SBF keeps saying there was a liquidity crisis at FTX, which is 100% not true. A liquidity crisis implies that he took deposits, flipped them into good, but illiquid investments, and ran into trouble because people asked for more cash than FTX had on hand.
FTX actually had a solvency crisis, where he took deposits, put them in completely inappropriate investments (many of which are now worthless, all of which were speculative nonsense) and is now revealed to have done that.
He's using the concepts of "bank runs" and "liquidity crises" because that's sort of an "aww shucks, got caught in an unfortunate circumstance" situation when what he actually did was one of the stupidest and most malicious things anyone in "finance" has ever done.
Who was on the other side of these losing trades? People need to follow the money trail. Where did the money go?
There are people who called the Alameda / FTX scam from day one, before FTX was even created (Alameda already existed). Then there are others, like Marc Cohodes, who realized SBF / FTX was a fraud when they looked into it. It's these people we should listen to. They knew SBF was full of shit back then and he's still full of shit now.
I do not buy the "inappropriate investments" angle. To me it was defrauding both users and investors by any means possible and funneling the money into the Bahamian blackhole. While putting the blame on "leveraged trades without stop-losses gone wrong".
There are just way too many things that do not add up: SBF/FTX bought a bank which belonged to the owners of Deltec in the Bahamas (the bank behind the whole iFinex (tether+Bitfinex) fraud, except that one hasn't blown yet).
And the latest amazing development: the current Bahamas attorney general used to work for... Deltec.
There's only one thing to say: you cannot make that shit up.
I don't think any movie or book writer could ever come up with something that insane.
When I say investments, I don't mean VC investments, I mean Crypto trades.
There doesn’t have to be another side to the losses. If Alameda / FTX was holding assets that depreciate in value, they would book losses along with everyone else holding the same assets.
It's not just that they were inappropriate, taking assets from FTX to prop up Alameda is fraudulent and should never have happened right? He claimed there was a firewall between the organizations.
I agree with your assessment that Alameda / FTX put customer deposits into “completely inappropriate investments” but there is a bit of a judgment call involved. Crypto fanatics could argue that the market will bounce back and those investments will be successful in the end.
[1]: https://en.wikipedia.org/wiki/Long-Term_Capital_Management
And what about customers deposits that ended up in $300m+ real-estate in the Bahamas (including some for SBF's parents, which they now said they'd be giving back to FTX: how generous once caught with the hand in the cookie jar)?
And what about the $100m or maybe more in political donation? ($40m from SBF to dems, now he says he gave the same account to reps but kept it shadow for it'd ruin his woke image and there's one of his accomplice who gave at least $12m to reps too)
That's already $400m right there that haven't been wiped out due to a market downturn.
And then the naming rights, insane ads, etc.
"Oops sorry we fucked up, we used your funds to gamble with 100x leverage like degens and lost it all (but don't pay too much attention to all the money we actually siphoned out of the system)".
I don't think you can compare LTCM to FTX/Alameda (I'm not saying you explicitely did but it's dubious). We're talking about SBF guy describing his magic ponzi box and Matt Levine answering him (april 2022 I think):
"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.".
FTX/Alameda is more Enron than LTCM.
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.
I doubt you can just put that in the ToS and EULA.
> In my view the path to prison for SBF is likely to come in the form of misleading investors rather than customers
This isn't like Theranos, there is clear and provable monetary harm that was done.
I think it's naive to think this is the case. It's reasonable to assume he knows those tokens couldn't have been worth what he claims they're worth, before or after the FTX collapse. The tokens didn't suddenly drop in value. He has experience as a market maker and remaining delta-neutral. We must assume all of what he claims is deception and/or preparation for the court battle.
Remember that there was a pamphlet for Alameda investors that promised something like "15% return with no risk." FTX also had an "earn" product that was paid out from a marketing budget. These were deliberate actions. They knew what they were doing.
May I point you to a chart showing the price of Solana (SBF's preferred token)? Down 80% in four months is a pretty sudden drop in value. To be clear, I think the fraud started then, but that was after the damage had been done.
>He has experience as a market maker and remaining delta-neutral
Yeah, but market makers in unexpectedly lopsided markets lose all the time. It's the risk that enables them to 'earn' a take rate.
If he was actually as skilled as he thought, his strategy could have made him unimaginably wealthy, but he wasn't.
I'd compare it to a magician throwing swords at an assistant on stage. You better be sure that you know what you're doing before you do it.
The thing I would push for today, would be an audit of all of his associates, including family, and yearly audits of his accounts by the IRS for the rest of his life. The risk that he has squirrelled away some crypto nest egg is too high, regulators should be vigilant to ensure not a penny of customer funds ever enrich SBF or his family.
His explanation and reasoning is that Democrat donations would be treated favorably by the media so those were done publicly, while "reporters would freak the fuck out" about Republican donations. So he made those in the dark.
Everyone seems to agree that Alameda is a hedge fund, but looking at the facts, FTX also appears to have been operated as one as well; but without the qualification of investors or others kinds of things. There's no just a really good correlate in traditional finance for "I'm going to act as a broker-dealer but actually I'm allowed to just invest your funds however the hell I like". Which is probably a good thing.
I'm not necessarily saying that everything in defi has to be regulated exactly like something in traditional finance, but there are some pretty deep unanswered questions on basic stuff like "did your customers know they were actually your investors?" and "what exactly was your business model?" and "what was your risk management approach?"
FTX made very clear promises about what it was - and that all customer deposits were safe, which we know is a lie because at the point SBF said that we knew the liabilities of Alameda and FTX was denominated in an imaginary currency.
I think everyone assumed Alameda were doing something clever. In reality, they were just idiots stealing from and front-running their customers. Lol.
These moments when you see the man behind the curtain, it is just ludicrous and shakes your faith in the "system" (I worked in finance, I remember meeting a fund manager, had made 9 digits selling his company...the guy was an idiot, he had got lucky with some distribution relationships and one stock pick, the company he was trying to hire me for has had absolutely terrible performance since I met him near on ten years ago now...life is really like this sometimes, people making billions doing work they have no business doing, everyone thinking they are genius despite that obviously not being the case).
That doesn't seem odd. They need people good at math and/or creative problem solvers. The platform they execute on doesn't need to be rebuilt for each new strategy.
> I think everyone assumed Alameda were doing something clever.
Everyone knew the strategy they ran was to list a perpeptual futures contract for a Solana shitcoin on FTX, and short it into the ground. Their initial capital was an arb between Japan and US exchanges. That arb later disappeared. There are some rumors that the initial profits were wasted long ago, and they got new capital from investors hearing about the Japan/US arb.
For someone who many see as a business genius, he's made a very questionable bet, and it's a reminder a lot of these people are more lucky than good.
Or maybe I'll be using the TwitterPay in five years to buy a Feather tablet so I can watch Vines.
There's many many people like us quietly trying to bootstrap enough traction to maybe get into YC one day... But if SBF ever wants to start another company it will be another record setting a12z seed valuation.
Irrelevant if he goes to jail ofc.
Would prison time be too harsh a sentence for him?
Are you familiar with the adage: The easiest way to rob a bank is to own one?
Here is the thing, FTX may not ave been a registered bank, but it definitely functioned as a fractional reserve bank: and in the end that is what matters most! SBF is so screwed, and a part of me makes me think he wanted to implode all along: despite being born on 3rd base he is still an immense failure, furthermore his perverted notions of effective altruism were revealed to be just another misguided cult like any other used by your run of the mill conman to maximize is ROI from the woke-mob gatekeepers in SV.
SBF is bankrupt in every sense of te word, financially as well as morally. What I can’t tell if it's affluenza or suicidal ideation/depression making him do these interviews.
(Not legal advice)
-- commonly attributed to Napoleon
But it's not clear to me that donating to campaigns in a handful of election cycles buys you very much influence within the DoJ. Influencing politicians in order to impact the nomination of judges or other appointees, or to pass certain laws - those are clear mechanisms, but they take many election cycles to implement. It seems to me like SBF's influence campaign was successfully building good will for the crypto legislation he supported, but that FTX/Alameda blew up before that could come to fruition.
I expect his donations to be largely neutral to his potential prosecution but am open to reporting surfacing facts to the contrary.
given how crypto attracts illegal activity i wonder if he cheated people who prefer to not get their justice through the legal system...
