house prices have gone up in the last few years.

Re: Fraudulent trading activity at Mt. Gox

#110

Post by VMG »

sillysaurus3 wrote: post #59
VMG wrote: post #52

Earlier quoted context omitted.

A shockingly one-sided article. Probably colored by their aversion to Libertarianism.

Which sentences from the article do you disagree with?

Despite what the domain name suggests, the article is not a well-reasoned argument that even has any concrete conclusions.
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