BITCOIN, Heists, Thefts, Hacks, Scams, and Losses

[kyphysics]

SBF was openly running an offshore casino out of an incestuous frat house of twenty-somethings who were skimming billions off the public through rigged market making, and this was all a matter of public knowledge.

Can someone elaborate on this and how it worked in layman terms?

Were FTX insiders taking client capital and gambling with it somehow behind-the-scenes? . . .Also, did SBF know? His parents are Stanford University law professors. . .shame on him, if so.

 

[russ_watters]

Were FTX insiders taking client capital and gambling with it somehow behind-the-scenes? . . .Also, did SBF know?

It's his house - his frat party.

 

[kyphysics]

It's his house - his frat party.

Sure, but it's plausible underlings could be doing shady stuff behind a boss' back sometimes. It's not always the case that the top guys knows everything happening in-house. That being said, I saw this:
https://www.reuters.com/technology/...ange-was-using-customer-funds-wsj-2022-11-12/

Alameda, FTX executives knew crypto exchange was using customer funds - WSJ

Reuters
Nov 12 (Reuters) - FTX-affiliated crypto trading firm Alameda Research's Chief Executive Officer Caroline Ellison and senior FTX officials knew that the crypto exchange had lent Alameda its customer funds to help meet liabilities, the Wall Street Journal reported on Saturday.

Reuters reported Friday that FTX founder and former CEO Sam Bankman-Fried had secretly transferred $10 billion of customer funds from FTX to Alameda.

Ellison told employees in a video meeting on Wednesday that she, Bankman-Fried, and two other executives, Nishad Singh and Gary Wang were aware of the decision to move customer funds to Alameda, the Journal said, citing people familiar with the matter.

- Not sure it's a good/bad thing SBF's parents are star law professors...surely, of all people, he knew better? ...maybe they can hook him up with great defense lawyers now. .

 

[nsaspook]

It's his house - his frat party.

Exactly.

https://www.coindesk.com/layer2/2022/11/11/how-sam-bankman-frieds-effective-altruism-blew-up-ftx/
How Sam Bankman-Fried’s ‘Effective’ Altruism Blew Up FTX

But effective altruism more specifically could have excused or encouraged behaviors that led to FTX’s downfall. Perhaps not least, Bankman-Fried more or less acknowledged in an infamous “Odd Lots” interview that many of the tokens trading on his platform were probably frauds.
That implies he and FTX were always facilitating harm to its users, but the neoliberal and utilitarian underpinnings of effective altruism allowed him to justify that as a matter of consumer freedom.
A less charitable summary of effective altruism, then, would be that it is little more than a fancy way of saying “the ends justify the means.” Effective altruism also encompasses an emphasis on “long-termism,” which can read like another excuse for mercenary corner-cutting today, so long as you commit your loot to improving tomorrow.

 

[kyphysics]

So, what do you guys think the crypto/BTC investor interest implications will be after this?

We've already seen lots of heists/hacks and major crypto crashes already. Would the scale and also brand recognition of this latest fiasco finally put a dent into investor interest? Or, do we need to see even bigger implosions and scandals?

Is there ANY way to store BTC/crypto that is super safe?

 

[Vanadium 50]

Is there ANY way to store BTC/crypto that is super safe?

Sure. Pen and paper.

 

[phinds]

Sure. Pen and paper.

Exactly. And as far as I'm aware, it is the ONLY way that is truly safe. You could put it in digital form on a 25-year blue ray disc and put that in a bank vault but even blue ray discs go bad.

 

[russ_watters]

So, what do you guys think the crypto/BTC investor interest implications will be after this?

You mean what do I think the prospects are or what I think the investors will do? My opinion of the prospects remains unchanged. But investors in a bubble can be stubborn.

Is there ANY way to store BTC/crypto that is super safe?

Safe from what? A flash drive in a safety deposit box is probably good, thought that doesn't say anything about what's on it.

 

[StevieTNZ]

Not sure it's a good/bad thing SBF's parents are star law professors...surely, of all people, he knew better? ...maybe they can hook him up with great defense lawyers now. .

Because someone's parents are 'star law professors' doesn't mean that person knows how to conduct themselves properly.

 

[russ_watters]

You could put it in digital form on a 25-year blue ray disc and put that in a bank vault but even blue ray discs go bad.

Store your fake money in a real bank?! That's crazy talk!

 

[Astronuc]

AP - Funds vanish at bankrupt crypto exchange FTX; probe underway
https://apnews.com/article/cryptocurrency-technology-business-d866be4d1b3b9b88a6e774543a2b6a14

The embattled company’s new CEO John Ray III said Saturday that FTX is switching off the ability to trade or withdraw funds and taking steps to secure customers’ assets, according to a tweet by FTX’s general counsel Ryne Miller. FTX is also coordinating with law enforcement and regulators, the company said.

Exactly how much money is involved is unclear, but analytics firm Elliptic estimated Saturday that $477 million was missing from the exchange. Another $186 million was moved out of FTX’s accounts, but that may have been FTX moving assets to storage, said Elliptic’s co-founder and chief scientist Tom Robinson.

DOJ and SEC have opened an investigation.

“It does look as if the liquidators didn’t act fast enough to stop some kind of siphoning off of funds from FTX after it filed for bankruptcy, and that’s bad, but it just shows how complex this thing is,” Coppola said.
. . .
Initially, some people were hoping that perhaps all the missing funds were liquidators or bankruptcy administrators trying to move assets to a more secure spot. But it would be unusual for that to happen on a Friday night, said Molly White, cryptocurrency researcher and fellow with the Library Innovation Lab at Harvard University.
. . .
White also said there are signs of possible insider involvement. “It seems unlikely that someone who is not an insider could have pulled off such a massive hack with so much access to FTX systems.”

I had heard reports of unusual movement of funds either Thursday or Friday.

Crypto firm FTX reportedly faces federal investigation after collapse
https://wraltechwire.com/2022/11/11...y-faces-federal-investigation-after-collapse/

 

[nsaspook]

AP - Funds vanish at bankrupt crypto exchange FTX; probe underway
https://apnews.com/article/cryptocurrency-technology-business-d866be4d1b3b9b88a6e774543a2b6a14DOJ and SEC have opened an investigation.
I had heard reports of unusual movement of funds either Thursday or Friday.

Crypto firm FTX reportedly faces federal investigation after collapse
https://wraltechwire.com/2022/11/11...y-faces-federal-investigation-after-collapse/

I can't wait for the movie about this.

Larry was right about FTX.

 

[Vanadium 50]

Because someone's parents are 'star law professors' doesn't mean that person knows how to conduct themselves properly.

"His parents were both lawyers.."
"Really? Honest?"
"No, I think just the regular kind."

 

[Astronuc]

Sam Bankman-Fried Claims To Be In Bahamas As Flight Tracker Show His Private Jet Flying To Argentina​

https://www.msn.com/en-us/travel/ne...A142zMY?cvid=d258a432b4c447189e1c011c3dcc626d

SBF's private plane apparently flew to Argentina. Of course, others could be on the flight to Argentina.

The most tracked flight early Saturday was that of a private jet, flying Bankman-Fried from the Bahamas, the tracking website said in a tweet. The flight was heading to Argentina, it said, citing tweets.

The private jet was reportedly a Gulfstream G450 with the registration code LV-KEB, which took off from Nassau Lynden Pindling International Airport and flew south for roughly 4,300 miles and landed at San Fernando International Airport, just outside of Buenos Aires.

 

[Rive]

The scheme ends when it runs out of new money, we saw the death of leverage as a source of new funds this year and FTX is likely the end of institutional capital. ...

It was hype what brought bitcoin up, and now what I see is that hype trying to bring it down.

Hype is always about messing up cool head. Regarding numbers (capitalization) only, FTX is still barely a dent on bitcoin.

As an amateur trader (not investor! That's a different business altogether) one of the first lesson to learn is to ignore any kinds of hype. And by trying to disregard the hype what I see is that the movement so far does not looks like a terminal one, and there seems to be a possibility of further (absurd) peaks ahead: maybe above $100k, but I would not be surprised for $130k+ either.

Yeah, feels like stupid price for stupid stuff. I completely agree with that.

 

[Vanadium 50]

The "LV" registration means the plane is Argentine, not Bahamian (which would be C6).
However, the US has extradition treaties with both the Bahamas and Argentina.

His choices for running aren't great. Russia and China? Scary. North Korea? Scarier. The Gulf States and his frat boy lifestyle? I think that's a no-go. Equatorial Guinea? Vanautu?

 

[Vanadium 50]

ow what I see is that hype trying to bring it down.

That presumes that where it is now is the natural state of affairs.

Apart from illegal goods and services, what can you purchase with Bitcoin that you can't with USD? (Or GBP, CAD, JPY, CHF, EUR...) It's value is not determined by the strength of the parent economy. It's value is driven by people's belief that they can someday sell it for more. And everybody knows this can't go on forever.

So what buoys up the price is the buyer's belief that he will time the buying and selling better than his counterparty and make money that way. Many of those stories will not have happy endings.

 

[Rive]

It's value is driven by people's belief ...

Yes, for that. Absolutely.

But that also means that it's a mistake to use logic to predict the intermediate events for this fundamentally illogical phenomenon.

It'll fall (or it'll fundamentally change) at some point, but to say that it'll happen now just because >>>insert whatever very logical cherry here<<< is a mistake.

 

[Vanadium 50]

If you believe that timing a rational market is impossible, what does that say about timing an irrational market?
As others have said "The markets can stay irrational longer than you can stay solvent".

 

[kyphysics]

Sam Bankman-Fried Claims To Be In Bahamas As Flight Tracker Show His Private Jet Flying To Argentina​

https://www.msn.com/en-us/travel/ne...A142zMY?cvid=d258a432b4c447189e1c011c3dcc626d

SBF's private plane apparently flew to Argentina. Of course, others could be on the flight to Argentina.

lol I saw another report he was trying to get into Dubai.
After FTX's scandals, why would anyone believe his self-posts about where he is. . .

 

[kyphysics]

If taking a step back from the latest news, was the "trigger" for the collapse Binance selling all of its FTT tokens, which triggered FTX's illiquidity? If so, did FTX not know this was a risk and didn't do anything to prevent it?

SBF (MIT grad) seems like a smart guy. Was he totally oblivious to the fact that Binance could "attack" FTX in this way?

And, lastly, was the real problem that FTX was secretly siphoning client funds into Alameda, where SBF's buddies would gamble with those money? Binance could have bailed out FTX and offered to do so. Then, it suddenly backtracked after doing some research and seemingly finding out that FTX had misappropriated depositor funds. As a result, Binance couldn't bail out that big of a hole. . .

Is the above summary accurate?

 

[Office_Shredder]

And, lastly, was the real problem that FTX was secretly siphoning client funds into Alameda, where SBF's buddies would gamble with those money? Binance could have bailed out FTX and offered to do so. Then, it suddenly backtracked after doing some research and seemingly finding out that FTX had misappropriated depositor funds. As a result, Binance couldn't bail out that big of a hole. . .

This is basically correct, though they're are a bunch of side tales that muddy the waters.

As far as the plane tracking - people on reddit love to track planes and draw conclusions from it. I've never seen one be good or useful.

 

[kyphysics]

This is basically correct, though they're are a bunch of side tales that muddy the waters.

As far as the plane tracking - people on reddit love to track planes and draw conclusions from it. I've never seen one be good or useful.

So, obviously SBF and Alameda were guilty as sin. No way around it.

A lingering question I have is whether Binance was guilty of anything?

 

[kyphysics]

I see that SBF had previously signed a wealth pledge to donate the majority of his wealth to charity prior to his death.

Looking like he may be in need of charity himself!. . . .Could be homeless and panhandling after a 25 year prison stint! . ..It's also genuinely sad for those who missed out on those donations he would have given had this debacle not unfolded from his reckless greed.

 

[Office_Shredder]

I see that SBF had previously signed a wealth pledge to donate the majority of his wealth to charity prior to his death.

Looking like he may be in need of charity himself!. . . .Could be homeless and panhandling after a 25 year prison stint! . ..It's also genuinely sad for those who missed out on those donations he would have given had this debacle not unfolded from his reckless greed.

A lot of very wealthy people give away the majority of their wealth to charity. I don't think this was that special.

 

[Vanadium 50]

Also, there is a difference between "giving away your wealth" and "pledging to give away your wealth". And for that matter "pledging to give away someone else's wealth"

 

[nsaspook]

Nice place.
https://www.zerohedge.com/political/ftx-founder-sam-bankman-fried-lists-bahamas-penthouse-40-million

FTX Founder Sam Bankman-Fried Lists Bahamas Penthouse For $40 Million​

https://www.seasidebahamas.com/view/NassauNew+Providence/Orchid+Bldg.+-+PH+6/20046/buy/

"That mansion screams effective altruism"

 

[kyphysics]

To be fair, $39M for a mansion is probably nothing if you've got billions (supposedly). That actually might be humble relative to alleged net worth.

 

[fluidistic]

So, if I understand well, FTX operated on fractional reserve (just like banks), and instead of making money out of fees only, it actually spent customers money on risky investments (which ones?).
This "forced" other exchanges to make public their reserve by showing us some of their addresses on diverse blockchains. Many of these exchanges shot themselves in the foot, either because they are trivially exposing fractional reserve, which is scary as hell for a customer, or because they put in evidence stupidity at its highest (crypto.com sending thousands of ETH to an address by mistake, an error repeated a few times within a few months). It didn't help an iota, as far as I understand.

 

[nsaspook]

To be fair, $39M for a mansion is probably nothing if you've got billions (supposedly). That actually might be humble relative to alleged net worth.

He reminds me of an old Pink Floyd song:

 

[Astronuc]

Interesting perspective on SBF and FTX.

When initial reports of FTX's upside-down capital structure leaked out recently, customers staged a run on the exchange, ordering withdrawals of billions of dollars in deposits that FTX couldn't provide. FTX has now filed for bankruptcy, and Bankman-Fried has stepped down as CEO.

Reports have also emerged that FTX lent customers' assets to its related trading arm, Alameda Research, which used them to fund risky investments of its own. If FTX were regulated by the same rules that conventional stock and bond brokerages must follow, client assets must be kept separate from brokerage assets.

Among the assets the balance sheet describes as "illiquid" or "less liquid" — that is, possibly unavailable to cover liabilities — are cryptocurrencies purportedly worth billions of dollars, including $554 million in FTT, a crypto token originated by FTX itself.

Another cryptocurrency, Serum, was listed with a value of $2.2 billion as of last Thursday. The previous week, the extremely volatile crypto was valued at $5.4 billion, according to the balance sheet. Serum, by the way, is another crypto token originated by FTX, so even its $2.2-billion value on the balance sheet is extremely questionable.

Alameda Research was a hedge fund established in 2017 by SBF and Tara Mac Aulay.
https://en.wikipedia.org/wiki/Alameda_Research

. . . anonymous sources told The Wall Street Journal that FTX had lent more than half of its customer funds to Alameda, a decision that the sources said Bankman-Fried described as a poor judgment call. This was explicitly forbidden by FTX's terms-of-service. [Wikipedia]

The author, Michael Hiltzik, argues that $16 billion didn't just simply disappear, rather, it probably never existed. Maybe $100s of millions, but not $16 billion.
https://www.msn.com/en-us/money/sav...ortune-his-fortune-was-never-real/ar-AA146Jf3

The author uses an example of Theranos and their capitalization.

The fundamental problem was that private capital valuations are inherently suspect. Stock in private companies can't be sold on the public market, which gives public investors a shot at acquiring shares at an agreed-on price; instead, private companies are worth only as much as its newest investors think, and their opinion can change in the blink of an eye.

The same is true of the cryptocurrency space. Like private companies, the value of cryptocurrencies can be placed anywhere. They don't produce income like bonds, and their prices can't be pegged to liquid markets like those on which public company securities are traded. No one has ever explained what cryptocurrencies are useful for, other than paying off crooks holding databases or computer systems hostage in ransomware attacks.

I think the comparison to Madoff is apropos.

What turned Bankman-Fried into a darling of the chattering classes in finance, journalism and politics is hard to fathom. For some, it may have been his pedigree — he's the son of two law professors and the holder of a degree from MIT.

For others, it might be his commitment to "effective altruism," a nebulous philanthropic principle that seems to boil down to a justification for making as much money in business and finance as you conceivably can, because eventually you're going to give it all away.

Last May, in presenting a House committee with a proposal to relieve the crypto industry of stringent regulations, he claimed to have promised to donate 99% of his wealth to charity (an easy commitment, obviously, when you have no wealth).

The most striking aspect of the anointing of Bankman-Fried as the richest and soundest of newly-minted billionaires is how so little of it has been based on hard information. The venture firm Sequoia Capital put $150 million into FTX, and followed that up by posting a slavishly adoring article about Bankman-Fried on its website.

Celebrity financial wizards = over-rated.

Adam Fisher, who wrote a glowing article about SBF that Sequoia Capital had cited on their website, claims to have decades of experience talking to start-up entrepreneurs, added "I don’t know how I know, I just do. SBF is a winner."

Video from The Street's Martin Baccardax regarding FTX and a mythical balance sheet.
https://cdn.jwplayer.com/previews/MuuqbZQa
in an article on Crypto.com

Crypto.com is facing massive sell-offs in its Cronos (CRO) token, which is in free fall and down 41.6% over the last seven days, according to data firm CoinGecko. CRO has plummeted by 92.8% from its all-time high as investors are worried it could be the next crypto company to fail due to a lack of liquidity.

Yet another criticism of FTX.
Fortune - ‘The fiction of crypto was visible to all who wanted to see’: One of DC’s top financial reform voices tears into the ‘greed’ and ‘FOMO’ that led to the FTX collapse.
https://news.yahoo.com/fiction-crypto-visible-wanted-see-234521488.html

Bloomberg - Sam Bankman-Fried’s Magic Money Box Enriched Vast Crypto Network
https://finance.yahoo.com/news/sam-bankman-fried-magic-money-165540379.html

I hear tulips may come back.

 

[kyphysics]

If I could know one thing, it'd be: why?

You've got a seemingly upper middle-class life (at min., if not higher) with great academic credentials. You can live a comfortable successful life. Was it worth going to prison (where he seems headed) and losing everything (including your freedom and reputation) just to live like a billionaire for a short while.

I know...he obviously never thought he'd likely get caught or he wouldn't do it. But, you have to know there is always some risk - no matter how small. Why make this horrible trade/gamble?

Netflix should do a documentary on Elizabeth Holmes, Bernie Madoff, SBF, etc. type con artists and get into their psychology. I'd love to know what's going on in their brains when they tried to pull this stuff off.

 

[Rive]

I know...he obviously never thought he'd likely get caught or he wouldn't do it. But, you have to know there is always some risk - no matter how small. Why make this horrible trade/gamble?

As above, so below (and in reverse too).

I think it's basically the very same kind of error in risk assessment that people made when they put up all their money in FTX. Just the numbers are bigger on the scale.

Ps.: all in is a tempting, but often fatal error in judgement, especially after a winning streak: regardless the amount of wealth behind the actual 'all' in question.

 

[Astronuc]

If I could know one thing, it'd be: why?

One could ask that of many financial boom and bust cycles. In the case of FTX, what (happened) is also a question for authorities to answer, since I doubt FTX would reveal any serious errors in judgement, or criminal behavior, voluntarily.

It's not just crypto - consider Fall of the World’s Hottest Stock Cost Sea Founders $32 Billion
https://www.msn.com/en-us/money/new...tock-cost-sea-founders-32-billion/ar-AA144pc6

After a brief moment last year as Singapore’s richest person with a $22 billion fortune, Li’s wealth has plummeted, according to the Bloomberg Billionaires Index. He’s now worth just a little more than $3 billion as Sea shares have slid 87% from their peak, trading at $49.30 at 9:34 a.m. in New York. Co-founders Gang Ye and David Chen are down a combined $13.5 billion, with Ye’s wealth — once $12 billion — now about $2 billion and Chen no longer a billionaire.

Over-confidence? Or as Alan Greenspan would belatedly admit, 'Irrational Exuberance'?

Li is among the billionaires whose wealth surged at an eye-popping rate during Covid before crashing as the world moved on from the pandemic. Zoom Video Communications Inc. founder Eric Yuan, the father-son duo behind used-car dealer Carvana Co. and Stephane Bancel, Moderna Inc.’s CEO, saw similar declines in fortunes.

In the 1990s, we have the dot.com bubble that burst. Among those that collapsed, was Global Crossing:

In 1999, during the dot-com bubble, the company was valued at $47 billion, but it never had a profitable year In 2002, the company filed for one of the largest bankruptcies in history and its executives were accused of covering up an accounting scandal. On October 3, 2011, Global Crossing was acquired by Level 3 Communications for $3 billion, including the assumption of $1.1 billion in debt.

Ref: https://en.wikipedia.org/wiki/Global_Crossing

There were plenty of others. https://en.wikipedia.org/wiki/Dot-com_bubble

At the time (late 1999), I recommended two of my friends/colleagues dump the tech stocks and invest in more sound equities, e.g., railroads (which are also cyclical) e.g., NS or CSX. My friends didn't listen and the rode the bubble up, then down. One had invested in a mutual fund, Firsthand Technology Value Fund (TVFQX). He started buying into it at ~$30/share. It climbed to something like $130/share, which represented an impressive return. In between, he continued to invest as it went up, paying increasing prices, since there was some expectation of the equities to continue to increase. In early 2000, it started to decline, and my friend rode it down to about where it started, while he kept telling me that it was going to rebound. It never did, and the fund was eventually restructured. The other friend had invested in tech stocks, and most did the same boom then bust. Had they invested in the railroads during the late 90s, they would have doubled their money (appreciation and dividends), but instead, having invested in tech stocks, they lost money - one losing 70% of his retirement account.

In the 1980s, there was the 'junk bond scandal'.
https://en.wikipedia.org/wiki/Michael_Milken#Scandal

During the 1980s we saw the demise and breakup of Westinghouse. During the 1990s and early 2000s, we saw the tech bubble expand and burst. In the 2000s, we saw 'subprime mortgage crisis' with the rapid rise and collapse of mortgage-backed securities (MBS) and derivative financial products (CDSs and CDS²), and during this period, we saw the collapse of several large financial institutions: Lehman Brothers, Bear Stearns, AIG and smaller ones; the failure of FNMA and FMCC (Fannie Mae and Freddie Mac), and at the same time, the decline of GE.
https://www.thebalancemoney.com/what-was-the-fannie-mae-and-freddie-mac-bailout-3305658
https://en.wikipedia.org/wiki/General_Electric, https://en.wikipedia.org/wiki/General_Electric#Stock

 

[phinds]

Netflix should do a documentary on Elizabeth Holmes

https://www.rottentomatoes.com/m/the_inventor_out_for_blood_in_silicon_valley