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> Namely, it's easier to deal with the consequences of "mistakes" than it is to not make them What we're seeing is a widespread use of "fractional fraud". Tra

> Namely, it's easier to deal with the consequences of "mistakes" than it is to not make them What we're seeing is a widespread use of "fractional fraud". Transactions and business lines that are 1%-5% fraudulent are unlikely to be challenged, but have a huge effect on profitability. The best example I've seen is Bunnie Huang's deep dive on counterfeit SD cards [1]. Margins on SD cards are like 1%, so blending in defective cards at a 1% rate can double your profit. Another example is retail trade payment for order flow. A major broker-dealer was just sanctioned for front-running its clients. As long as your defect ("mistake") rate stays below your customer's response threshold, you can keep doing it. It is impossible to overstate how important social norms are for policing this kind of misconduct. [1] https://nostarch.com/hardwarehackerpaperback https://nostarch.com/hardwarehackerpaperback

crawsome 6y ago
At Google, they say "It's easier to ask forgiveness than permission".
- reaperducer 6y ago
  At Google, they say "It's easier to ask forgiveness than permission". I hope you're not under the impression that this is another SV "innovation," because it's been a saying since at least the 1600's. https://quoteinvestigator.com/2018/06/19/forgive/ https://quoteinvestigator.com/2018/06/19/forgive/
rement 6y ago
I'm reminded of an internet fable > A city boy, Kenny, moved to the country and bought a donkey from an old farmer for $100. The farmer agreed to deliver the donkey the next day. > The next day the farmer drove up and said: “Sorry son, but I have some bad news. The donkey died.” > Kenny replied, “Well then, just give me my money back.” > The farmer said, “Can’t do that. I went and spent it already.” > Kenny said, “OK, then just unload the donkey.” > The farmer asked, “What ya gonna do with him?” > Kenny: “I’m going to raffle him off.” > Farmer: “You can’t raffle off a dead donkey!” > Kenny: “Sure I can. Watch me. I just won’t tell anybody he is dead.” > A month later the farmer met up with Kenny and asked, “What happened with that dead donkey?” > Kenny: “I raffled him off. I sold 500 tickets at $2 a piece and made a profit of $998.00.” > Farmer: “Didn’t anyone complain?” > Kenny: “Just the guy who won. So I gave him his $2 back.” > Kenny grew up and eventually became the chairman of [company you want to mock]
- GolDDranks 6y ago
  Sorry, not a native speaker. What does it mean to "raffle somebody off"? (Edit: googling it says: "dispose of in a lottery", which makes me wonder: why is there such a specific verb in the English language? I have never even thought of "disposing of anything in a lottery")
  - rement 6y ago
    A raffle is a game of chance. You "buy into" the raffle and get a ticket that goes into a hat or bowl. The person doing the raffle chooses a ticket at random and the person that owns that ticket is the winner. It's not really about "disposing" the donkey it is about giving other people the chance to win the donkey...that is dead
  - GolDDranks 6y ago
    Anyway, to the fellow confused people, here's the simple English version: Kenny made the donkey a prize of a lottery he organized, and didn't tell the participants the donkey was dead.
  - slongfield 6y ago
    A "raffle" as distinct from a "lottery" in American English differs in how the prize is decided, and what kinds of things are typically the prize. Typically a lottery runs in one of two ways: with pre-decided winning tickets, or a number that's drawn after the tickets are distributed to decide which ticket (if any) is the winner. In this way, the odds of winning are mostly independent of the number of tickets sold. The prize is usually money. A raffle works by selling tickets, and then picking exactly one of those tickets to be the winner, making the odds directly dependent on the number of tickets sold. The prize is usually a physical object, and not money (though there are exceptions, e.g., a 50/50 raffle).
    - GolDDranks 6y ago
      Thanks for the explanation. I'm familiar with the both forms of gambling, but for some reason, I've encountered "lottery" as a term a lot more; "raffle" I hardly knew, until now. Thanks!
atomicnumber3 6y ago
Hang on a sec. Mixing in defective product is literally fraud. Payment for order flow is not only legal, but good for retail investors. It, and practices like it, are the only reason joe schmoes can go buy 2 shares of TSLA in their robinhood account (actual traders deal in round lots - 100 shares. Price levels featuring less than 100 shares aren't even protected price levels!). There's also the technicality of the wholesalers technically providing a very small (<=1 cent) price improvement, but retail investors don't care about that. I really object to the frankly callous and irresponsible bandying about of financial stuff like this. It damages trust in what is potentially one of the best-regulated and most efficient systems in the world. I also want to note that, assuming you're referring to Citadel's 700k fine, 1) the SEC's description of what happened is too vague to really infer what's going on, 2) my guess based on their description is that they essentially had a bug that technically constituted trading ahead of a small, small % of client orders (though it does not seem like it was actually getting an advantage by doing so, since it was a bug) and 3) this is all corroborated by it being only a 700k USD fine, which is comically small for a fine from both the SEC and for a firm as large as Citadel. This was the lightest of slaps on the wrist from a regulator who will absolutely destroy firms with fines when they have hard evidence. If anyone wants to look deeper into this, Matt Levine has written extensively at this point on the subject of the payment-for-order-flow boogieman.
- sandworm101 6y ago
  Depending on the product, there is an expected and accepted defect rate. This can be very high in situations where detecting and removing the defects would cost more to the supplier than the customer would spend handling the defects. If you deal in dirt cheap electronic junk (think novelty holiday junk) the rate can be as high as 10%. Bottom of the market SD cards are getting close to that standard.
  - PeterisP 6y ago
    From the perspective of law, it matters very much how that defect rate is reached, because intent matters more than the outcome itself. If you have a 10% defect rate for unavoidable causes, that sucks. If you have a 10% defect rate because you chose to cut all corners and cheap out on every aspect of your manufacturing and testing, that sucks but it's legal. However, if you have a 5% defect rate and intentionally choose to mix in extra 5% of known defective units - that's fraud.
sukilot 6y ago
OTOH, getting 99 cards and 1 bad card for the price of 50 good cards is a good deal for the buyer.
- tangjurine 6y ago
  What
Natsu 6y ago
> Another example is retail trade payment for order flow. A major broker-dealer was just sanctioned for front-running its clients. You can say Robinhood. Their agreement says that they can't do anything to imply that it was incorrect, like threatening to sue people for talking about what got them sanctioned.

crawsome 6y ago

At Google, they say "It's easier to ask forgiveness than permission".

reaperducer 6y ago
At Google, they say "It's easier to ask forgiveness than permission". I hope you're not under the impression that this is another SV "innovation," because it's been a saying since at least the 1600's. https://quoteinvestigator.com/2018/06/19/forgive/ https://quoteinvestigator.com/2018/06/19/forgive/

rement 6y ago

I'm reminded of an internet fable > A city boy, Kenny, moved to the country and bought a donkey from an old farmer for $100. The farmer agreed to deliver the donkey the next day. > The next day the farmer drove up and said: “Sorry son, but I have some bad news. The donkey died.” > Kenny replied, “Well then, just give me my money back.” > The farmer said, “Can’t do that. I went and spent it already.” > Kenny said, “OK, then just unload the donkey.” > The farmer asked, “What ya gonna do with him?” > Kenny: “I’m going to raffle him off.” > Farmer: “You can’t raffle off a dead donkey!” > Kenny: “Sure I can. Watch me. I just won’t tell anybody he is dead.” > A month later the farmer met up with Kenny and asked, “What happened with that dead donkey?” > Kenny: “I raffled him off. I sold 500 tickets at $2 a piece and made a profit of $998.00.” > Farmer: “Didn’t anyone complain?” > Kenny: “Just the guy who won. So I gave him his $2 back.” > Kenny grew up and eventually became the chairman of [company you want to mock]

GolDDranks 6y ago
Sorry, not a native speaker. What does it mean to "raffle somebody off"? (Edit: googling it says: "dispose of in a lottery", which makes me wonder: why is there such a specific verb in the English language? I have never even thought of "disposing of anything in a lottery")
- rement 6y ago
  A raffle is a game of chance. You "buy into" the raffle and get a ticket that goes into a hat or bowl. The person doing the raffle chooses a ticket at random and the person that owns that ticket is the winner. It's not really about "disposing" the donkey it is about giving other people the chance to win the donkey...that is dead
- GolDDranks 6y ago
  Anyway, to the fellow confused people, here's the simple English version: Kenny made the donkey a prize of a lottery he organized, and didn't tell the participants the donkey was dead.
- slongfield 6y ago
  A "raffle" as distinct from a "lottery" in American English differs in how the prize is decided, and what kinds of things are typically the prize. Typically a lottery runs in one of two ways: with pre-decided winning tickets, or a number that's drawn after the tickets are distributed to decide which ticket (if any) is the winner. In this way, the odds of winning are mostly independent of the number of tickets sold. The prize is usually money. A raffle works by selling tickets, and then picking exactly one of those tickets to be the winner, making the odds directly dependent on the number of tickets sold. The prize is usually a physical object, and not money (though there are exceptions, e.g., a 50/50 raffle).
  - GolDDranks 6y ago
    Thanks for the explanation. I'm familiar with the both forms of gambling, but for some reason, I've encountered "lottery" as a term a lot more; "raffle" I hardly knew, until now. Thanks!

atomicnumber3 6y ago

Hang on a sec. Mixing in defective product is literally fraud. Payment for order flow is not only legal, but good for retail investors. It, and practices like it, are the only reason joe schmoes can go buy 2 shares of TSLA in their robinhood account (actual traders deal in round lots - 100 shares. Price levels featuring less than 100 shares aren't even protected price levels!). There's also the technicality of the wholesalers technically providing a very small (<=1 cent) price improvement, but retail investors don't care about that. I really object to the frankly callous and irresponsible bandying about of financial stuff like this. It damages trust in what is potentially one of the best-regulated and most efficient systems in the world. I also want to note that, assuming you're referring to Citadel's 700k fine, 1) the SEC's description of what happened is too vague to really infer what's going on, 2) my guess based on their description is that they essentially had a bug that technically constituted trading ahead of a small, small % of client orders (though it does not seem like it was actually getting an advantage by doing so, since it was a bug) and 3) this is all corroborated by it being only a 700k USD fine, which is comically small for a fine from both the SEC and for a firm as large as Citadel. This was the lightest of slaps on the wrist from a regulator who will absolutely destroy firms with fines when they have hard evidence. If anyone wants to look deeper into this, Matt Levine has written extensively at this point on the subject of the payment-for-order-flow boogieman.

sandworm101 6y ago
Depending on the product, there is an expected and accepted defect rate. This can be very high in situations where detecting and removing the defects would cost more to the supplier than the customer would spend handling the defects. If you deal in dirt cheap electronic junk (think novelty holiday junk) the rate can be as high as 10%. Bottom of the market SD cards are getting close to that standard.
- PeterisP 6y ago
  From the perspective of law, it matters very much how that defect rate is reached, because intent matters more than the outcome itself. If you have a 10% defect rate for unavoidable causes, that sucks. If you have a 10% defect rate because you chose to cut all corners and cheap out on every aspect of your manufacturing and testing, that sucks but it's legal. However, if you have a 5% defect rate and intentionally choose to mix in extra 5% of known defective units - that's fraud.

sukilot 6y ago

OTOH, getting 99 cards and 1 bad card for the price of 50 good cards is a good deal for the buyer.

tangjurine 6y ago
What

Natsu 6y ago

> Another example is retail trade payment for order flow. A major broker-dealer was just sanctioned for front-running its clients. You can say Robinhood. Their agreement says that they can't do anything to imply that it was incorrect, like threatening to sue people for talking about what got them sanctioned.