This is f** wild. I don't understand level of incompetence it took to trust him with that much money. People who trusted them with this much money are fools. Fools with large $$$.
A bit of incompetence and a lot of greed. If someone says they can make you a lot of money, you're willing to ignore a lot of things. You just hope you're not the bag holder at the end. As long as there is greed there's always going to be more FTX and Theranos.
Besides too much money, which they were parted from like fools, they had also too much hopenof finding even greater fools. Doesn't work all the time so, sometimes you actually are the greatest, ot at least unluckiest, fool in that particular game of fools.
When you're trying to start a magic bean farming business, and you end up investing with a crook who blows all your money on coke & hookers before your magic bean business gets off the ground... it's a little bit of expedited justice, isn't it?
I don't mind investors loosing money, that's part of the game and if you fail to do a proper due diligence and risk evaluation, well, you get what you deserve. All the people loosing money with FTX as users, well, they are a different story.
Especially ludicrous given that a large point of the USP of crypto-currencies was that you didn't need to trust anyone because The Blockchain and smart contracts renders "trust" obsolete.
In the end, it all was bullshit, and (assuming the US government is correct with the re-classification of "independent contractors") exploitation and fraud.
The most enlightening things to come out of the crypto craze:
1. There is an overwhelming abundance of rich idiots in this world. Wealth-merit determinism has been publicly dealt a serious blow that I hope people will take to heart.
2. Finance is a mature and ever-evolving complex technology in itself that has proved why it is the way it is, and no amount of idealist nerds and their "investor" fools can possibly knock it down. It must be humbling to rediscover every regulation and facet of finance, one crypto-blunder at a time. Finance as an industry attracts some of the world's most intelligent and most ruthless individuals, but you think they're somehow leaving money on the table? You think you can do better because you know python and cryptography 101? Really?
> an overwhelming abundance of rich idiots in this world
One of the smartest things I heard said about crypto is it’s an unvarnished metric of the animal spirits in our world. Its optimal price isn’t zero. But somewhere just above it. Enough to inspire productive work, but not enough to gain animation of its own.
Software engineers have been re-inventing concepts again and again since the 1970's. It isn't that much of a stretch to believe that they would do the same thing to finance.
Too bad most of them don't bother to learn anything about finance before trying to disrupt it and instead fall back on libertarian wet dreams of feeling the ghastly embrace of the ghost of Ayn Rand.
Software also kind of has reinvented finance. The crypto thrust specifically not so much, but the modern financial system does not look the way it does without software.
> The most enlightening things to come out of the crypto craze:
> 1. There is an overwhelming abundance of rich idiots in this world. Wealth-merit determinism has been publicly dealt a serious blow that I hope people will take to heart.
And somehow people still say poor people are poor because they lack financial intelligence and we could fix their poverty by giving them finance education. No poor people are poor because they lack money, because of that they must be smarter with their money, they can't afford to loose it.
Rich people on the other hand don't need to care. I would even say that many don't even notice the money they lost here
I think only rich people say the poor need financial intelligence and then they make things like Robinhood so the poor can feel like they have financial intelligence while losing money and the rich get richer.
Probably not so much actual poor people but I expect some non-trivial number of not-rich people bet money on cryto that they couldn't really afford to lose either from simple greed/FOMO or because they convinced themselves that their only ticket to the good life was to gamble.
3. Certain politicians pretend to care about privacy until it comes to financial privacy, pretend to oppose crypto for environmental reasons but think no differently when they become unmineable, and pretend to oppose crypto for technical reasons but support CBDCs which inherit all technical shortcomings of cryptocurrencies minus the privacy and security guarantees. If you believe in the right to controlling other people’s money, just say that instead of hiding behind a facade of investor protections and other nonsense that you make illegal to opt out.
Honestly, if you're a con artist, the list of FTX victims (that will eventually come out) and the people screaming about the future of NFTs on Twitter are a wonderful rolodex of soft targets.
I would like to see more celebration of the employees who confronted SBM and were then fired for "performance" or "culture fit". That behavior needs to be rewarded, not forgotten.
There is ZERO 'incompetence' --> it is skilled fraud. Madov level.... this guy needs to not kill himself with a sheet in prison.
This is a guy who is an utter piece of shit, and his FN STANFORD parents were certainly in on it and they need to go down as well, but they are a smoke screen.
Sequoia, NEA, Lux, Insight, Lightspeed, ... these are brand name funds and they were completely duped. Sequoia wrote a glowing, 15,000 word piece about Sam:
Yeah, I read the article, but it seems insane that the government would get priority for the taxes earned stemming from claimants investments over the initial investments themselves. I guess I should have emphasized the "WOULD".
Retrospective taxation implies that a change was made to the tax code that went back in time. The reality is the tax code didn't change at all, but the fact that FTX was cheating on their taxes was discovered and adjusted for.
Now I'm sure it'll get litigated, but there's a big difference between "I cheated my taxes and got caught" versus "I paid all my taxes, but then the rules changed and now I owe more".
They’re almost certainly inflating the claim in preparation of litigation, e.g. by reclassifying “all of FTX’s contractors to full-time employees.” (There is pressure, in such bankruptcies, to file claims fast.) But the current claim is 4x FTX’s cash. It’s unlikely the IRS is off by 4x. Unsecured creditors’ recovery is likely going to be zero.
The numbers seem too large to be employee reclassification for reasonably-paid employees, no? I would think it's more likely the IRS is calling the embezzled money income and/or wages.
In both Chapter 11 (FTX) and Chapter 13 cases, priority tax debts are generally paid before other unsecured debts, meaning the IRS gets priority in these cases. However, secured creditors may still have priority over the IRS for specific assets.
I'm going to guess that the IRS is going to take the lion's share of assets.
The FTX bankruptcy will now probably be converted to a straight liquidation. The current management has the fantasy that they can emerge from Chapter 11 reorganization as a going concern. Not likely. There's no ongoing business worth continuing.
It's unlikely that this will save much in the way of that, you still have to go through the bankruptcy proceedings, just now you also have the IRS digging through your things.
I doubt the new management actually believes they can reboot the company. They're just trying to drag things out as long as possible to extract as much money as they can. The new CEO is getting paid $1300/hr.
"This suggests that the department reclassified all of FTX’s contractors to full-time employees in order to arrive at such a large tax payroll-related tax claim."
Genius. Why not, free money. Unless of course you don't think government agencies should play fast and loose with their enforcement based on the likelihood of the defending party to successfully resist.
Most likely their argument is "but this will keep my from recouping the money I had in FTX when it went bust because I'm in the class of people who are last to get paid out"
That a government agency shouldn't knowingly lie to try and get a piece of the pie. They shouldn't artificially inflate a tax bill so that they can have more leverage.
There is no doubt in anyone's mind that that tax bill isn't real, it's obviously a negotiation tactic to try and get a larger cut. I don't think that's something that a government agency should do, even if the target is a giant fraud.
44B$ is more then FTX's ever had in assets, it's definitely more then they had in revenue and more then they probably ever paid employees. And taxes should be a fraction of that on top of what they probably did pay.
IRS just wants the payroll tax to be paid by someone, and don't really have a dog in the FT vs contractor question. Ordinarily contractors end up paying it, making IRS happy. So this suggests they did not.
It's a sign of the times that I can't tell if this is a /s. I think many on this board would support the IRS cracking down on crypto companies even if they do so in an extralegal manner. I am not one of them fwiw.
Okay, now the government is just getting greedy. Taxes are the biggest scam in 2023 as our leaders don't respect us enough to create a balanced budget.
I'm definitely anti-IRS at this point in most ways, but... let's be honest, this is FTX we're talking about. Their so-called "balance sheet" for their multi-billion dollar operation was an approximately one-screen-large Excel file at a level of detail that would have embarrassed your local plumbing shop. Even through my anti-IRS biases I have no problem whatsoever believing that FTX went well beyond playing "fast and loose" with tax laws to outright tax fraud. I doubt this is even the end of their troubles, which will more likely end simply by the matter becoming moot rather than investigations coming to their end.
FTX was so badly run that it isn't even suitable as a business school case study. The questions it really raises is how they got as far as they did at that scale without ramming into one legal wall or another even sooner, and I don't even mean exotic cryptocurrency laws, I mean just plain ol' corporate laws that everyone else faces. How much you want to bet they weren't correctly an Equal Opportunity Employer, or managed to have non-trivial OSHA violations, or... just pick your agency, really.
I'd figure that for most people FTX would be part of an investment strategy (or gambling), not any kind of bank. So these are not depositors, they are investors, probably lowest on the priority list. They will get wiped out.
It's like a thief steals all of the money from your bank account, he gets arrested, you file a claim to get your money back from his accounts, but before you can the IRS swoops in to claim all of the money because the thief didn't claim your stolen money when he filed his income taxes. I understand that all of the FTX depositors (technically "creditors") should have read the fine print, but that's what this feels like at least.
from what I have read FTX was the only major exchange that didn't claim ownership over your uninvested funds in the fine print, which is the crux of the situation.
people using them as a wallet were not investing nor getting interest in their deposits.
They're not owed that money. Would take almost $600 billion in payroll or over $100 billion in profit to owe a $44 billion tax bill, and FTX doesn't come close to that.
Gee, I wonder why the SEC isn't happy about exchanges selling unregistered securities to retail investors. They should absolutely have cracked down on it way earlier, but unfortunately regulatory agencies work rather slow.
You threw your money in the local wishing well and are now upset that it got confiscated with your money inside it for unpaid taxes.
It's not a matter of slow. Coinbase has been around since 2012 and it doesn't take 10 years. The SEC had no intent on cracking down and didn't even consider most of the market to be securities at all. Here's Gensler saying so himself in 2018 https://twitter.com/ZK_shark/status/1650689125580668931
So IRS is asking FTX to pay millions of dollars in unpaid payroll taxes as result of classifying FTX workers from contractors to employees. Will IRS refund said workers the payroll taxes workers paid as part of their Schedule-C? (Contractors pay their own payroll taxes when they file Schedule-C; companies pay payroll taxes for their employees, but not for their contractors)
When I did my own withholding, I had to withhold Medicare and social security taxes on my employees behalf and deposit it quarterly. These are certainly taxes and there is withholding for the employer portion as well as for the employee portion withheld on their behalf along with income and any other applicable taxes.
Here’s a quote from the IRS [0]:
“ An employer generally must withhold social security and Medicare taxes from employees' wages and pay the employer share of these taxes.”
You are entitled to a refund of any excessive withholding you make beyond your tax liability.
The argument is that, as the now employees understood themselves to be contractors, they paid the (higher) contractor tax rate (employee + employer). If the IRS is retconning them as employees and FTX owed the employer's share of the employees' taxes, the employees are entitled to a refund of the amount they overpaid.
Assuming their employer sent 1099s to the IRS like they are supposed to, it's unlikely that any significant portion of them ended up dodging their tax burden.
> Will IRS refund said workers the payroll taxes workers paid as part of their Schedule-C?
If my understanding is correct, merely the fact the IRS has officially made this classification entitles those workers to a refund, even if the IRS never manages to collect the money from FTX.
A nice big fat bonus paycheck for the workers there!
> Will IRS refund said workers the payroll taxes workers paid as part of their Schedule-C?
Possibly, if they ever actually collect it. (not sure of the legal requirement here)
The best thing a contractor in this situation can do is file an amended return now, using Form 8919 to re-calculate the employee share of FICA tax they owe. This will also involve filing Form SS-8 (separately) to dispute their status as a contractor. It may take several years to get processed, but at least it creates a formal claim that the IRS will have to eventually honor or deny.
Also note that only the 7.65% employer portion of FICA, less the income tax deduction that Schedule C filers get for that, is in question. Also, as employees there may be other business deductions they took on Schedule C they would no longer be entitled to.
The employer (FTX) is also liable for taxes that sole proprietors don't pay, such as FUTA (federal unemployment), and a variety of state payroll taxes most likely.
I sincerely hope that I never meet Sam Bankman Fried, because if I did I do not know what I would do but it certainly wouldn't be legal.
I was stupid and thought that the 7+% interest I was getting from Gemini+GUSD+Genesis Holdings was a good idea, I put a good chunk of money in there, and as of right now the status for that appears to be in "limbo at best". It's particularly upsetting, because this all unfolded right after I got fired from my last job, when I really needed my liquid money to pay for things like "my mortgage" and "food".
I'm fine now fiscally, and even wasn't in too much trouble back in November [1], but it make me lose multiple nights of sleep worrying about stuff, and also made me feel like an idiot for ever thinking that cryptocurrency was a good idea.
[1] I have a good chunk of money stashed in stocks/ETFs, which I could have liquidated for money, but the market was pretty far down so I would have had to take a big haircut.
Bitcoiners ask the same thing about holding a bank account full of dollars, or in many other countries (like Lebanon, etc.) even worse currency, or they can just freeze your account, etc.
Anyway, it should be clear to people that the 7% in an outside currency has to come from somewhere. And most of this stuff has been a zero-sum game so the money comes from:
1) Investors who bought the top
2) Traders who got liquidated
3) IPO investors who bought shares in a money-losing business model like WeWork
4) Advertisers whose ads didn’t pay off (yes, advertising is a zero-sum game too)
Sadly, most people do not realize it’s a zero sum game and the bagholder class only grows and grows until the speculative bubble pops.
It's always been my take that the reason ideological Bitcoin ghouls are so enthusiastic about directly contradicting their entire argument against government control over money, by lobbying countries like El Salvador to adopt Bitcoin as a national currency, is because they recognize (cf. lead pipe attack) that there is ultimately no replacing men with guns when it comes to defending the value of money. Quote back by math quote doesn't cut it when someone has a mortar aimed at the middle of your mining farm. Or even someone with a couple Jerry cans of gasoline, matches, and nothing to lose after some anon creep chilling in a Thai brothel pulled their life savings to fund his 'tech nomad' lifestyle.
And since they are too fragmented and comically self-serving to organize anything like their own soveriegn state, they need to piggyback off an existing one.
It’s a crypto issue. You can figure that out by restating their advertising/business model using ‘cash’ instead of crypto, and asking yourself how long they could go before getting shut down.
Hint: they likely could never have even gotten to the point of taking customer deposits, or would have been shut down within weeks or months at most by regulators.
Most of the custodians work very hard to side step regulation and enable scams, albeit not necessarily openly on the second part, and are enabled by the on-chain primitives.
Pretty hard to avoid gov’t oversight/regulation when a USD Wire and ACH goes through the fed, for instance.
Easier when it goes through a blockchain which they can’t control.
Which is why a lot of exchanges (and all the sketchy ones) use things like Tether and stablecoins, and avoid US banks.
It's wild to me that crypto bros will screech about decentralization and how the government shouldn't be able to tell you what to do with your money, then turn around and screech for goverment oversight and regulation. Absolutely nonsensical group of people.
It does kind of feel like cryptocurrency is sort of a collective Dunning-Kruger syndrome of programmers and finance.
Programmers see all this bureaucratic regulatory red tape and decide to try and make something more efficient by removing it and claim that they've saved finance by reinventing it.
Then one by one, they start seeing why each of these regulations exist; the regulations didn't exist to keep the little person down, it was to protect against scams. And then they suddenly want regulation on their funny money, at which point cryptocurrency just kind of becomes a worse version of real currency.
Forums make it worse, IMO. Frankly, it’s nearly impossible on many to even keep track of who is being responded to half the time, let alone personalize them.
It’s like taking to some floating Janus head sometimes.
I wasn't expressing any opinion on how crypto should or shouldn't be regulated. I was only pointing out that if someone is concerned that banking regulations don't apply to crypto exchanges, then their concern is about regulations, not about crypto itself.
If the largest value prop of the industry (and historically crypto primitives) is that it is un-regulatable (and unregulated/get rich quick) the industry doesn’t get a free pass.
> It’s a crypto issue. You can figure that out by restating their advertising/business model using ‘cash’ instead of crypto
Yeah, I think it falls down pretty quickly; if nowhere sooner, then at the point where “We issue our own cryptocurrency” turns into “We issue our own cash”.
And if you do hold the private keys to your crypto, all you hold is an IOU from a risky market full of fraud and rug pulls.
Many coins have failed, many more will fail, and many if not all will drop to zero as the mania subsides. When that happens it doesn’t matter where your keys are if the market turns illiquid in seconds during a crash.
I mean it still kind of matters where your keys are if the market turns illiquid. Its the difference between losing an asset and not.
I can definitely see a lot of cryptocurrencies losing a ton of a value but they do have a legitimate use for remittances. If you're transferring $1000 it doesn't matter if you convert it into 1 bitcoin or 100 bitcoins since your wife is cashing it out the next day for 20,000 pesos.
Well that level of risk certainly applies to some risky instruments (say CDOs), but I'd say there is far less risk in VWRL say than speculating on the value of a plethora of currencies which are almost purely vehicles for speculation rather than used for everyday transactions.
Doesn't matter if you own your keys if nobody wants to buy your Crypto/NFT etc.
Re your numbers, I'm afraid I don't trust any of the numbers in this market as none of them are audited.
You don’t have to. That’s the point. It’s a trustless infrastructure, with public data that anybody can audit. There are countless independent services that are reporting the same numbers, from querying the blockchain data.
Uhm, no, the pricing is mostly provided by exchanges which have been found guilty of wash trades, money printing, front running and every crime in the financial playbook, and most definitely are not audited.
So while the blockchains provide public records of transactions, the prices are not set by the blockchains and participants are anonymous enough to be difficult to track.
In FTX’s case it’s impossible to hold your keys, right. The condition to get interest payments is to allow them to manage your funds and invest/loan/etc.
Is there any crypto “bank” that promises to pay interest while you hold your own keys?
If interest rates are any indication, depositing DAI on Aave for example is seen by the market as lower risk than US Govt treasuries.
This makes some sense, as with treasuries you run the risk of not having access to your cash when you need it because of trade and settlement windows. Funds in Aave are 100% liquid.
I’m sorry for your loss but I’m really amazed you thought that 7% yield from savings at a time of 0% interest rates was anything other than a fabrication.
I looked at these and they were so absurd there was no way I would invest. No fundamentals. No audit. No insurance. No stable company or bank.
What was your thought process in putting funds here? Did you think it would just take longer to explode and you would be able to withdraw before? Did you genuinely believe?
Risk to return is non-linear, and at a system with a floor of 0%, 7% is an insane claim. Granted, this requires a reasonable amount of financial literacy, and plenty of people think they have that but don't.
>> I’m sorry for your loss but I’m really amazed you thought that 7% yield from savings at a time of 0% interest rates was anything other than a fabrication.
These investments were comparable to money market funds. There’s no way passive cash is viable at those returns.
If Commercial Real Estate is paying 8.5% and someone starts offering “Crypto Commercial Real Estate” as a competing product for those same fundamentals but offers 400% return, would you still be unable to assess its viability?
>> These investments were comparable to money market funds. There’s no way passive cash is viable at those returns.
Totally agree. But why would you compare crypto high yield accounts to MM funds, rather than, say, CLOs or CLO funds, or structured notes (https://pprcapitalmgmt.com/invest-in-a-real-estate-fund/) or factored receiveables funds
Well, there was some hand-waviness claiming that GUSD was FDIC insured [1], and they kept comparing it to bank accounts. I will admit that I should have done more research before putting it in, but I just assumed that since Gemini was ostensibly working with regulators and they were plastering the safety of GUSD everywhere, I guess I just didn't do my due diligence. I'll accept my share of the blame.
[1] https://www.gemini.com/dollar It still mentioned "FDIC" stuff in small print, but it was much more prominent in earlier stuff.
But that’s so simple to validate. I mean, I have funds in a few accounts and every one of them shows up in FDIC’s bankfind tool and “member fdic” is advertised by the banks.
The link you posted does mention fdic but it says Gemini’s deposits are fdic insured (probably true as what kind of a crazy company keeps cash in uninsured accounts). Definitely shady of them to word it like that as it’s likely meant to confuse and mislead. But again, pretty easy to validate and disprove before sending any funds.
I hope you get something back and I guess the good news is that you only make this mistake once in life and teach everyone in your family how to avoid.
Simple to who? Simple to you? I didn't invest in Gemini and also thought these returns were obviously bunk, but I've never heard of "FDIC's bankfind tool" before your comment.
The guy already said he accepts his share of the blame for not doing DD, but I'm not sure why you're so insistent that it's entirely his fault when SBF was clearly committing fraud.
Simple to anyone with significant sums of money to invest.
Either someone is competent enough to earn thousands to hold with FTX or competent enough to inherit win and not have it wasted away.
Either way, if I have $10-100k or whatever and this isn’t simple for me then the issue isn’t FTX, it’s me and I’m going to eventually lose it.
I’m saying it is OP’s fault because he invested in magical thinking. Of course it’s also SBF’s fault for committing fraud. But this is an entirely avoidable fraud as it’s not a complicated con.
If I buy magic beans from a traveler whose fault is it? It’s certainly the traveler’s fault for claiming they will grow into a beanstalk to heaven, but it’s also my fault for believing such a tale.
Genesis was claiming that the Earn program was effectively using cryptocurrency as collateral on high interest loans. I knew how high the interest was on credit cards and auto-loans and payday loans, so it didn’t seem ponzi-like to me.
To be clear, I didn’t ever directly do anything with FTX, at least not knowingly. I was unaware of the cross-mingly that was happening with SBF, Genesis, and Alameda, so no matter how “impossible” FTX seemed, it wouldn’t have saved me if I didn’t know FTX was involved.
That said, 7% when banks and bonds are are offering 0.1% should have more directly set off my bullshit alarm.
Yep, no argument that I should have checked the FDIC's bankfind tool, which I do make liberal use of now. I guess I just made the mistake of thinking that Gemini wouldn't have been able to do this for so long if it were a scam, especially since they repeatedly claimed they were working with regulators.
I'm also reasonably sure that the FDIC insurance stuff was more prominently displayed on their site, though I'm having trouble confirming that so maybe I'm just misremembering.
And indeed, I have helped a few people avoid these scams now. When friends of mine ask me about investing in crypto now, I tell them "I think you should buy Treasury Bills directly from the government for safe short term stuff, and probably just find a good low cost index fund from a registered broker for longer term stuff".
You're not crazy that it used to[1] be less clear what exactly FDIC insurance applied to.
Originally:
> Gemini is a U.S. company regulated by the New York Department of Financial Services. GUSD reserves are eligible for FDIC insurance up to $250,000 per user while custodied with State Street Bank and Trust.¹
Later:
> Gemini is a U.S. company regulated as a limited purpose trust company by the New York State Department of Financial Services. Each GUSD corresponds to a U.S. dollar held by Gemini in accounts at U.S. FDIC-insured bank accounts and money market funds holding short-term U.S. treasury bonds and maintained at a custodian. The cash portion of these GUSD reserves may be eligible for FDIC “pass through” insurance for Gemini customers, in the event of the failure of a bank holding the U.S. dollar deposit portion of the GUSD reserves.
It's really unfortunate so many VC's and people in the tech industry lent credibility to such naked fraud. It made (and continues to make) regulation politically untenable. One of our political parties _continues_ to insist the crypto industry is "innovation!" and it'd be a mistake to stifle such incredible innovation. It's all bs.
I'm sorry you fell victim to this. It's a shame the regulators, meant to protect consumers from this exact thing, weren't able to do their jobs. Don't take it as a personal failure. This was systemic, and you were served up by lots of deeply monied interests.
I mean the VCs literally make their money from pump and dump schemes. There are a ton of startups in the valley that have ludicrous valuations. VC can do the initial investments then recoup their capital even before companies are profitable as we see with examples like Uber.
Or you could take personal responsibility for having ignored everybody who said for years that it's all BS. This was not a secret, unforeseen, some higher natural power. It was delusion, and if you choose not to listen then it's up to you. Don't blame it on regulators.
Hey, I was one screaming at everyone about how silly it all was. I’ve got a nice decade of HN comments to demonstrate. BUT I also have a decent interest in personal finance and understand that world better than your average bear. It sucks that predators are just allowed to scam less informed people, and this is the response they have to deal with.
We’re all getting older, and there’s a good chance we’ll lose some of our faculties along the way. I’d prefer to live in a place that does something to help protect me from outright scams, and not have to take “personal responsibility”, and constantly be on guard against every potential bad actor.
But it's precisely that handwaviness that should make you not have to do research at all and smell a rat, as ultimately rate of interest and risk come hand in hand. It doesn't matter whether the instrument is based on crypto, real estate or pokemon cards.
If someone is offering a high interest, very liquid investment with returns so high that you are better off taking a larger mortgage, and putting the extra money into the investment, there has to be a hidden risk component: Otherwise, why would anyone issue mortgages, instead of investing in this very liquid instrument? It's too good to be true.
It's not unlike the people that spent money ordering cryptominers from butterfly labs: The expected return from buying them (pay the whole thing off in two months, and afterwards it's all profit!") just doesn't line up, regardless of the justification. Extraordinary returns exist, but they either require that you discover them yourself, or have to carry significant risks. So when someone is selling the opportunity to you, and you are told there's no risk, you have to know you are being lied to, no due diligence necessary.
Sorry, we all make mistakes. Some people do dumb things with money, others with relationships, some with their health, and others with their time.
It's hard to be successful at everything. Ask the friends of anyone here, they'll point at the things someone did right and the things they messed up to get their.
Just wanted to chime in and say thank you for sharing. If everyone was too ashamed of sharing past stupidness we would have no guideposts at all for gauging our own inevitable stupidness.
Yeah, honestly I don't particularly care what the people on HN think of me [1], but I think it's important to come out to say that even relatively educated people like me can be duped. I might very well be an idiot, but at least nominally I'm in the "educated" demographic: I have a yuppie job, a college degree, some graduate education, and until Gemini Earn was generally considered somewhat financially responsible. I don't gamble, I don't drink, I don't go out to eat very often, any large purchases are planned out for weeks (if not months), and I try and put at least 30% of my paycheck into some form long-term savings (either something low risk/long-term like an index fund or something super-low-risk like a treasury bill). I feel like if something like this can happen to me, it can happen to nearly anyone else.
If anyone was thinking about "investing" in cryptocurrencies, just try and remember that it's largely-unregulated funny money, and you're probably not going to save the world while simultaneously getting rich from it.
I'm hoping that other people can learn from my mistake the age-old adage: if it looks too good to true, it probably is.
[1] (well, most of the time, admittedly I'm subject to vanity like anyone else)
Sorry, “everybody” told me? “All the time”? That’s news to me; lots of people seem to get suckered by Gemini Earn. Yes there were a few comments we can look back at in hindsight, but its not like anyone in my friend group told me anything.
Also, it’s hardly a “threat”; it was a bit of hyperbole, which nearly everyone here seems to understand (including you, I think), but let’s just pretend my statement was 100% sincere; what danger am I causing exactly? I very clearly say that I do not want to meet him. What kind of cartoon-like circumstances are going to lead to me meeting this guy if I am not seeking him out?
Actually, threatening physical harm to a con man has a long and storied tradition in this country; but more than that if SBF had mugged this guy I don't think anyone would call a physical response a bad thing, but because he mugged him with words you're going to posture about this is "just not ok"? Come on.
Don’t sweat it. I’ve invested multiple hundreds of thousands in venture-backed startups over the past two decades, and lost all of it. None of the startups was successful. These were all audited venture-backed with experienced founders many of whom I’ve known personally in the Austin tech scene. Losing money is the rule in any kind of investing beyond the prevailing real interest rate. It’s all speculation. By the sound of it your diversification is paying off. Actually you’re quite smart in that regard, you didn’t put it all into startups like me.
OK, now you're moving from the realm of genuine curiosity and into the realm of victim blaming.
Before the collapse, FTX and crypto had a veneer of respectability. They had ads everywhere and the mainstream press treated them like legitimate financial investments.
The failure here isn't of the individuals who get suckered with crypto bullshit, it's a failure in our ability to regulate and tamp down that kind of crap. Shame on the press, government institutions, and of course tech sector VCs, for either shilling for, investing in, or looking the other way while these frauds were taking people to the cleaners.
I talked to a lot of people at the time. You could say things like:
* There is no free money. Why would there be free money?
* It isn't FDIC insured. Look, it is a lie
* It has ponzi economics, etc
And it would get hand waved away. Agree that authorities dropped the ball, but the way a good con works is the mark wants to get conned, they want to believe there is something too good to be true.
This is not aimed at OP, who opened up, admonished themself, etc.
> I sincerely hope that I never meet Sam Bankman Fried, because if I did I do not know what I would do but it certainly wouldn't be legal.
Why is this statement not condemned? Of course it's terrible that SBF was a fraud. But insinuating that physical harm is justified is just not ok. They were the naïve ones who bought into the BS, waived away all the warning voices, and now they are threating violence? Not ok.
I was engaging in a bit of hyperbole because I very much dislike SBF. I wouldn’t actually hurt him if I met him in person, but even if I would, I find it exceedingly unlikely that I will meet him in person, so it’s really a non-issue regardless. It would be kind of cool if he stubbed his toe or something on my behalf those though.
I feel like you know this, and you’re pretending to not understand this to take some moral high-ground.
Nope, the failure is of the individuals. Sure, regulators deserve some of the blame but nobody forced the individuals to put their money into such ridiculous schemes.
They know this. Why are you trying to make them feel worse? I really don’t like the culture around finance issues where everyone is treated like an irredeemable fool.
10 months ago when Voyager blew up, I've pleaded with people not to believe the FDIC status these crypto firms were claiming [1]. The misrepresentation by these firms was straight fraud.
GUSD holders never lost a cent. Only people who deposited their GUSD in Gemini Earn, where they made it clear it was a loan to Genesis, have their money encumbered.
Yeah, if it hadn't imploded or he managed to exit before it did, I'm sure he would have enjoyed the money. Well it didn't go so well, tough luck for what was essentially a gamble.
I still feel bad but only in the measure that poor economic literacy contributes to people falling for these scams. That and old-fashioned greed :)
7% risk-free savings with negative interest rates... Come on.
I mentioned this in a sister comment, but in a bit of fairness to me, Gemini was claiming some degree of FDIC insurance on GUSD coins. I definitely should have read the fine print more thoroughly.
I’m not sure what the terms of the deal were. but I am sure if the payment for the 7% interest was to be made in the same coin and loans were to also be made at the same rate if not higher, then all of those coins would appreciate in value. what causes inflation and therefore depreciation is printing too much money. What causes appreciation for a coin is scarcity that can be created by interest rates, especially super high ones. When not enough coins are being minted And interest is accumulating Then it creates a deficiency in supply.
Yup, i remember, I gave 3 loans of a few BTC there to three "AAA+++" borrowers, only one repaid the loan, partially :) Their "arbitration" decided in my favor, the catch was I needed to go find the debtors (with a fake Brazilian identity) myself :)
I’m really amazed you thought that 7% yield from savings at a time of 0% interest rates was anything other than a fabrication
On the one hand, I agree with this: where was the 7% coming from?!
There's a basic level of skepticism that should have raised alarm bells for the "average" person.
On the other hand, this was an epic level of fraud. As an example, I was making ~8-10% off of peer-to-peer lending when rates were very low, done via very (seemingly) reputable lending platforms. Imagining if a SBF-level scammer was running one of these, and I very much feel for those that put trust in an overall system that generally doesn't have this scale of fraud.
There doesn't even have to be a scammer involved. (Although is also clearly true that the entire ecosystem is a magnet for scammers)
Any of these schemes had to involve a much higher risk than conventional investing. You can wave your hands as much as you want, but that doesn't hide the fact that there was (and still is) systemic risk that was by a) nature incredibly difficult to quantify and b) probably pretty high, given the returns. There is no free lunch.
It was possible in a market neutral way in crypto and without much risk for a while.
You could provide liquidity for stablecoin swaps, collect the shitcoin rewards and regularly dump them. Withdraw at anytime.
Of course, in that scenario you had good control and the counterparty can't rug you because you could verify what was going on. There was some technical risk, but it never actually occurred.
It was because interest rates were zero, largely, that this was possible.
The mistake here was giving the assets to another party who can do whatever they like and where you can't see directly what they were doing.
Just because people got lucky for a while doesn't mean that risk was actually ever low. The reality is that risk on those trades was always extremely high, but it wasn't apparent through traditional risk metrics such as volatility or credit ratings. And there are more risks to worry about than just market risk and counterparty risk.
These statements are a bit at odds. "But it never actually occurred" is a statement of chance, not risk. I also suspect you are downplaying significant systemic risk. "Withdraw at anytime" could go away quite easily in several scenarios.
Wait, I have a few CDs that are "FDIC insured", according to Fidelity, offered by banks I absolutely don't know. In fact, that's the reason I choose them over Treasuries, which are not FDIC insured. Is my money safe or could it be a fraud like FTX? I learned to trust Fidelity over the years, maybe now is the time to be less complacent.
FTX is really no separate phenomenon than the underlying crypto industry itself.
The entire space rests on the metrics generated at the whim of perhaps a hundred or two extremely (crypto-)influential individuals who are all affiliated with one another and whose incentives and behaviors are highly correlated even when that affiliation is weak or antagonistic. I'm referring here to the large established miners, both public and dark (i.e. bot farm based, corrupting gov. officials, etc.) As well as the pools that they pretend not to control, and to a lesser extent the operators of the larger exchanges - although they are not nearly as free to move in recent years as the miners still are. It's no accident in miners are extremely publicity shy.
This group, which behaves like a cartel so it's reasonable to think about it as one, self-generates nearly every metric used to determine the size and depth of the entire industry. The fees and other costs to create fraudulent statistics would be impossible for anyone who is not a miner to swallow, but if you're mining at scale there is an enormous discount - because an inverse scale fraction of those fees are paid to yourselves.
Transaction volume, price, number of nodes, number of accounts, velocity of funds, everything that is used to construct a picture of the real human interest in this market via the lens of virtual numbers that describe it is completely under the control of a few people. Although some of them are more regulated today than they were in the past, for a good part of a decade there was effectively no oversight into how any of these operations worked, and they were free to openly front run the market, buy electricity at substantially corruption-reduced cost or just outright steal it- and again in the early days this paid off extraordinarily well because early large block rewards could be sat on and held until they bubble-appreciate several thousand of percent above acquisition cost.
when you're paying reduced (or nearly zero) cost for your production infrastructure you don't need to sell all of your product right away, and you thereby accumulate a future war chest to create a market 'bottom' anytime liquidity gets a little bit too loose for your liking: simply slow-roll selling new block rewards and voila, price stabilizes. Your carefully managed low public profile lets the media and public fill in their own self-serving explanation, which is that the public must be crazy about this stuff it cant stop buying it.
Treasuries aren't FDIC insured, but they're considered the safest asset on earth because they're backed by the government. At least historically. Who knows if that will continue to be the case next month.
There isn't any prima facie problem with paying an extremely high interest rate.
I'm sure you can find double digit interest rates for say bonds that represent payday loans, but you should expect the bondholders to default at a correspondingly high rate.
But investors should be aware that higher rates imply higher risks.
(Replying in the context of Genesis/Gemini since that's what the parent comment was about, not FTX.)
>I’m sorry for your loss but I’m really amazed you thought that 7% yield from savings at a time of 0% interest rates was anything other than a fabrication.
I'm amazed that this is itself amazing. The 7% was over a time when US inflation peaked at ~9%. It doesn't seem right to say, of a yield that doesn't compensate for inflation, that it's is so ridiculously high that only the most self-deluded investor thought it was achievable.
Furthermore, the collapse didn't happen while those sky-high rates were being promised. As of November 1st 2022, rates had been cut to 5.6%, and then, that was only for the Gemini dollar (which Gemini issued and was willing to use as a loss leader). By then, other stablecoins were lower, like DAI at 4.9% [1], similar to the rate that overcollateralized platforms like Compound were charging to borrow it.
(Disclaimer: I used Gemini Earn, but was able to remove all assets before suspension of withdrawals and hat not put anything in that I would need urgently.)
> I’m really amazed you thought that 7% yield from savings at a time of 0% interest rates was anything other than a fabrication.
Did something substantial changed on the market recently? Because right now I can literally get a risk-free 7% time-limited savings deposit from my bank (Santander), which HN tells me is completely legit, all while banks in most other countries in the EU are stuck at offering 0.01% or even negative interest rates. What gives?
I've long given up on trying to make any sense out of it.
EDIT: to be clear, I'm in EU too (Poland). I don't follow what FED is doing (outside of what I occasionally hear about it on HN). I imagine it has some impact on EU markets (US having most nuclear carriers, etc.), but I don't know how big. From my perspective, we're still "at a time of 0% interest rates", and Santander suddenly offering 7% rates is some kind of anomaly, compared to other banks - both locally and EU-wide.
The 7% interest rate you get in Poland is based on the one set by the central bank. Note that it is only like this since end of 2022, before that the rate was probably hovering around zero, like the ECB.
> I could have liquidated for money, but the market was pretty far down so I would have had to take a big haircut.
Humans in general cannot 'time the market'. To think that you can is a fool's errand. Therefore, the fact your stocks are down isn't a good reason not to sell them.
Blaming SBF is almost pointless because you obviously needed the lesson - you did not learn previously by seeing the mistakes of others. You would have been taught the lesson eventually by some other random, and fortunately your lesson didn’t take you to zero in your retirement.
That said, you clearly also get a lot of other things right: admitting your error, long term savings in a home, a good job, understanding what a portfolio is, plus other obviously smart decisions.
Hopefully we all learn from your mistake - it is so easy to screw up or be beguiled into screwing up.
I mean, whether or not I needed to learn the lesson, I'm going to be upset with any human that outright steals money from me. I don't think that's weird.
But yeah, fundamentally I suppose it's better for me to have been conned like this while I'm still relatively young, and where I didn't have all my net worth tied up in it.
Honestly at this point, if anyone were to ask me for investing advice, I would tell them to stay the hell away from cryptocurrency.
> Humans in general cannot 'time the market'. To think that you can is a fool's errand.
OP wasn't trying to time the market. They had a liquidity issue and needed cash.
> Therefore, the fact your stocks are down isn't a good reason not to sell them.
Realizing a loss is the perfect reason not to sell. This is why smart people recommend having an emergency fund, so you don't have to take a hit and damage your long term goals when you find yourself in a short term pinch. Not selling is actually the most important part of owning stocks.
I think it's reasonable to believe in efficient markets, but also understand that pricing in markets is a) made up of imperfect information, and b) subject to outside influences like emotion, propaganda, etc.
Just like the rest of economics, the efficient market hypothesis is a nice model without any basis in reality. The fact that speculative bubbles exist should be enouh to disprove it.
I guess that's the big question. Market behavior certainly can look like there are speculative bubbles, but Fama hypothesizes a different interpretation of the evidence.
I'm not a believer, but there is some value in the thought.
If you believe the efficient market hypothesis can actually apply to an existing stock market, I would like to offer you an incredible price to buy the Eiffel Tower! Hurry up! This offer is only valid for a few hours! People are lining up to get this offer
Cryptocurrency is just slow, bad, unregulated, pretend money. That's the reason it's so rife with fraud. If I had put my money into a boring FDIC insured bank I'd still have all of it right now. I thought cryptocurrency was a good idea, put my money into one of the more trusted exchanges, and now it's gone. I guess I could have stored my wallet on a hard drive or something, just like I could have withdrawn all my cash and put it under my mattress, but I really don't consider that progress.
So I did learn; the banks are regulated for a reason.
Its funny how you did it again, so once again, its weird how you don't feel like an idiot for ever thinking that custodying your money in mismanaged opaque businesses was the problem.
yes, you should have stored your self-custodied your assets and cryptocurrency does not exist for any other reason. unlike banks and brokerage houses, crypto exchanges exist for passing through to your destination: self custody.
who said anything about "progress"? so now you want to pretend like you adopted some ethos about a cryptocurrency future but ignored everything about how to use crypto and pretend you burned because "you believed", but only in a mismanaged business that catered to your greed? okay that's a legitimately hilarious take.
as the late steve jobs said: you're holding it wrong.
What lesson should I be learning here exactly? Again, if I had "custody'd my money in an opaque business" like, you know, A BANK, I would have been fine. Clearly the "opaqueness" isn't an issue.
But I agree, if you want to have your digital monopoly money, it's probably better to play with that on a hard drive and never actually do anything with it.
Its really just the reductiveness of your arguments.
I’m wondering if its it even worth listing the various strawman arguments and rebuttals because its not even clear if you realize they are strawman nonsequiturs. But I’ll continue on good faith.
The most obvious observation being that you wouldnt have received your 7% in a bank, so taking the least risk isnt really the gotcha alternative you present it as. Similarly there are many autonomous crypto services that function without incident, that also offer yield, exchanges and “staking services” like Gemini/FTX/etc were using behind the scenes alongside other things they shouldnt have been using. Many people use stable value assets to earn yield in those autonomous platforms and they are still fine. This has nothing to do with storing it on a hard drive and doing nothing with it. But we can talk about that too, people just use separate addresses: savings, spending, speculation. Savings would be the perpetually offline crypto.
Its really analogous to how you have the rest of your cash and portfolio. The reductive part is that you mentally had a “crypto” position (parked in mismanaged businesses) instead of using crypto. Like people would say they're “using cash”.
People are trying to point that out to you, you saying you were an idiot for considering cryptocurrency when you never actually did.
I'm sorry for your loss but I hope you take this as a lesson that crypto is just snake oil. Some in these comments try and paint this as just an FTX problem but it's not.
For cryptoskeptics such as myself it's been fascinating to watch as the crypto world speedruns the lessons of debt, finance and the banking system that led them to work the way they do. A lot of otherwise smart people in other areas discovered those smarts don't automatically transfer to disrupting the financial system.
What ultimately underlies the financial system--including crypto--is trust and, beyond that, the military might of governments.
To your specific case, I saw a quote (that I can't find) that basically said that any investment consistently offering above-market returns is eitehr a scam or has risks that you cannot see.
Bear Stearns returned above market returns every month until it didn't, and that was that.
Yep, I replied in a sister comment [1], I am wholly turned off by cryptocurrency at this point.
I was kind of enamored with the tech behind blockchains (and to some extent I suppose I still kind of am), and saw the insane growth it was going through, and drank the stupid kool-ade.
Seeing it all go pear-shaped has really highlighted why we regulate banks in the way that we do. It's not perfect, but I sleep better knowing that an actually-insured bank won't really run away with my money.
This reminds me of an old finance joke my professor told me (this was when rates were 0): if somebody offers you 20% interest p.a. on an FDIC insured account, and you put in $1,000,000 today, how much money will you have in 5 years?
The correct answer is 0, because you're being scammed.
I pinky swear that my NotAScamBank is FDIC insured, and that it has 20% interest p.a., would you like to deposit money with me?
Obviously the FDIC is gonna take a look and say "hah no, go away", NotAScamBank knows this, and won't even bother applying. It's a scam, why would they be honest about FDIC status?
Interestingly, even today you can still get much better than 7% in DeFi. No need to give your money to a curly haired dude living in a condo on an island. Who, at the time, was making a lot more than that on your funds.
In DeFi, you give your money to a "smart" contract, which can of course still get hacked or what not. Always assess your risk/reward ratio.
Where does the yield come from? Collateralized lending/borrowing markets. People are still gambling with crypto and they can do it better, if they can borrow funds. It got a lot smaller after the collapse of FTX, but hasn't stopped at all.
DeFi is a fascinating (to me) set of money lego's to effectively become your own bank. Like writing code, it takes a bit of time and effort to really dig in and understand the mechanics of providing liquidity. There is a lot of risk and a lot of reward. It is a bit of a minefield, but you do it long enough, you learn ways to navigate safely.
If you have any experience in currency conversion, this is the equivalent to that. If you've travelled you've probably bought and sold currency at the airports. If you're in Saigon, you get the best USD->VND rates not at the airport, but by going to the gold dealers who have shops on the streets. You have to shop around to different stores to find the best rates. DeFi enables you to effectively be that conversion service (gold dealer). But instead of USD->VND, it is ETH->BTC (or whatever cryptos you want to provide liquidity for, or lend/borrow).
I personally find this a fascinating aspect of crypto that few understand or even care to look into. It goes far beyond just the gambling aspect of buy/hold and number go up (or down). It turns into real finance and an actual valid use case for crypto. Sure, crypto is re-inventing the same old stuff that people have been doing for ages, but at least now people globally have the ability to try out these mechanics, instead of just leaving it up to the bankers (or gold dealers) to get rich on your money. I love the concept of power to the people.
That said, I'm not here to give financial advice about how to get the best rates. There is nothing weird about that. I'm just saying they are out there if you want to look for them and learn more about it all. Aave is just an example of the fact that a single site has a $7.5b market. Of course, if there is a market that large, there is going to be many other sites than that, and it is all quite competitive.
If you're interested in this, please do your own research.
> I sincerely hope that I never meet Sam Bankman Fried, because if I did I do not know what I would do but it certainly wouldn't be legal.
You are insinuating physical violence (I will assume) which is never acceptable.
And in your case you made a mistake ie
'I put a chunk of money in there'
and further SBF had no control over this: 'because this all unfolded right after I got fired from my last job, when I really needed my liquid money to pay for things like "my mortgage" and "food".'
The takeaway for others is events happen in life. Could be someone's fault could be nobody's fault.
Having all your eggs (or no eggs) in one basket can and does lead often to disaster.
Sorry for the harsh way of putting this. What you are indicating is that you had no cushion and made the mistake of being lured by a high return and ignored potentially any downsides. (Gemini is not and did not claim to be an FDIC insured bank. Also crypto can and does lose value unlike money in a bank. Even if you had been able to get 7% return if crypto loses value you lose money. Same as or similar to a dividend paying stock).
> You are insinuating physical violence (I will assume) which is never acceptable.
I mean, the guy stole about more than ten thousand dollars from me. I wouldn't actually hurt him, I was engaging in a bit of hyperbole (which I feel you're deliberately refusing to understand), but fundamentally I am not going to lose a ton of sleep if something bad happens to SBF.
> and further SBF had no control over this: 'because this all unfolded right after I got fired from my last job, when I really needed my liquid money to pay for things like "my mortgage" and "food".'
No, but it is why I am especially upset over this stuff. If it had happened when I was gainfully employed at the time I would obviously be upset to have thirteen grand stolen from me, but it especially hurt because I was a victim of all the layoffs that happened last year. I didn't claim there was some divine rationality, which I also think you are deliberately not understanding.
> Having all your eggs (or no eggs) in one basket can and does lead often to disaster.
> Sorry for the harsh way of putting this. What you are indicating is that you had no cushion
In the post that you are responding to, I mention that I did have a cushion, and I didn't put all my eggs in one basket. I had a fair bit of stock and ETFs. I had to sell in a down market, so that wasn't fun, but I feel like you didn't finish reading the post.
> Also crypto can and does lose value unlike money in a bank. Even if you had been able to get 7% return if crypto loses value you lose money
This was GUSD, which was ostensibly pegged 1-to-1 to the US dollar, so it wasn't supposed to be able to "lose value" in any substantial way.
> Gemini is not and did not claim to be an FDIC insured bank.
I looked at that archive.org page. That is the marketing page for the GUSD. (And separate the actual signup page my guess is it goes into a bit more detail.) Also that is not the page for geminiearn - that is where the issue was with losing money.
Now I will note that on that page it does say this:
"Gemini is partnering with accredited third party borrowers including Genesis, who are vetted through a risk management framework which reviews our partners’ collateralization management process. Additionally, on a periodic basis we will conduct an analysis of our partners’ cash flow, balance sheet, and financial statements to ensure the appropriate risk ratios and healthy financial condition of our partners."
But the thing is this. There is literally no way to prevent against outright fraud of a counter party. (See the Crazy Eddie story where they were shifting inventory from store to store when they were being audited).
Look one thing I will tell you here let's call it 'the bottom line'. I am an old timer. And I right off saw crypto involved risk and as such I did not either make or lose any money on crypto. As an again 'old timer' it just didn't make sense to me. I would have never gone down this road because being around for so many years right off it had the potential for issues. Plus again there is always counterparty risk.
Sure, I don't think I ever disputed the fact that I should have done more due diligence, and I feel like I've mentioned that fact multiple times now.
However, I do think Gemini/Genesis and SBF were deliberately obfuscating the risk to make these investments seem less risky, and obviously I have the right to be mad at SBF for outright stealing my money.
Was 7% in 2021 too good to be true? Yes, obviously, in hindsight it was, but that pays no bearing on whether or not I was robbed.
Forget the math, the tech, the error you made-- that lots of people made-- is we must evaluate the trustworthiness of the people running the show, and run like heck from any whiff of lack of integrity. My impression of the FTX folks was they exhibited catastrophic lack of maturity, at minimum. Now, the cynic says that perhaps folks were desensitized by shortcomings of crypto culture in general... which to my mind is a cautionary sign for anyone speculating in that area who has not yet been separated from their stake.
I didn’t actually do anything with FTX, at least not directly; I did not realize that the Gemini Earn program had anything to do with FTX or SBF until after everything collapsed.
I didn’t feel like the Gemini people were terribly unprofessional; at least not outwardly.
I think it shows some professionalism that the Winklevoss twins have committed $100M of their own capital to pay back Earn users. They are trying to do the right thing.
Don't feel too bad about it. Wealth wise, what doesn't kill you makes you stronger. Once you made it thru the tough time, you can always rebuild (unlike say, health).
My heart goes out to him...he's in a way worse situation than I was/am.
I was in a position that gave me more headaches than I'd like; unpleasant but fundamentally I'll get over it (most of my savings are in ETFs and treasury bills). I was able to sell some stock at a bit of a loss, pay for my mortgage and food until I found another decent job. It sucks, I don't like losing money on my investments when I know I could have waited them out had I been employed, but fundamentally not earth-shattering.
But I did read stories about people who really bought into cryptocurrencies, and were really taken for everything they were worth by the Gemini Earn program, which it sounds like your friend was.
I can only hope that the SEC lawsuit against Gemini is successful, and all the investors are made whole; I cannot speak for your friend, but I'd be happy enough to forfeit my interest if I could get my principal back.
> made me feel like an idiot for ever thinking that cryptocurrency was a good idea
The very broad notion of digital currency involving cryptography is as good, bad or ugly as any number of other everyday concepts and mechanisms. There's no special inherent evil in that broad notion.
Your investment choice, on the other hand, was average. Not terrible. Average. That is, you diversified, you lost some, but you're still around to play the game, and still ranking very highly in the overall human race affluence stakes.
Snake Oil, or even simpler, mundanely-poor investments, from all walks of life, are the true basis of idiot bait. Digital currency involving cryptography simply is what it is. It's quite likely that the near-to-medium future of humanity will involve quite a lot of it, in some form or another (not at all like most of the current forms, of course).
The IRS is legally required to seek all income taxes owed under federal law. That is hardly thievery. If the tax laws are unfair then take that up with Congress.
As for what the NY Times printed, that has zero relevance to tax liabilities.
FTX probably did have unpaid taxes, but could they have gotten to a $44B dollar unpaid bill? That implies revenue or payroll of order-of-magnitude $200B. I don't know FTX's finances but that seems extreme, even for them.
The article also only mentions what half the bill is. $20.4B of partnership taxes and unpaid payroll, but no info on the other $23.6B of taxes.
Edit:
From a random googled article: $1.02B of revenue in 2021. It seems like a long jump from that to a $44b tax bill - even if they had perfect accounting they would never have been able to pay that much
Article says “ According to bankruptcy filings on April 27 and 28, the IRS filed claims worth nearly $44 billion against the firms, including FTX.US and Alameda Research.”
Clicking through to the list of filings shows about 1850 items (rounded, 93 pages of 20 filings each), many of which don’t appear to be against FTX.
For example there’s a $2.5 billion one on the first page against “Paper Bird Inc”, who I haven’t looked up yet.
Welp, guess I picked a bad one. Paper Bird Inc seems to be owned by Sam Bankman-Fried… but anyway maybe they aren’t all owned by him, and regardless it might partially explain why the revenue numbers GP was looking up are much lower than the claims.
Amazing find, a list of each entity and owner would be great to see considering you chose a random company and yet it was within the SBF sphere of influence. What was the end game for FTX? Funneling money to its own shell companies to achieve…
The end game was to secure a regulatory monopoly for FTX. SBF was beloved in Washington circles, even the SEC Chair had exclusive meetings with him. It's also well known he spent enormous amounts of money on the elections:
It was not a coherent strategy. They basically put the whole industry on a trajectory that was unsustainable, and hoped that there's at least one more price increase/jump, that'll 10x their value, because in that case that means everyone is using crypto, there's no "backing off", etc.
Indeed, it seemed on the verge of collapse once the curtain was pulled back. I can’t see how a regulation monopoly would have done anything more than make its implosion that much bigger and influence more of economic and political structure as more entities would have become intertwined, pulled by the gravity of greed.
It is sure an upper estimate but the order of magnitude is maybe not off:
That revenue is probably mostly fees from the exchanges. Alameda as a partnership started with peanuts and was at some point (say 2021 fiscal year) was worth like 80b or whatever out of trading and made up coins whose cost is petty expenses on a web page and a few dev days, so an aggressive interpretation is that 80B minus 10 million whatever is capital gains, that passes through Alameda partners as personal income.
Of course they burnt it all the next year so there might be an equally big tax credit for fiscal year 2022, to be used against future profit/income lol.
Also, FTX had no concept or accounting of client assets, so for tax purposes it might be considered that all the money clients "deposited" was revenue, which is how SBF functionally treated it.
All we can hope for is that the entire policule is crucified. These financial criminals keep getting away with stealing absurd sums and we need examples to be made.
It's always wild to me when people bring up the polycule. The people who defrauded you are criminals. Who cares who they slept with and how they decided that unless you're a bitter baby virgin who is jealous they got your money and they got sex and you're left with just your right hand and an empty bank account?
The IRS has been signaling hard the past few years -- to all employers, big and small -- that the "contractor" category only works if you meet a bunch of tests. Anyone with a Gusto account, or a working HR department, knows this.
From a social-equity standpoint, I'd rather see FTX depositors get some cash, instead of having the IRS book the biggest recoveries. But in terms of what the law is, if we're looking at total FTX contempt for the right way to classify people on its payroll, it's hard to argue against the IRS coming down hard on this one.
Maybe if they break FTX's finances and spirit with this enforcement action it will both give the people willing to pull shenanigans like this pause to do so and also give investors pause from putting their money into obvious scams.
You can't paint it with such a broad brush. Employment laws are very fact specific and differ state to state. California was pretty sure Uber drivers were contractors, they brought an action, and the courts found against them. You really can't say unless you drill into a number of hairy specifics.
Not to mention, FTX was in the Bahamas and Alemada Research was based in Hong Kong, so people working there may not even be covered by US employment law.
This claim is the IRS to making up the biggest plausible number it can and then using that to review the facts and make a case to the bankruptcy judge.
Fun fact, the Kroll organization who's hosting the bankruptcy docs / helping manage the process is the successor org founded by Nick Kroll's father (from The League). He sold it and started several new ventures with similar names.
To all the idiots who lost money with SBF - please stop blaming SBF.
Even if ya'll will be given all your money back - you'd still manage to lose it again in a short time and blame someone else. SBF has nothing to do with it.
I'm not american, but sometimes I wonder if those things happen because a smart evil person manages to convince another negligent and unintelligent person to do a bad thing and take responsibility for it.
I mean I don't think we need full communism to prevent and solve this kind of crazy finance thing, but it's really weird how americans will often fight against common sense regarding finance, safety and risks.
There are days I want to believe capitalism can be "reformed" and made better, but other days, I tend to think finance should be managed and tightly controlled by the government to limit the level of damage foul play can do. And yet I can already hear armchair economist answering me about the invisible hand, the collective intelligence of the free market, decentralized decision making, etc.
It is really weird how currency and economics have been hijacked by politics. Such a weird phenomenon.
As an exasperated American who does have occasional conversations with other exasperated Americans, I know a lot of us see this and are stuck in our social/cultural current of people repeatedly informed that they should be angry and scared at reform of any kind.
You can't suggest anything without being browbeaten to death with someone's "Freedom" ideal that generally excludes solving any problems.
We're being shot. Don't ask about gun control, if we do that we'll spiral into a tyrannical hellscape (the irony)
People can't afford to get sick. Don't mention socialized medicine, you'll just end up footing the bill for illegals.
The capitalist class is abusing the working class, unions have their own problems so "ehh," and then there's people bending over backwards to take the perspective of the billionaires.
I expect any drastic finance reform would be met with similar fear from a class of people only ever abused by the thing they're protecting.
I'm not anti capitalism, but it needs better regulated. This is my point. We say we need some guard rails and safety protections, you take it as I want to burn capitalism to the ground.
same with guns. We need gun control. There's a world of gun control examples to sample and decide what or what combination might be a good starting point for us, we can't get to the table to talk about it.
Right now in the US we live in a very heavily regulated capitalist system. I’m not sure why you think there are no laws regarding capitalism.
The same is true of gun control. There are many, many laws already on the books regarding gun control. Yet you take the disingenuous approach of “they won’t even engage in a discussion about any sort of regulation”. The discussion is happening constantly, just because the outcome isn’t the one you want it doesn’t mean there isn’t a conversation.
> We're being shot. Don't ask about gun control, if we do that we'll spiral into a tyrannical hellscape (the irony)
Firearm homicides are concentrated among people who are mostly already criminals. I'm happy to give you sources if you'd like. Gun control wouldn't work well for people who already aren't following the law.
In terms of a truly "random" shooting that people are sensibly more afraid of, like a mass shooting event, you're roughly about ten times more likely to be killed or injured by that than being killed or injured by a lightning strike. Even for people younger than 45, heart disease or narcotics overdoses each kills more than gun homicides. By your logic, we should have fast food control and revamp the War on Drugs, leaving aside the fact that there is an actual enumerated constitutional right to civilian firearm ownership.
If you care about people being shot by others, banning AR-15s from law-abiding citizens does approximately nothing, so I find that a focus on gun control is not well-reasoned.
> People can't afford to get sick. Don't mention socialized medicine, you'll just end up footing the bill for illegals.
Healthcare costs are elevated in this country, sure. There's a lot we could do to alleviate that, including deregulation. Socialized medicine isn't all sunshine and rainbows, either; our northern neighbors are waiting an average of three months to see a specialist after being referred by a GP, then another three to four months before they receive actual treatment by that specialist. It's a classic example of a government-imposed price ceiling leading to a shortage.
> The capitalist class is abusing the working class, unions have their own problems so "ehh," and then there's people bending over backwards to take the perspective of the billionaires.
> I expect any drastic finance reform would be met with similar fear from a class of people only ever abused by the thing they're protecting.
Yes, those poor dumb rednecks who are always voting against their interests. I hope some day you can bend over backwards to take the perspective of the rednecks and see if you can find a different reason behind their motive.
I'm not talking about poor dumb red necks. I'm talking about dumb middle class software engineers with closets of shotguns and ARs for 'protection', that roll coal and talk shit about vaccines.
shut the fuck up and and realize the problem isn't farmers and rednecks its inner city twats that think they're farmers and rednecks. I live in AZ.
That would mean they'd be willing to discuss solutions and not freak out and rage at every conversation or potential solution. you're talking about a group of people with no solutions.
As much as I dislike FTX/Sam, there's no way this is correct. What the IRS is probably doing is naming the highest number they can think of in hopes of increasing the percent of liquidated holdings they get once this goes through bankruptcy, which is particularly scummy considering they're just taking the money from people who actually deserve it.
It's the 80's "war on drugs" all over again. A government being so powerful that could capture drug lords from other nations and get their money back, so now they can have the pie and eat it too. How many people from other countries invested money in FTX? How much they'll get back? Who is getting all of it by throwing legal dragnets?
People on HN have been calling BS on crypto for as long as crypto has been a thing. Crypto has not provided any value to society — besides giving people a false sense of security when buying drugs — but somehow it is a multi billion dollar market. The fundamentals never checked out and crypto has never been more than a curiosity for academics and tech geeks.
I’m no Michael Bury but it was pretty obvious this was eventually going to fail, the unknown was when. The whole system was so rotten you could not short crypto without exposing yourself to the same systematic risks which would cause the eventual collapse. Maybe your shorts were right, but good luck getting any money out after the whole thing implodes.
People will continue to get scammed for the rest of eternity so I think the best thing we can do is set up strong safety nets and welfare for those who lose their life savings. Regulation does help, but scammers will always find new ways.
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