Sam Bankman-Fried and FTX Were Up to No Good, Including Their Customer Agreement

The financial press has been all over the untimely demise of crypto “exchange” FTX and probable prosecution of its founder Sam Bankman-Fried. It’s too bad that for the most part, the financial press is still promoting the fraud-friendly Wild West of crypto by employing nomenclature that crypto touts use when talking to the press and customers that they disavow in their own legal agreements. FTX, for instance, disavowed that it was an exchange, as presumably most crypto “exchanges” do.1

We’ll start at the 50,000 foot level. FTX went bankrupt last Friday, with under $1 billion in liquid assets versus $ 9 billion in liabilities. Mind you, this black hole developed after Sam Bankman-Fried transferred $10 billon from FTX to his affiliated hedge fund, Alameda Research.

Many have taken to bandying about the term “Ponzi scheme”. But that’s doing a disservice to Ponzi schemes. Ponzi are well-ordered affairs and can carry on for quite a long time as long as there is enough new money coming in to satisfy the cash demands of those already in enterprise. Bernie Madoff’s ran for more than 20 years.

By contrast, setting out to falsify books and records sure looks like a plan to steal. From Reuters:

Bankman-Fried showed several spreadsheets to the heads of the company’s regulatory and legal teams that revealed FTX had moved around $10 billion in client funds from FTX to Alameda, the two people said. The spreadsheets displayed how much money FTX loaned to Alameda and what it was used for, they said.

The documents showed that between $1 billion and $2 billion of these funds were not accounted for among Alameda’s assets, the sources said. The spreadsheets did not indicate where this money was moved, and the sources said they don’t know what became of it.

In a subsequent examination, FTX legal and finance teams also learned that Bankman-Fried implemented what the two people described as a “backdoor” in FTX’s book-keeping system, which was built using bespoke software.

They said the “backdoor” allowed Bankman-Fried to execute commands that could alter the company’s financial records without alerting other people, including external auditors. This set-up meant that the movement of the $10 billion in funds to Alameda did not trigger internal compliance or accounting red flags at FTX, they said.

Get a load of the lack of agency: “FTX had moved around $10 billion of assets” as if no one in particular were responsible. Bankman-Fried denied creating the backdoor to Reuters, but he’s also trying to pass of the transferred and then disappeared $10 billion as just some sort of spreadsheet thingie that everybody missed.

And that’s not the only another backdoor. FTX let Bahamanian investors withdraw, citing regulatory preference. Wellie, someone profited from that:

Oh and this theft of the few remaining customer coins was set in motion by none other than FTX. From the Financial Times:

The Bahamas market regulator also said that it “has not directed, authorised or suggested to FTX Digital Markets Ltd the prioritisation of withdrawals for Bahamian clients”. FTX, which is based in the island nation, said after it halted customer withdrawals last week that it would allow redemptions of Bahamian funds “per Bahamian HQ’s regulation and regulators”.

Now FTX just happens to be headquartered in the Bahamas. Bankman-Fried is being detained by Bahamian authorities (they have a cute formulation, “under supervision“). It is not hard to surmise that FTX took this step to allow the execs and any staffers and friends in the Bahamas to hoover out the remaining monies.

On top of that, there’s allegedly a hack. It’s not clear whether it overlaps with the backdoor, the Bahamian two-step, or is a completely different scam, but it looks like the last. Needless to say, it’s awfully sus, or convenient, depending on your point of view, that it kicked in right after accounts were supposedly frozen as part of the bankruptcy process and regulatory interventions. From the Wall Street Journal:

Bankrupt cryptocurrency exchange FTX is probing a potential hack and asked customers to stay off the FTX website, the company said. More than $370 million worth of crypto funds appears to be missing, according to crypto analytics firm Elliptic Enterprises Ltd.

A rival crypto exchange said Saturday it knew the identity of the alleged hacker and would help authorities in their investigation.

The potential hack occurred Friday after FTX filed for bankruptcy. Ryne Miller, FTX US’s general counsel, said in a Saturday tweet that FTX and FTX US had started moving all digital assets to cold storage—crypto wallets that aren’t connected to the internet—after the bankruptcy filing….

Approximately $371 million in crypto assets appeared to be taken from FTX without permission, according to Tom Robinson, co-founder of Elliptic. More than $220 million of the tokens were quickly converted to the stablecoin dai or ether, the second-largest cryptocurrency, on so-called decentralized exchanges.

Such platforms process transactions automatically, making them popular among hackers to prevent funds from being seized, he said.

Another $186 million was also moved out of FTX’s accounts. Mr. Robinson said those assets were likely moved by FTX itself into secure storage after the bankruptcy filing.

Elliptic previously estimated that more than $500 million had been stolen in the hack. The analytics firm updated the figures after receiving new information about which transactions were authorized and which fund movements were part of the bankruptcy proceedings, according to Mr. Robinson.

Crypto exchange Kraken said it has been able to identify the user of the account associated with the unauthorized withdrawals from FTX.

So, based on this sketch, which might be too sketchy, one might speculate that this “hacker” purloined funds by moving them in a way that was essentially under cover of the transfer by FTX into cold storage, to the degree that Elliptic couldn’t tell them apart. And even though Kraken identified “the user,” is their KYC (“Know Your Customer”) process good enough that they can identify a real world person?

And yes, FTX was loosely run, to put it politely:

Now let’s turn to the FTX customer agreement, or more accurately, Terms of Service, which you can find on the Wayback Machine.

It’s the financial services industry version of a Nigerian scam letter. It would embarrass even a first year law student who’d gotten a C in contracts. One wonders if this is accident or design, given that Bankman-Fried’s father is a famously sanctimonious tax law professor at Stanford.

There are warning signs even before you give the document a good look, like its brevity (14 pages for the main agreement) and New York being a prohibited jurisdiction (presumably out of fear of New York State’s securities law, the Martin Act).

For instance, the agreement has some real howlers, like sweeping indemnification language followed by a Limitations of liability section which is unnecessary in light of the indemnification, and more limited.

The Your Content section flagrantly lies to customers. It declares “FTX.US does not claim any ownership rights in any User Content” and immediately contradicts that:

By making any User Content available through the Services you hereby grant to FTX.US a non-exclusive, transferable, worldwide, royalty-free license, with the right to sublicense, to use, copy, modify, create derivative works based upon, distribute, publicly display, and publicly perform your User Content in connection with operating and providing the Services.

Sorry, licenses do represent ownership rights. FTX’s terms suck out all their value.

Let’s get to the money part, where FTX was just as dishonest at it was in the [No Longer] Your Content section. Not that this sort of thing is uncommon in crypto-land, hence your humble blogger from the get-go calling crypto currencies “prosecution futures.”

A key thing to understand is that organizations like FTX are for the most part running unregulated mutual funds (aside from the provisions related to the handing of conventional currencies). Unless the contract very clearly says so, your coins are comingled in an omnibus account. The crypto players that do have what amount to separate accounts typically have different terms for their mingled coin offering and segregated ones, with the segregated accounts costing more.2

This language from FTX is false on its face:

6. Account Services. As part of your FTX.US Account, FTX.US provides qualifying users access to accounts for you to store, track, transfer, and manage your balances of cryptocurrency and/or dollars or other supported currency. All cryptocurrency or dollars (or other supported currencies) that are held in your account are held by FTX.US for your benefit….

Title to cryptocurrency represented in your FTX.US Account shall at all times remain with you and shall not transfer to FTX.US. Your balances in your FTX.US Account are not segregated and cryptocurrency or cash are held in shared addresses or accounts, as applicable. A valid purchase of cryptocurrency that is accepted by FTX.US generally will initiate on the business day we receive your instructions.

“Title to cryptocurrency represented in your FTX.US Account shall at all times remain with you” is contracted by the fact that the cryptocurrency goes into a pooled account. All you have is FTX’s ledger entries of what you have and its promise to honor them. You do not have ownership of those coins any more, just a claim on FTX if things go badly…oh, which you waived by agreeing to their egregious indemnification terms.

Put it another way, in a recent Credit Slips post, Georgetown Law professor and bankruptcy expert Adam Levitin was Seriously Not Happy about Binance’s failure to describe its custodial arrangements for its customer coin holdings. Levitin depicted Binance as an outlier among “exchanges”, in a bad way. I don’t see any mention of FTX in his recent article on cryptocurrency “exchanges” and bankruptcy, so I don’t believe he included FTX in that comparison. From what I can infer from his discussion of Binance, FTX if anything is worse.

As a lawyer friend summarized it: “We took your money and we’re keeping it and we’re not guaranteeing that you get it back.”

Separately, it is also frustrating to see the press and even experts refer to FTX and its brethren as exchanges when the Terms of Service pointedly avoid using that word (except a passing mention that FTX is not regulated by the Securities and Exchange Commission). It also denies that it is acting as a broker:

For the avoidance of doubt, FTX.US does not provide investment, tax, or
legal advice, nor does FTX.US broker trades on your behalf. All FTX.US trades are executed automatically, based on the parameters of your order instructions and in accordance with posted trade execution procedures…

Sorry, automated execution does not make a difference in determining whether a party is acting as a broker. This is silly drafting to try to shore up FTX presently falling outside securities and commodities regulation. In fact, at a minimum, all of these firms should fall under Investment Company Act of 1940 and be treated as fund managers.

In the mean time, some are having fun with this fiasco:

But if you entrusted your coins to FTX and didn’t use the Bahama exit, you have ever reason to be explosively angry. You are almost certainly an unsecured creditor, which means at the very end of the recovery line in bankruptcy court.


1 There are too many “exchanges” to prove that negative without investing enormous amounts of time, but Georgetown law professor Adam Levitin did look at quite a few customer agreements and his paper seems to confirm that view.


Cryptocurrency exchange Gemini takes a different approach that underscores the commingling issue. Gemini offers its customers two different ways of holding cryptocurrency assets: a Depository Account or a Custody Account. In a Depository Account, Gemini will pool customers’ cryptocurrency holdings, which will be tracked solely on Gemini’s own ledger.

In contrast, in a Custody Account, Gemini will segregate the customer’s holdings with unique blockchain addresses, directly verifiable via the applicable blockchain, that will be indicated in Gemini’s books and records as “belonging” to the customer. A
Custody Account is “intend[ed] to create a bailment” of the cryptocurrency assets with Gemini.

Using a Custody Account is more expensive however— Gemini charges a 0.4% annual fee and a $125 fee per withdrawal.47 No such fees exist for Depository Accounts.

Print Friendly, PDF & Email


  1. digi_owl

    Watch there being some ground rule regulations formulated based on this, and then it is all honky dory. Because Wall Street had too much to earn on the goings on to shut it all down.

    1. Tom Stone

      SBF is my new Hero of “Neoliberal American Capitalism”, supplanting Adam Neumann of WeWork!
      The sweetest kind of scam, ” The large print giveth and the small print taketh away” exemplified.
      I’ll be humming the tune from “Brother can you paradigm” under my breath all day.

  2. SocalJimObjects

    SBF gave the Dems 40 million for the mid terms. People who got the money should be thinking about returning the moolah. Sure 40 million is not a lot given we are talking about billions here, but Dems should be worried about the optics?

    1. DJG, Reality Czar

      Social Jim:

      “Dems should be worried about the optics?”

      The party of Madeleine Albright (who cares about dead children?), Hill and Bill (name yer poison), and Kyrsten “Dance of the Minimum Wage” Sinema?

      Come on. Send me a pound of what you’ve been smokin’

  3. The Rev Kev

    It sounds like the whole thing was a money-laundering scheme – with kickbacks to the Democrats – which was why it was propped up until the midterms was held when it suddenly fell over. And that it was set up as a money-laundering scheme right from the get-go. But because the Democrats are so deeply involved, I would expect this too be slow-walked by the FBI and any attempt at trying to bring Bankman-Fried back from the Bahamas will always somehow be frustrated, even though the US and the Bahamas has an extradition treaty in place. When you think about it, there was warning enough that Sam Bankman-Fried was a crook. It’s in his name – Sam BANKMAN-Fried

    1. Yves Smith Post author

      His girlfriend and partner in crime (Ellison?) is reported to be in Hong Kong, trying to get to Abu Dhabi because no extradition treaty with the US. But if any Chinese players lost real money in FTX, the Chinese mafia are reported to be the most brutal in the world…..

      1. Michael Fiorillo

        Ellison looks like she’s fifteen years old, and Fried’s name should have never made it out of the Writer’s Room: golly, can’t our predatory elites do better than this?

          1. Michael Fiorillo

            Indeed, and while I guess I have some sympathy for retail “investors” who got scammed, I’m small-minded and petty enough to admit that the Schadenfreude regarding everyone else is absolutely delicious.

          2. John Zelnicker

            digi_owl – According to the post his father is a “sanctimonious tax law professor at Stanford”. (lol) I think his mother is also a law professor at Stanford.

      2. flora

        His girlfriend is daughter of MIT Economics Professor Glenn Ellison. Prof. Ellison was Gary Gensler’s boss when Gensler was an MIT prof, before Gensler became head of the SEC.
        So many coincidences. / ;)

        I don’t know who cooked up the scam or who funded it, but I’m pretty sure it wasn’t a pair of well-connected college kids out on a lark. My 2 cents. That said, they need to serve serious time in a real prison. Assuming they’re found guilty of felony fraud.

        1. Pavel

          File this under “It’s a small world”… from CNN in April 2015:

          New York (CNN)Hillary Clinton’s campaign will add to its top ranks a man who’s known for being tough on Wall Street.
          Gary Gensler, the former chairman of the Commodity Futures Trading Commission, will serve as the Clinton campaign’s chief financial officer, Bloomberg reported.
          Gensler would bring a wealth of knowledge about the financial industry, as well as the federal agencies that regulate it, to the newly launched campaign.

          He was chairman of the CFTC, the government agency that oversees the derivatives markets, from 2009 to 2014. He previously served in senior Treasury Department roles under President Bill Clinton, and prior to joining the Clinton administration worked at Goldman Sachs for almost 20 years.

          –Meet Hillary Clinton campaign’s CFO: former Wall Street regulator Gary Gensler

          This whole thing stinks to high heaven, and might be the biggest political campaign finance scandal ever. Though as others have pointed out, don’t count on Biden’s “Justice” Dept to do anything about it in the near future.

          As for Gensler being tough on Wall Street… give me a break.

          1. flora

            re: “He was chairman of the CFTC, the government agency that oversees the derivatives markets, from 2009 to 2014. ”


            “tough on Wall Street.”

            The joke practically writes itself.

            1. Yves Smith Post author

              He actually is tough on Wall Street. You have Gensler dead wrong.

              The CFTC is a secondary regulator and Gensler was constantly stymied by Geithner and Bernanke.

    2. chuck roast

      Stabenow (D), Chairwoman of the Senate Committee on Agriculture, Nutrition, and Forestry, (perfect!) introduced the Digital Commodities Consumer Protection Act of 2022 in August. The Commodity Futures Trading Commission was to be given the nod ;-] to regulate digital commodities. She shoulda tweeted it…then she coulda deleted it. Is corruption more acceptable than stupidity?

  4. Amateur Socialist

    I would be anticipating the prosecutions except I’m old enough to remember Marc Rich

    Maybe we should start a pool on what date the Biden pardon is issued. I’ll take 12/23/23 just because it’s my 63rd birthday.

  5. divadab

    Not a surprise this character was swanning around with Bill Clinton and Tony Blair – birds of a feather…..

    And as to anyone who would entrust their money to this guy, there’s one born every minute!

    1. Michael Fiorillo

      Not to belabor the obvious, but ya gotta say that, given all the wet kisses with Epstein, Elizabeth Holmes and Sam Bankman Fraud,, Bill can really pick ’em…

    2. cnchal

      Sam wasn’t swanning, he was paying the venal long torso vulgarians big bucks to sit in those chairs.

      I predict Sam skates. Greedy nerds having big fun, mistakes were made, big shots suckered, no biggie in the land of billions and trillions.

  6. DJG, Reality Czar

    This is all much too Zeitgeisty:

    “which was built using bespoke software. They said the “backdoor” allowed Bankman-Fried to execute commands that could alter the company’s financial records without alerting other people, including external auditors.”

    And I am the czar of all the Russias. (Well, that’s true, so you will have to take my word for it.)

    Many thanks to Yves Smith for putting this post together. For a long time, Yves Smith and Lambert Strether have called cryptocurrency “prosecution futures.” Now we see why. The whole thing was nonsense on stilts.

    Yet some people, a select few, will have stolen enough of the “bespoke” money and have it cached somewhere.

    I’m not in favor of capital punishment, because it falls on poor people. In this case, though, I may be persuaded otherwise. It would “clarify” the situation indeed. And we should be collecting money to put up a statue of Martha Stewart, the sole fraudster of our times to serve a jail sentence, it seems.

    At least during the Tulip Craze, somebody or other got some handsome flowers.

    1. chuck roast

      It really is a bespoke scam. Guarantee nobody ever checks into the Graybar Hotel. It seems that Sullivan & Cromwell is participating as the bankruptcy advisor to FTX. This will foam the famous runway for all the well inter-connected. Now, the primary concern will be to get everybody (and it seems like a lot of people) to practice omerta.

  7. Watt4Bob

    That PBS special Crypto Decoded, seemed a soft sell, highlighting the altruistic motivations of the youthful ‘pioneers‘ executing their “utopian vision“.

    While mentioning the obvious possibility that crypto could be “Snake Oil“, there was an obvious slant in the content towards the good intentions all around.

    How in the world does the story of crypto currency become the story of the wonderful things being planned by the gullible marks who anticipate huge returns on crypto ‘investments‘?

    Reminded me of Lloyd C. Blankfein’s incredible assertion that banks were …doing God’s work.”

    “We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. We have a social purpose,” he told the paper.

    Remember when public television offered an alternative to the criminal conscensus?

    1. Amateur Socialist

      Yeah we sat through that pitiful whitewash too. It’s NOVA not FRONTLINE so they were dutifully propeller headed about the gee whiz math background without bothering too much with the actual real life fraud. Including flogging a newly minted equity coin that was supposedly going to address systemic inequity in housing and other infrastructure. Which has already lost half it’s value since the show was produced.

      Voia to the lah.

  8. Wukchumni

    You know its funny, I couldn’t really tell you anything about how normal life was 300 years ago because everything is colored in a series of financial bubbles of the era that were all based on great expectations of unseen riches none of the investors had ever seen, but were sure it would be their Golconda from afar.

    Its of course different with the cryptocurrency bubble, but not really.

    Sam Bankman-Fraud will be the John Law who emerges out of the murk to be remembered for centuries to come, so he’s got that going for him.

  9. A quiet man

    The “license” language is oppressive, but by no means unusual. Any social media website or online advertiser worth its salt will have similar terms, confirming your ownership to your intellectual property while also requiring you to give the site a license to use it. It’s justified as still belonging to you, in that the right of usage is non exclusive (you can still give rights to others to use the same intellectual property).

    I don’t think that it is intended to apply to the crypto currencies stored with the site/exchange. Such terms typically are in relation to forum posts / images that the user uploads.

    1. Yves Smith Post author

      There’s no reason to have this in an already underweight investment document. You don’t see grasping for your IP from Vanguard, fer Chrissakes. And for anyone, ” transferable” and “the right to sublicense” are unconscionable.

        1. flora

          I wonder how many “investors” in the know were looking for a laundromat instead of an investment. “In on Tuesday, out by Thursday.” / heh

  10. Wukchumni

    Saw something quite telling on the NYT online fishwrap…

    The only mention of FTX or SB-F on the front page is an article with the header:

    FTX’s Collapse Casts a Pall on a Philanthropy Movement

    Omission Accomplished!

    1. flora

      “Philanthropy Movement.” That’s a nice touch, whitewashing with a hint of virtue signaling. / heh

  11. Rip Van Winkle

    Sam and Caroline couldn’t run a Taco Bell drive-through on the night shift.

    Who is the Edgar Bergen behind these Charlie McCarthys?

    1. Wukchumni

      Sam and Caroline couldn’t run a Taco Bell drive-through on the night shift.

      ‘Ok, that’s a Nacho money ‘Fried’ Box, vegan Chalupa Supreme and a Wild Cherry Freeze. Please pull up and pay at the first window because they don’t trust me with transactions anymore, and have a nice day.’

  12. FreeMarketApologist

    As an auditor specializing in brokerage and trading systems, I’m waiting for Prager Metis to lose their license to practice, although it may be a long wait, as the scope of their work was probably quite limited to the US entity, and they will be able to disclaim knowledge of management’s subverting of internal controls (not that I think FTX had any material internal controls).

    In addition to all the red flags Yves noted above, the other one is the ‘bespoke’ accounting software — at the general ledger level, there’s no need for custom software — all decent off-the-shelf packages support multiple currencies, crypto or otherwise. While g/l software isn’t that complex, it’s tricky to get it right, and there’s no need to write a new g/l from scratch – too much risk of introducing errors (or back doors, apparently).

    And I’m waiting to see who on the VC funds’ due diligence teams takes the hit – probably nobody, as they’re essentially paid to take big risks, and extensive due diligence isn’t a hallmark of big risk taking. I wonder if there are any CPAs with extensive experience in forensic accounting on those teams?

    1. Yves Smith Post author

      Sadly the private equity uses bespoke-ish software for portfolio company financials, which allows for manual override of financial records:

      Today, we are going to examine iLevel in greater detail. We will see that this company is built from the ground up as a vehicle to convince PE investors and the SEC that Blackstone and other PE firms have implemented robust financial controls over the companies they own. The reality, however, is the opposite: by design, iLevel gives PE firms unprecedented ability to cook the books of their portfolio companies while maintaining a facade of compliance.

      This may all seem like a very arcane discussion of reporting workflow, but it is important to understand that the PE firms want your eyes to glaze over. The key issue is that PE firms want their investors and the SEC to believe that their iLevel database has been constructed in a tamper-resistant fashion, which is always a central design goal of accounting software systems. If an accounting system allows people to change entries after the fact, that system is absolutely, utterly worthless. But that’s what iLevel explicitly allows to occur because, rather than extracting the data directly, it requires portfolio company employees to re-enter information into iLevel from their general ledger accounting system. Moreover, iLevel presents as one of its advantages that “key stakeholders” can “verify and approve the data”. That’s code for “tamper with”.

      1. Laura in So Cal

        I’m kinda shocked that accounting people or auditors didn’t notice any changing of the general ledger after the fact if this was an on-going practice. In both lublicly traded companies I worked for the monthly income statement/balance sheets were frozen and stored separately from the accounting system as paper or pdf. We even did this in the small privately held company I worked for right out of college. The first time the YTD numbers showed a discrepancy, flags should have gone up.

        If it was a one time thing, then I can understand why it wasn’t caught.

        1. Yves Smith Post author

          The accounting types work for the PE owner.

          You assume audited financials for the portfolio companies. Not required.

          And PE generates more professional services and legal fees by far than any other industry.

          1. Stephen

            I understand that audits are not needed for privately held non traded companies in the US.

            Varies by jurisdiction though. In the U.K. (for example) all limited companies need audited accounts, whether publicly quoted or not, unless classified as “small”. Hardly any portfolios would qualify as “small”.

            Of course, audits are not such a great protection anyway and filing deadlines are relatively generous so it is not exactly a real time constraint. We have also seen many accounting related disasters and holes in accounts within businesses that were “audited”. So your overall insight is 100% valid.

            Your comment on professional services fees generated by the PE industry is also totally correct and interestingly receives very little public profile. Much of the growth in the global consulting industry over the past fifteen years has certainly been fuelled by PEs for acquisition, disposal and “restructuring” support. I have seen that at first hand. Any downturn (eg from more expensive capital) will for sure hit a lot of very well heeled and vocal people beyond pure financiers!

            As an accountant, I have also tended to find that PE operators (with exceptions) do not always understand operational accounting so well. They understand valuations and EBIT but balance sheets (the place where much of the real action is) are usually not so well analysed.

      2. Tom Stone

        An accounting system that allows people to change entries after the fact is extremely valuable, to the right people.

      3. skippy

        Stuff like underweight investment documents or if an accounting system allows people to change entries, after the fact, that system is absolutely, utterly worthless. More so that without these sorta things being properly regulated by the state that every other thing built upon it is next to worthless e.g. how can one invest[tm] when all the information is a lie and can be changed arbitrarily – even after the fact.

        I mean historically markets were built on very accurate accounting, spawned what we now know as written language and to a degree physical money.

        So in some mentally deranged perspective fueled by some out of whole cloth ideological perspective, which presents as a pro market group – they are actually attacking the very foundations of/too Markets. Seeming for the prospect of individual paydays … aka unenlightened self interest …

  13. Mikel

    I’m taking notice that these mavens of exchanges, blockchains, and “clouds” consider the ultimate security for their data/assets to be “cold storage” – something not connected to the internet.

  14. skk

    I’ve been following this all on a Twitter Spaces audio discussion all thru the weekend. The usual crypto mavens are there – but Musk dropped in for a bit too, so did the Premier of the Bahamas. I haven’t followed a train wreck 24×7 like this since Apollo 13. You can follow by following @MarioNawfal or KimDotCom.

    I don’t have any shitcoins, Ethereum or Bitcoin so I have no direct stakes in this fraud.

    1. Tom Stone

      I’m looking forward to some execs explaining their Doo-Doo diligence when deciding to invest (!) in in this virtually risk free high yield product.
      I have encountered quite a few risk free or virtually risk free investments over the decades and they have performed consistently.

      1. skk

        Yeah, their term sheet specifically offered 15 % risk free . What was ‘Sequoia CapitAl thinking?
        Yeah , you invest 150 million in ftx, ftx invests 500 in Sequoia. Wow.

  15. David in Santa Cruz

    So if a degree from Stanford confers an elite impunity “Get Out of Jail Free” card, imagine what being born on the Farm gets you!

    I loved this quote yesterday in Fortune:

    Interestingly, at least in hindsight, that relationship was one of the reasons some investors said they thought FTX was unlikely to stumble. “They had one of the greatest backstops—a super-profitable crypto exchange connected to the No. 1 trade maker in crypto,” the investor said. With the implosion of FTX, this investor’s stake, once valued in the millions, was wiped out.

    In other words, the investor inferred that Sam and Caroline were frontrunning bitcoin trades but that s/he was benefitting. The mark always thinks that s/he’s in on the con…

  16. Frank Little

    Along the same lines of tech executives sending their children to private schools where computers/tablets are scarcely used if at all while pushing it as the magic solution for other people’s kids, I find it funny that despite all the talk of blockchains being useful in tracking where money goes, no crypto company uses them as part of their internal accounting. As I recall the NYAG found Tether tracking billions in reserves on a single spreadsheet and it seems a similar method was employed at FTX. I’ve never bought this argument for it and it seems that, when it comes to their own money, these crypto boosters don’t either.

  17. Societal Illusions

    “untimely” in what way? Granted SBF only funneled around $40 million to favored political groups, immediately after the election seems like it could be just perfect timing.

  18. Tom Stone

    FD, we’ll disagree there.
    I’m very much in favor of not just rolling back the Bankruptcy acts to pre 2005, but expanding it in ways that are favorable to the bottom 75% of the populace.
    The BK “Reforms” of 2005 were all about class warfare and punisihing the weak for fun and profit.
    And don’t underestimate the role of cruelty in US Policies across the board.

    1. fresno dan

      I’m doing some parody of the Matt Damon commercial.
      If you are in crypto, bravely investing in it does not favor you. Likewise, investing in crypto has a tendency to make the “investors” poorer, which most people would not consider being a favorable outcome…

  19. LY

    I’m confused what scams they’re running. Putting aside the fact the whole concept is… dodgy, there appears to control fraud. I got the part about not-a-mutual-fund on not-an-exchange, but there seems to be a “rug pull” with FTX’s own scrip?

    Seems less of a ponzi scheme nor a “pump and dump”.

    Anything else am I missing in my taxonomy and classification of FTX’s scams?

    1. Joe Well

      It does seem like in the end, the worst of what they did was stealing the customers’ deposits. Maybe they were trying to do more exotic fraud like front-running the market, but in the end, they just took people’s balances to gamble with and now, I am guessing, to pay back their most dangerous criminal depositors.

    2. ChrisPacific

      I think there are two questions here:

      1. Was the setup and premise of the fund legitimate, and
      2. Was the part about helping himself to $10B+ right before bankruptcy (and making $1-2B of it vanish into thin air) legal?

      The answer to #2 would seem to be almost certainly no (fraudulent conveyance and outright theft).

      #1 is mostly above my pay grade (see the discussion later in the post) but it most definitely didn’t pass the smell test for me. A bit over a month ago Matt Levine interviewed this guy and had the following to say:

      “I think of myself as like a fairly cynical person. And that was so much more cynical than how I would’ve described farming. You’re just like, well, I’m in the Ponzi business and it’s pretty good.”

      The guy did not even deny it, but launched into a long form defense of Ponzi schemes (without ever actually using the word). You can find the interview without much trouble if you’re interested. If the CEO of the fund you’re invested in admits in a Bloomberg interview that it’s a Ponzi scheme, I would regard that as a pretty strong sell signal.

  20. Basil Pesto

    Word on the street is that Michael Lewis has been shadowing SBF for the last 6 months. I’m looking forward to the movie.

    1. Acacia

      Heh… the Interwebs have already generated a movie poster maquette for The Big Short 2, with SBF, Kwon Do-Hyung, Changpeng Zhao, and Michael Saylor. Tagline: “The Dip Just Kept Dipping.”

      1. Michael Fiorillo

        Yes, Lewis’ books invariably tell the tale of a brave maverick who pursues and successfully achieves his vision despite the naysayers (and in the case of The Big Short, Bernanke bailing out AIG, which allowed those shorts to be paid off)… although it looks like he may have shift the focus a bit for this story.

        Good stylist, though, even if his premises are frequently false…

  21. calltoaccount

    Too bad neither the article or comments make reference to fact that FTX also sponsored the rigged “Together Trial” used to demonize Ivermectin as an effective treatment for Covid-19.
    Seems likely the same thugs who masterminded the money laundering scheme between FTX, Ukraine and DNC are also Big Pharma & BARDA collaborators. Evil manipulators no matter which way you look at it.

Comments are closed.