And I just came across an article that explains the most recent twist in this. The last loans taken out by the miners were backed by the mining rigs themselves, because that's all these guys have left as collateral. And now the loans are defaulting and they are handing the crypto trading firms their near-valueless specialized computers. https://www.law.com/dailybusinessre...ruggle-to-repay-debt/?slreturn=20221101135341
SBF has been doing a lot of interviews in the last few days. And it's no use listening to them for information about Alameda because it's all lies and obfuscation. But there's still information in there about SBF. And one thing is clear - he thinks he's a motherfraking genius. He's sure he can talk his way out of this mess. He literally said that his lawyers told him to shut up, but he won't because "they don't understand the broader context". His first lawyer already left, supposedly his current one (a Stanford friend of his father's) quit too. He also says that he could still save FTX and give everyone back their money. I don't know if he actually believes that or if he's trying to sway his eventual jury. Either way it's bogus because it's based on his FXX coin having value and it doesn't.
SBF's self-incrimination tour continues. In recent audio discussion he admitted that when people bought Bitcoin through FTX, no actual trade took place, nor was there some store of Bitcoin in FTX (or Alameda) the account holder had a piece of. When you wanted to withdraw your coins, maybe FTX had the cash to go buy some and maybe they didn't. It was pretty clear they were doing this, but admitting it is something new. Some of this also took place in Celsius, and it probably exists in all exchanges. In old-timey talk he is admitting to being a "bucket shop", which in the late 19th and early 20th century were places to buy stocks and bonds but the shop never actually bought them. It is very illegal. Does SBF have some ace in the hole that he thinks will keep him from getting arrested? He's acting like it.
This Financial Times article shows one of the ways FTX and Alameda lost so much money. One guy was dealing in the small-time token mobilCoin. He was able to gather a large amount, pumped the token so the price went up 10 times what it was, took out a hard money loan from FTX based on the short-lived value of the coin, and walked away. FTX / Alameda lost somewhere in the high hundred millions to a billion dollars on that trade alone.
Your hit on the key to it all dear @spejic ! In all these staking & derivative style transactions that FTX offered, there is no economic value. It's a zero sum game where a counter party has to have the other side of it. Alameda's role was to provide liquidity to FTX - SBF says this himself - that is how they got the ponzi train rolling. i.e Alameda had the losing side of many of these trades. But as we know, FTX doesn't enforce margin calls and require Alameda to pay in its losses with fresh cash. Rather, as left and right hand, they just stole the client money. This all works, so long as not too many clients try to withdraw their winnngs. SBF alludes to this in the latest Bloomberg piece. $8bn is 'missing' because it was essentially fictional.
Coppola has a good take on how the internal accounting worked. On November 10th I wrote about how the FTX-Alameda fraud might have worked, and why in my view both FTX and Alameda were insolvent. It now seems that apart from a few minor details I got it right. It was a deliberate, systematic fraud from the start. https://t.co/pYJxmoEnmp pic.twitter.com/YxgW2fYxrF— Frances 'Cassandra' Coppola (@Frances_Coppola) December 3, 2022
Still mostly Greek but this sounds about right: So essentially FTX depositors were investing in a hedge fund wrapped in an exchange.— Bubbleraj (@RajivSiv) December 3, 2022
Some of it was real. People did put in real money. How much of it was real - I'm not sure. We'll find out somewhere along the line in the bankruptcy.
Yes - that is Coppola's argument that it was always a scam ponzi You put in your money which is basically stolen, but you are credited in your trading account with your gains, which you can withdraw - but it isn't your money you are withdrawing - they just pay you with capital from other investors. This is what the Bloomberg interview gets at - 8bn of client existed in the spreadsheet, as a fictitious entry This type of ponzi can exist for a long time, provided liquidity stays high, so that the insolvency is not revealed.
Yep I think the similarity with Enron is to some extent that FTX traded with itself to rig the game. This is the problem with the lack of proper audit on these exchanges.
He has a PR team running things now. Acting awshucks clueless about the scam. Guess it's his only hope.
So, was FTX never audited by an independent public accounting firm? I guess if it wasn’t publicly traded there would be no requirement from the SEC. And if they didn’t need audited financials for any debt covenants or to raise money then they wouldn’t need them for that either. It just seems remarkable that businesses can get into the “billions” in revenue or assets without one. I perform audits for businesses with as little as 1-2 million in revenue/assets from time to time. just seems like some of the problems of this fraud (the non liquidity of ftx assets, the sketchy valuation of these assets, the related party relationships, the non existing internal controls ) are really basic things that any auditor would have seen. edit to add this link: https://www.coindesk.com/layer2/202...estors-and-accountants-missed-in-ftxs-audits/ Interesting to see that they did have audits and used smallish regional firms and not national or international ones. There is no way Armanino was equipped to properly audit FTX. This will be an interesting aspect to follow for me.
From what little we've seen of internal record keeping, any auditing was just in name only. Many of the spending decisions were purposefully never recorded, having been done on self-erasing chats. It's an open question if they did things like payroll taxes. I'm sure a lot of criminality will come out from the bankruptcy. Slowly.
This goes into S-BS's possible legal exposure: At least $8 billion in customer funds are missing, reportedly used to backstop billions in losses at Alameda Research, the hedge fund he also founded. Both of his companies are now bankrupt with billions of dollars worth of debt on the books. The CEO tapped to take over, John Ray III, said that "in his 40 years of legal and restructuring experience," he had never seen "such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here." This is the same Ray who presided over Enron's liquidation in the 2000s. In America, it is not a crime to be a lousy or careless CEO with poor judgement. During his recent press tour from a remote location in the Bahamas, Bankman-Fried really leaned into his own ineptitude, largely blaming FTX's collapse on poor risk management. At least a dozen times in a conversation with Andrew Ross Sorkin, he appeared to deflect blame to Caroline Ellison, his counterpart (and one-time girlfriend) at Alameda. He says didn't know how extremely leveraged Alameda was, and that he just didn't know about a lot of things going on at his vast empire. Bankman-Fried admitted he had a "bad month," but denied committing fraud at his crypto exchange. https://www.cnbc.com/amp/2022/12/05...d-face-years-in-prison-over-ftx-meltdown.html
Not everyone is ready to throw in the towel on bitcoin. https://www.cnbc.com/2022/12/05/tim...n-will-reach-250000-despite-ftx-collapse.html
In the real world, organisations that are custodians of client moneys or selling financial products are subject to quite strict audit regulations and oversight. That is one of the reasons these guys are offshore It's also why FTX was not properly banked - i.e. no proper bank would risk doing business with them. The paying of FTX deposits into Alameda already exposes Alameda bank to potential sanctions
He bought 29,000 bitcoins in an auction that US seized from Silk Road back in 2014. Not sure how much he paid for them but certainly well less than $1000/ each. I think it was last year he predicted bitcoin at $10,000 which didn’t come to pass either.