The central issue is whether FTX user funds were used in violation of the terms of service. Whenever that question comes up, the open and honest SBF rolls over and plays dumb. He doesn't have the details. His dashboard didn't show it. He lost track of "important things." He doesn't "know what to tell you."
Everything was an "embarrassing mistake."
SBF's problem is that the only way for FTX to become insolvent is that user funds were being used in violation of the terms of service.
tl;dw: It's hard to get SBF to admit to fraud involving Alameda because he can fall back on the excuse that he wasn't the CEO and didn't know what was happening (even though there's every chance he actually did). So the youtuber hit him with a more targeted question: if FTX guarantees deposits are not traded, why were deposits not able to be withdrawn -- where did they go? He gets SBF to admit that they were commingling regular deposits with funds from customers doing riskier things like margin trading, and during the run those riskier users withdrew funds that should have been deposits that were set aside in a separate pool. That exposed regular depositors to risk contrary to what was laid out in the TOS. SBF gets mad and lashes out.
FTXs terms didn’t allow them to use customer’s money as deployable capital. That’s SBF committing fraud and doesn’t change the low transaction costs and speed of the network, much like madoff didn’t make the concept of cash worthless.
Is it at all possible that SBF is "merely" inept (yet still culpable)? Or is there any way to know whether SBF knew what he was doing was making FTX insolvent?
A bit off topic, but I hope this thread will not be flagged as mine days ago.
Negative discuss about FTX is seems sensitive... I still don't know why many people still defense for FTX and SBF. Thousands of people lost all their money.
FTX's current CEO, in charge of the bankruptcy, explained why SBF was, once more, full of it. The accounting by which FTX.us would be solvent relies on the $250m that LedgerX owns (FTX.us bought LedgerX). The problem is that... These $250m came from Alameda and is money stolen from customers and investors as part of the multiple frauds SBF committed.
One question is what was in the agreement for FTX users? Can FTX use deposits for investments and to fund his other businesses?
In my view the path to prison for SBF is likely to come in the form of misleading investors rather than customers, but I dont know what the pitch deck told them at the time of funding. It might not even be against the law regarding what he did to customers despite the immense destruction.
Having followed a lot of the SBF discussion since he keeps giving interviews, here's the FAQ--
1) How did you lose $5ish billion of customer deposits?
- They were deposited to Alameda, a totally independent hedge fund run by an unrelated party (my ex-girlfriend who lives with me). We credited Alameda without properly debiting Alameda on FTX.
2) Why didn't you track them?
- There was a bug in the dashboard. I made a boneheaded mistake. Oopsies.
3) What happened in the days leading up to the collapse?
- It was an attack from Binance, they're the bad guys. They cashed out and broke FTX.
4) Wait but they cashed out their assets, how would that effect people who had cash and other assets at FTX?
- Well we didn't comingle margin and non-margin customer accounts/assets if that's what you mean. It's more that we had this terms of service that was really complicated. Yes there's a part of the terms of service that says we won't lend out your assets, but there's this other part somewhere that says we will that applies to everyone even though it says it only applies to margin accounts. It's because of complex accounting. This is all actually just really complex and I don't remember all of it.
Is anyone really buying SBF's excuse that they "accidentally" used the funds because the accounts were labeled incorrectly. I mean, come on. Of course they did it willingly. You don't just trade to the tune of $5-10B without knowing where the money came from.
He also assured everyone on Twitter that FTX US was fully solvent and then filed for bankruptcy hours later.
Did FTX US users have their funds lost as well as FTX global customers prior to bankruptcy proceedings? The way SBF painted the picture I assumed they were two separate entities; would this be in the SEC's purview then?
Contrast this to SBF's recent tweets and statements to the Vox reporter and you get a strong sense that SBF is somewhat delusional about his own competence and culpability in FTX's collapse. From the Vox DMs his biggest regret was filing for chapter 11, which suggests that he somehow wanted to continue running this shitshow with a huge hole in the balance sheet.
The "least bad scenario" I read is that if we assume the money was lost through "well-intentioned but incompetent bumbling" then nevertheless the company "lied, constantly, about how carefully it was keeping track of risk and customer money".
They were supposed to have automated systems to instantly liquidate margin positions like Alameda's so FTX wouldn't lose money. Without favoritism or human judgement.
Now SBF is going around apparently saying "aw shucks, I made an error in judgement and also in arithmetic". Ok, noted, but that shouldn't have mattered?
Another misdirection is calling this a "bankruptcy". It is a liquidation. The only assets FTX had was other people's money.
"The question that has never been answered is how SBF made money in the first place."
It is the same issue we see with every "tech" company. The so-called "tech" is worthless. How much would anyone pay for the FTX software. That is why "tech" companies must conduct surveillance and sell ad services. They do not produce anything of value.
If the "value" of whatever is being sold by the "tech" company1 can go to zero,2 then it is questionable that it had any value to begin with.
1. If they are are in fact selling anything. Many sell nothing. They just take money from VC and try to grow.
No, FTX was making bank in fees. They just got greedy and loaned customer funds the SBF’s hedge fund to gamble with. Hedge fund went bust and now the loans default and the collateral which was just funny money to begin with is worthless.
I think people are jumping to conclusions by saying that because FTX.us is included in the filing, all user funds are completely gone. Not to say I blame them for thinking the worst, but we'll probably know more once the dust settles.
FTX was insanely profitable (100s of millions in revenue, low expenses). If SBF hadn't have taken customer money they'd still be around. Even now the CEO overseeing bankruptcy has recovered 90 percent of customer assets. Their downfall was absolutely accounting shenanigans, not an issue with the core business.
Their product was letting people take leveraged gambles on crypto, so arguably not a social good.
It might be true that FTX customers would be better off with FTX still running with or without SBF. But that does not negate the fact that lending customer money to Almeda is capital F fraud.
Everything was an "embarrassing mistake."
SBF's problem is that the only way for FTX to become insolvent is that user funds were being used in violation of the terms of service.
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