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naraburns  nihil supernum  1yr ago (text post)   31244 thread views

Culture War Roundup for the week of January 9, 2023

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I forgot to share this tidbit from the FTX saga: now Sam Bankman-Fried has his own Substack.

The first (and only so far) article is a pippin, a peach, a doozy. He makes a distinction between FTX US (the arm which permitted Americans to invest and trade) which he claims is solvent (and that seems to be true), and FTX International (the one headquartered in the Bahamas) which.... isn't. So far, this is accurate enough.

But what happened, Sam? we not unreasonably ask. Well, it wasn't his fault, it was all bad luck (global markets crashed at the wrong time) and enemy action (coughBinancecough) and the implication is Alameda went south due to lack of sufficient coverage (your fault, Caroline?) and took FTX down with it.

He includes his example of a balance sheet. I've only very basic accounts knowledge, Sam, but that is not a balance sheet. This is a balance sheet. A list of "we have all this money, trust me", is not a balance sheet.

But never fear! FTX US has assets, and all can be made right very quickly! In fact, he is surprised that hasn't been done yet (implied blame of Mr. Ray and the bankruptcy team?)

I forget which new set of lawyers he is on now - looking it up, it seems to be Mark Cohen, who also represented Ghislaine Maxwell - but surely they must be advising him to shut up, stop giving interviews, and don't publish anything on social media?

He's putting blame on everyone and everything else, and mostly that it was Alameda being exposed to an unprecedented market crash that took it all down, but if he hadn't been strong-armed into Chapter 11, he could have made it all okay.

But some at least of what he is saying is being contradicted by what Caroline Ellison is saying, which is going to make for an interesting day in court when she and Gary Wang testify against Bankman-Fried:

Ellison said she was aware from 2019 through 2022 that Alameda was given access to a borrowing facility at FTX.com that allowed Alameda to maintain negative balances in various currencies.

She said the practical effect of the arrangement was that Alameda had access to an unlimited line of credit without being required to post collateral and without owing interest on negative balances or being subject to margin calls or liquidation protocols.

Ellison said she knew that if Alameda’s FTX accounts had significant negative balances in any currency, it meant that Alameda was borrowing funds that FTX’s customers had deposited into the exchange.

“While I was co-CEO and then CEO, I understood that Alameda had made numerous large illiquid venture investments and had lent money to Mr. Bankman-Fried and other FTX executives,” she said.

Ellison said she understood that Alameda had financed the investments with short-term and open-term loans worth several billion dollars from external lenders in the cryptocurrency industry.

When many of those loans were recalled by lenders in June, she agreed with others to borrow several billion dollars from FTX to repay them.

Wang is also admitting to naughtiness, though he is getting much less coverage than Ellison:

During his plea earlier Monday, Wang said that he made changes to computer code to enable the transactions with Alameda.

“I knew what I was doing was wrong,” he said.

Links to Ellison and Wang's guilty pleas in this article:

Wang pleaded guilty to conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodities fraud and conspiracy to commit securities fraud. Ellison pleaded guilty to two counts of wire fraud, two counts of conspiracy to commit wire fraud, conspiracy to commit commodities fraud, conspiracy to commit securities fraud and conspiracy to commit money laundering.

I'm not surprised they're co-operating as hard as they can, there's several bodies (the SDNY, the SEC, the CFTC and the Bahamian government) all wanting a piece of the action so they're all facing multiple charges on multiple counts, thus Bankman-Fried's denial of fraud won't cut much ice:

Simultaneously, both the Commodity Futures Trading Commission and Securities and Exchange Commission released civil complaints against Wang and Ellison.

The SEC alleged that they were involved “in a multiyear scheme to defraud equity investors in FTX, the crypto trading platform co-founded by Samuel Bankman-Fried and Wang.”

The CFTC’s expanded complaint charges “Ellison with fraud and material misrepresentations in connection with the sale of digital asset commodities in interstate commerce, and charges Wang with fraud in connection with the sale of digital asset commodities in interstate commerce.”

Wang and Ellison accepted the claims made against them, the CFTC statement said. Ellison was singled out in the SEC complaint for engaging in artificial manipulation of FTT, FTX’s self-issued token, as part of a broader effort to boost Alameda Research’s available collateral for lending.

In a statement, the SEC said that Wang and Ellison had also accepted “bifurcated settlements” in connection with the complaints and are cooperating.

...Williams did not offer specific details on charges against Ellison or Wang. The SEC alleges that both Ellison and Wang, in their respective roles at Alameda and FTX, abetted Bankman-Fried in allegedly defrauding FTX customers.

The SEC alleges that Wang created a software backdoor in FTX’s platform which allowed Alameda to divert customer funds for its own trades. Alameda was led by Bankman-Fried until 2021, when Ellison assumed control alongside Sam Trabucco, who departed from Alameda in August 2022.

I'm still blown away by all the very soft media coverage of SBF in the New York Times and elsewhere.

He stole nearly as much money as Bernie Madoff. How is it that Madoff is described in "worse than Hitler" level terms while SBF gets the kid gloves? Is it because Madoff stole from the rich where SBF stole mostly from nobodies? Seriously puzzled.

Last I heard, SBF is alleged to have lost $9 billion of customers' money. Madoff is alleged to have lost $65 billion, in 2008 dollars, or about $90 billion in today's dollars.

Madoff's theft was around $19 billion according to the recent Netflix show.

If I run a Ponzi and I say "the $1 you deposited is worth $100", then the total theft is $1 - not $100. Maybe more depending on opportunity costs, but the $65 billion headline number was always BS.

Madoff's Ponzi was a bigger magnitude but not so much so that it explains the difference. Oh, he only stole $9 billion, that's why there are glowing articles about him in the press... Doesn't make sense.

On the other hand if FTX's malfeasance had been acknowledged earlier it's likely the crypto assets would have been worth notably less, having been propped up the whole fugazi to begin with.

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