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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

#201

Post by liketochill »

nradov wrote: post #109
arcbyte wrote: post #36

Earlier quoted context omitted.

Developers need to know the business better than the business people. Always. Otherwise you can't implement the software very well.

That's a nice little fantasy. In the real world, competent developers with that level of domain knowledge mostly don't exist at any price. In the healthcare field where I work, not many developers have ever gone to medical school.

would you program the software to allow your friend to obtain drugs from the hospital without deducting it from inventory so nobody would notice?

Re: A software change allowed FTX to use client money

#203

Post by meltedcapacitor »

adrr wrote: post #146
helsinkiandrew wrote: post #93

Earlier quoted context omitted.

> 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…

I never understood why Alameda took risky bets when it could just make a bunch of cash off buy/ask spreads assuming trading volume was decent. Running the exchange they can front run any large trades and move the market.

Crypto is flooded with liquidity so market making is like selling ice to an eskimo.

These days a naive market making strategy in crypto just incinerates capital very reliably as the tiny bid ask spread is a small fraction of the adverse selection risk (whole spread moving past). They did probably make money on this in the early days and got smoked when the sophisticated tradfi players joined.

Front running large trades by looking at non public info on the order book is possible but this is also fraud, so not a strategy to avoid legal troubles, and it also only works if the large traders are naive and not adversarial (putting fake large orders to front run you etc).

What SBF could have done is close down Alameda when it was clear they were not competitive, and concentrate on growing the exchange by reinvesting the fees, but that would have clipped the growth and donations/acquisitions lifestyle to something much less flamboyant.

Re: A software change allowed FTX to use client money

#204

Post by RF_Savage »

db48x wrote: post #131
edouard-harris wrote: post #124

Earlier quoted context omitted.

> 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 prot…

It’s potentially a defense for the engineer though, if he had nothing to do with the advertising. Of course it’s all just idle speculation; the real interesting stuff will come out in the trial, years upon years from now.

The engineer would have a hard time claiming ignorance with multiple widely reported public statements about how Alameda had no special priviledges.

Re: A software change allowed FTX to use client money

#205

Post by wyldberry »

tomnipotent wrote: post #197
martingoodson wrote: post #194

Earlier quoted context omitted.

Yes of course they need to know the law. Anyone who might potentially break the law during the course of their work needs to know what that law is. ‘Just following orders’ is not a defence. This is very odd special pleading by programmers. Every industry needs to do this: journalists learn media law in their university degrees, architects have to learn the building regulations. Why is programming any different?

> Yes of course they need to know the law That's absolutely ridiculous, and no court would expect it.

They won't until they do. When it's something seemingly egregious like this, it has the potential to be something that makes an example and changes curriculum for CS students across the country for decades.

I expect other engineers to know laws when creating things (not like having a JD). Accredited business schools in the US teach business law to their undegrads. It's absolutely not ridiculous or a stretch to have a similar expectation.

Re: A software change allowed FTX to use client money

#206

Post by tomnipotent »

wyldberry wrote: post #205
tomnipotent wrote: post #197

Earlier quoted context omitted.

> Yes of course they need to know the law That's absolutely ridiculous, and no court would expect it.

They won't until they do. When it's something seemingly egregious like this, it has the potential to be something that makes an example and changes curriculum for CS students across the country for decades. I expect other engineers to know laws when creating things (not like having a JD). Accredited business schools in the US teach business law to their undegrads. It's absolutely not ridiculous or a stretch to have a…

There's a big difference between the HN crowd shouting "they should know the laws!" vs. licensed and controlled professionals like architects and structural engineers that "follow the law" via established codes, which have clear boundaries that can be evaluated and prosecuted when violated.

> When it's something seemingly egregious like this

You don't even know what "this" is. So the BI engineer that stitches together data for a report should have known that combining these two values was illegal? What silliness.

Re: A software change allowed FTX to use client money

#207

Post by siva7 »

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?

Zero Chance. Singh already proved intent with his source code comment. Him claiming to be unaware of violating the law won't prevent him from getting almost certainly jailed.

Re: A software change allowed FTX to use client money

#208

Post by meltedcapacitor »

helsinkiandrew wrote: post #93
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…

> 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…

Not an excuse. They had a programme for external liquidators giving some slack for trades taking the other side of liquidating positions, so Alameda should have used that. This looks worse.

In any case it's not needed: liquidators get the 3% initial margin so are usually in profit. For the cases when the market moves faster than that, they should have done what the better-run exchanges do and close the most leveraged positions from the opposite side: if lots of longs get liquidated in aggregate the shorts get their profit trimmed by the losses of the longs beyond maintenance margin, in order of leverage, which is fair enough when duly documented in the terms.

Re: A software change allowed FTX to use client money

#209

Post by madsbuch »

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…

> The real problem behind all these crypto companies ...

> Traditional banks, for the most part, have DNA built around protecting ...

Traditional banks lack of "integrity" has wrecked considerable more havoc than crypto companies. Actually, the impact of these exchange crashes are completely negligible compared to the financial crisis ~2007.

Re: A software change allowed FTX to use client money

#210

Post by martingoodson »

tomnipotent wrote: post #206
wyldberry wrote: post #205

Earlier quoted context omitted.

They won't until they do. When it's something seemingly egregious like this, it has the potential to be something that makes an example and changes curriculum for CS students across the country for decades. I expect other engineers to know laws when creating things (not like having a JD). Accredited business schools in the US teach business law to their undegrads. It's absolutely not ridiculous or a stretch to have a…

There's a big difference between the HN crowd shouting "they should know the laws!" vs. licensed and controlled professionals like architects and structural engineers that "follow the law" via established codes, which have clear boundaries that can be evaluated and prosecuted when violated. > When it's something seemingly egregious like this You don't even know what "this" is. So the BI engineer that stitches togethe…

‘clear boundaries that can be evaluated and prosecuted when violated.’

Have you ever looked at media law or libel law? It does not have clear boundaries, but journalists are still expected to follow the law. Journalists are not absolved of the responsibility because it’s complicated.

You just need to not break the law. It’s how it works. If you don’t want exposure to liability, you need to acquaint yourself with relevant law.

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