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I have a lot of sympathy (or maybe pity) for SBF. "Stole client funds" appears to have solidified as a meme much the same way "crossed state lines" had in the Rittenhouse case.
I think it's hard for people, including technologists who haven't worked as quants, to appreciate the level of technology risk that's present in quant trading. In most of tech your biggest risk is having all of your data destroyed, and you can address that with well worn improvements in backups. You also risk being hacked but those breaches tend to be embarrassing rather than company ending. Even Sony, which was pwned as hard as you could possibly be pwned, ultimately recovered. But an additional risk in quant trading is accidentally and irrecoverably giving all of your assets away in a few seconds.
Even companies that are following all of the rules and have the right number of members of the professional management class in their ranks can destroy themselves in a matter of minutes. Knight Capital Group destroyed itself in 30 minutes by (with some creative license) failing to follow heroic practices around retiring old flags in protobufs.
Alameda/FTX had a culture that resembled "move fast and break things". They grew extremely quickly. I'm highly skeptical they were able to stand up robust accounting and practices to mitigate technology risks in so short a time.
When SBF says he didn't realize they were leveraged due to accounting error, I believe him. It's not like you can just install the QuickBooks Enterprise Crypto Derivatives Exchange plugin. All of this stuff was bespoke, and in a hurry.
When you thought you had $30b in assets and minimal liabilities, you can spend a billion or two on indulgences, charitable giving and campaign contributions. Your can say confidently you're not investing client funds. If those assets are suddenly marked down 90% you look like a fraud and you're in deep shit.
That's the nature of the business and he knew the risks. But probably in hindsight I'm sure he wishes he had been even more careful.
This isn't to say that I believe he definitely didn't commit fraud. Rather this is me saying that as someone who has pushed code that I thought accidentally gave away $10 million of my employer's money (the gigantic exhale of relief came when we learned I failed to scale by 1000x in the reporting and not the ordering), I am defaulting to blaming it on stupidity before malice.
This is the part that's
sympatheticpitiful to me. Starting a business and failing at it badly enough that you lose customer money is just sad.It's stupid, but not criminal. Unless you think criminally stupid is a thing.
He didn't simply "lose" customer money, as though he were a factory owner all whose warehouses burned down taking his entire stock with them, leaving nothing to sell for the lucrative Christmas quarter and the enterprise up to its ears in debt and bankrupt.
He embezzled customer funds and funnelled them into Alameda in order to shore up his failing enterprise, just like any other common swindler who loses a packet on bad stocks or slow horses, and thinks that if he just 'borrows' that cash in the customer accounts and buys/bets on the sure thing he will make it all back and can repay and nobody need ever know.
That's stupid and where it crosses over into "criminal" is "taking money that is not yours to take and you know you shouldn't do this, or at least you ought to know".
Permit me a moment to torture the analogy. Suppose you have warehouse full of valuable stuff that's been freshly manufactured ready to ship to buyers that have already paid for it. You spent all of the money the customers paid you (including profit) to build even more units than your customers ordered in anticipation of future demand. Right around this time your brother calls you up and asks you hey bro can you send me like a fuckton of units I've got a whale. You say sure. You look at your inventory list and ship only the extra units to your brother.
The units for your brother burn down in transit because of an accident. Nobody had insurance, because he was your brother and you both though you could manage the risk of casualty. Fuck. Well, I guess there's no profit but at least you can ship to your customers.
Then, while processing customer fulfillment someone looks at the accounting closer and realizes there was an error in inventory, you actually accidentally also gave away a huge portion of your customer's units to your brother too, which burned down in transit. Your warehouse is almost empty but still something like half of your customers got nothing. And you have no money to pay them back with.
Did you commit a crime? Or did you just flagrantly fuck up?
At this point, I'm betting your brother was going to burn down the warehouses for the insurance and you thought you could improve on the scam by burning the units in transit.
"I thought you had insurance on them!" "No, I thought you had the insurance, it was your dumb plan in the first place!"
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If you can't refund the customers the money you have 100% commit a crime in every legal system that has ever existed. That is textbook fraud. Incompetence is no defense against defrauding people of their money.
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I'm willing to bet that prosecutors will find a Rubicon moment somewhere in the chronology where SBF and whats-her-name decided to bail out Alameda with a quantity of FTX funds that would have been impossible to mistake for not-customer-money.
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