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Can anyone speculate what Bankman-Fried's exit plan was? Was this a fraud that got out of control, or premeditated? If it was premeditated, what was the exit p

• deleted 4y ago
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• systemicdanna 4y ago
  Regarding his exit plan: not sure if you will find a good answer right now. One way to get some insight into this type of mental game is to read about other major scammers who just couldn't help themselves and got too deep to pull out. Bernie Madoff comes to mind, and there are many books written about him and his business.
• glofish 4y ago
  denial is a powerful drug, you are surrounded by people celebrating your genius, everything you touch turns to billions and billions it is easy to see how someone gets disconnected from reality and ends up living in the metaverse of their own genius
  • jacooper 4y ago
    And with Meta you can live your wildest illegal dreams without risks! See? The metaverse isn't useless after all.
    • shorthistory 4y ago
      That's an interesting take. Probably wouldn't happen though, the argument being that illegal dreams taking place in the metaverse would contagiously spread to the unmetaverse.
      • jacooper 4y ago
        This is satite., if it wasn't clear enough
• jacooper 4y ago
  I think he just though that he will never get caught, it was working for a long time, why would it fail? Also why are there no lawsuits yet? Since FTX clearly broke its own T&S?
  • shorthistory 4y ago
    I guess the lawsuits are being prepared by affected parties as we speak.
  • Animats 4y ago
    U.S. Department of Justice lawyers are already closing in.[1] Using customer funds held in custody is theft. Period. People go to jail for this. This may be the biggest embezzlement of customer funds held in custody in history. Most scams involve misuse of funds invested, not just held in custody. The biggest outright theft of this type seems to have been Peregrine Financial.[2] That was $200 million, far smaller than this one. What happened to the CEO of Peregrine? Here he is, 10 years after conviction: Bureau of Prisons Inmate Locator RUSSELL R WASENDORF Register Number: 12191-029 Age: 74 Race: White Sex: Male Located at: Jesup FCI Release Date: 02/19/2054 [1] https://fortune.com/crypto/2022/11/10/ftx-sam-bankman-fried-doj-sec-examining-source-says/ https://fortune.com/crypto/2022/11/10/ftx-sam-bankman-fried-... [2] https://archives.fbi.gov/archives/omaha/press-releases/2013/peregrine-financial-group-ceo-sentenced-to-50-years-for-fraud-embezzlement-and-lying-to-regulators https://archives.fbi.gov/archives/omaha/press-releases/2013/...
    • sillysaurusx 4y ago
      I just want to say, you have some of the most fantastic coverage of events like this. It feels like having an investigative journalist on payroll. The delay between an Animats comment and this showing up in the news is significant. Thank you! (I remember your comments about the CEO that forged pay stubs being similarly excellent. Someday it might be worth collating them. In the meantime, whenever Animats says CEO Foobar is going to prison, Foobar had better start mentally preparing themselves for the journey.)
• wombat-man 4y ago
  I think he probably thought the value of the coins would keep rising. Hell everyone who bought in at sky high prices thought that.
  • shorthistory 4y ago
    But how, if you had spent time being a market maker, that is to say you understand market neutral strategies, would you convince yourself to take this bet? It seems contrary to his presumed understanding of the markets.
    • polygamous_bat 4y ago
      My personal hypothesis is that people keep attributing the successes of SBF to his intellect rather than a mix of intellect and luck, like the rest of us mere mortal. That list could as well include SBF himself. One can be lucky often but not forever, and sooner or later the "prodigies" see the fault in their impeccable algorithms.
      • naijaboiler 4y ago
        this is it. Luck can look a lot like genius. We see it everywhere. And when you have credentials behind you, you really start to attribute luck to your genius.
    • vkou 4y ago
      People who understand that betting on red over and over again isn't a long-term winning strategy usually don't make the news for fraudulently pissing away 8 billion dollars of customer funds. It's survivorship bias.
• paxys 4y ago
  Every serial gambler in the world thinks that they are just temporarily in the red and one big break away from winning big. They just need to invest a little bit more.
  • jdhzzz 4y ago
    Gotta double up to catch up.
  • xisthesqrtof9 4y ago
    This is literally the plot of Uncut Gems.
    • from 4y ago
      To be fair Howard ends up winning it all back and more in the end. Only problem is that he's killed shortly after.
• bmitc 4y ago
  My thoughts are that FTX was maybe a legitimate business, but then Alameda was his trading baby that just happened to be run by kids, including himself, that have no idea what they're doing and was losing money left and right. Then using FTX customer funds was viewed as just a "let's move these funds over to get our trading back on track and when we do, we'll move them back". That's my honest guess if I'm being generous as to their intentions and thought process. Not saying it isn't criminal though, because I think it is. It's also a complete guess as an outsider to all this.
  • Hippocrates 4y ago
    That’s my guess too but the size of the hole (8bn+) makes it hard to imagine it could all be lost in trading, either in a big bang, or gradually for years.
    • nu11ptr 4y ago
      As I understand it, their primary "trade" was to buy and hold FTT. Suddenly FTT's value went "poof" and the rest is is history.
      • brianbreslin 4y ago
        I think that would only explain $4B or so, they said their hole was $10B. Or do we think the FTT leverage multiplied the exposure?
        • wj 4y ago
          I don’t even understand why FTT existed? I also don’t understand why there are competing cryptocurrencies? Without governments and borders, shouldn’t one standard currency be enough? (Technical challenges aside)
          • lazide 4y ago
            Why are there multiple racecar teams? If there is a standard set of rules, why can't there be a standard car that hits the maximum ideal speed around a track, and a standard racer to do it? Or even just automate it?
• tedunangst 4y ago
  "Theranos just needed a little more time to get the tech working."
• shaburn 4y ago
  10 Billion dollar question: Who were the counter parties to these trades where customer funds were "lost".
  • cellis 4y ago
    It's called value destruction. The coins value dropped very quickly, the counter parties then where either 1) Most likely nobody, (as in nobody cashed out, as the myriad altcoins approached the limit of worthless) and 2) traders on FTX who cashed out other ,"more valuable" coins they were lent after depositing altcoins as collateral.
  • basch 4y ago
    They were the counterparty with themself? They accept FTT as collateral, give out a leveraged loan to the other company. The company spends that money on things like stadium rights and bailing out other failed crypto companies. Collateral falls to a value of 0, and the money is spent.
  • oezi 4y ago
    The thing is that there was never any funds stored in these accounts. If you store a bitcoin then there isn't any value to it until you sell it. The money that you spent to pay for the bitcoins exit the system during the purchase. Most likely paying the Ferrari of the seller.
    • PebblesRox 4y ago
      My understanding is that there were bitcoins (and other crypto tokens) stored in the accounts that are not getting returned, valuable or not.
• eddsh1994 4y ago
  Re: EA, you can see the general consensus of what’s happened in a multitude of FTX posts here https://forum.effectivealtruism.org/ https://forum.effectivealtruism.org/ My particular views are: https://forum.effectivealtruism.org/posts/EKN9Nn89ixriwSXpP/money-stuff-ftx-had-a-death-spiral?commentId=ocvqdy3RMHBi4GFo4 https://forum.effectivealtruism.org/posts/EKN9Nn89ixriwSXpP/...
  • shorthistory 4y ago
    EA is a load of cabbage.
• nfw2 4y ago
  I think it likely started with a small mistake, not necessarily an innocent one but maybe one that was assumed to be low-risk. And like in the Fargo movie/show, Sam just kept digging the hole deeper trying to get out of it. This explanation seems pretty plausible from a game theory angle. The selfish cost of losing 1 billion dollars and losing 10 billion dollars for fraud is the same. Either way he is ruined and probably goes to prison, so he keeps gambling even if the odds aren't in his favor, and problem grows exponentially. Altruism is a lot easier when it's not your neck on the line.
• jasmer 4y ago
  The part where he was lending out deposits to make big bets looks very problematic, and hopefully illegal. The CEO described how a feasible 'pyramid' could work with Levine on Bloomberg and it looks like he was doing just that. This is basically a smart kid breaking all the rules, doing mostly what he was allowed to do legally with all of the misrepresentation and hyper - plus a little bit of illegal stuff which is all you need along with the massive leverage that comes along with it. But I would say aside from his shenanigans - this is a crypto problem. At the base of the pyramid was an 'asset worth nothing' well ... of of crypto is essentially that.
• nullc 4y ago
  > Were the Effective Altruism intimations genuine? SBF was just following the EA maxim: "take advantage of strategies other people are biased against using"
• vishnugupta 4y ago
  There’s this incredulous passage from Sequoia article that’s been taken down since. Make of it what you will At this point, mid-2019, SBF decided to double down again—and scratch his own itch. He would bet Alameda’s multimillion-dollar trading profits on a new venture: a trading exchange called FTX. It would combine Coinbase’s stolid, regulation-loving approach with the kinds of derivatives being offered by Binance and others. He only gave himself a 20 percent chance of success, but, in his mind, SBF needed extreme risk to maximize the expected value of his lifetime earnings—and, therefore, the good his earn-to-give strategy could do. The fact that he was, by his own lights, overwhelmingly likely to fail was beside the point. The point was this: When SBF multiplied out the billions of dollars a year a successful crypto-trading exchange could throw off by his self-assessed 20 percent chance of successfully building one, the number was still huge. That’s the expected value. And if you live your life according to the same principles by which you’d trade an asset, there’s only one way forward: You calculate the expected values, then aim for the largest one—because, in one (but just one) alternate future universe, everything works out fabulously. To maximize your expected value, you must aim for it and then march blindly forth, acting as if the fabulously lucky SBF of the future can reach into the other, parallel, universes and compensate the failson SBFs for their losses. It sounds crazy, or perhaps even selfish—but it’s not. It’s math. It follows from the principle of risk-neutrality.
  • fwip 4y ago
    Sounds like he forgot about the principle of diminishing returns. If you have $1B to your name, it's stupid to put it all on red, even if your expected return is positive.
    • JohnPrine 4y ago
      Diminishing returns don't apply for SBF - his life's goal is to fund effective altruist charities, so each billion is as valuable as the last as long as there are good projects to fund. I don't think people are comprehending how tragic this whole situation is (acknowledging that it's SBF's fault). This collapse put the brakes on a powerful force for good, and lives that would have been saved won't anymore.
• fullshark 4y ago
  From his flirtations with politics and regulations: get too big to fail.
• fdgsdfogijq 4y ago
  They were caught off guard by the risk asset sell off. They thought the bull run would go for longer
• Lonestar1440 4y ago
  They expected the gambles to pay off, and faster than customers started withdrawing en masse. Reminds me a lot of AIG's sketchy Securities Lending back before 2008.
• TacticalCoder 4y ago
  > Can anyone speculate what Bankman-Fried's exit plan was? I can speculate based on recently revealed facts. SBF did grease politicians to the tune of 40 million USD in political donations. Several have described these donations as: "bribes" (I'll let you judge). (as a sidenote I wonder if these politicians are going to give these donations back to the people SBF scammed). A US congressman, as reported here several times, wrote: "GaryGensler runs to the media while reports to my office allege he was helping SBF and FTX work on legal loopholes to obtain a regulatory monopoly. We're looking into this". It's "allegedly" but it's a fact that a US congressman posted that. It's also established that a colleague of the SEC's Garry Gensler happens to be the father of... Drumroll... The 28 years old woman CEO of Alameda. So I'll speculate a TL;DR: SBF was working hand in hand with corrupt politicians and corrupt officials to kick Binance out of the US through regulatory capture in order to grab Binance's insane market share (easily 10x the size of FTX). SBF would then have continued the established FTX/Alameda scam through FTT. So he'd have then used FTX to pump the price of FTT (and, because why not, other manipulated shitcoins too) in order to keep pretending traders at Alameda were geniuses. Alameda would have been fully legit and would have take shitloads of money from various pension funds and investment funds (knowing he already got some: why not think he would have gone for more?). That's my speculation: why stop at 1/10th the size of Binance when you can donate tens of millions to politicians (which is pocket change when you're making billions) and work with the SEC to get a monopoly on crypto exchanges in the US, all the while pumping the value of your Alameda fund and all the while having covers of magazines and people everywhere (Bloomberg, Sequoia, JP Morgan, etc.) saying how big of a genius you are and how geniuses all people around you are. The guy is a megalomaniac: no longer than a few weeks ago he was saying that companies worth tens of billions were "potential acquisition targets". And I think that, had the overall markets not have been crashing hard, he may have succeeded at all that, creating a scam 10x or 100x bigger than the one he actually ran. But the market crashed and CZ took the opportunity to reveal the FTT scam to get rid of a very dangerous competitor. No matter if Binance is legit or not: SBF was after Binance but Binance was too big for SBF too chew. Binance may be going down too (no clue about that) but Binance was never going to go down alone while letting SBF free to run his SEC-endorsed scam.
  • kranke155 4y ago
• johnp314 4y ago
  "Can anyone speculate what Bankman-Fried's exit plan was?" SBF contributed millions to democrat candidates in the recent elections. Perhaps his exit plan was legislation to bail him out.
  • mrguyorama 4y ago
    He didn't have an exit plan because, like every gambler, he was sure his "system" was better than anything that came before and couldn't possibly go tits up. Like every gambler, he was wrong of course, and eventually lost it all because gambling is stupid.
• dottrap 4y ago
  The critics who follow this space rather closely seem to suspect that Alameda was especially exposed and damaged by the Luna collapse. This should have been Alameda's end, but because FTX can create FTT tokens out of thin air and it is so easy to manipulate the price, it can create the illusion of solvency ("flywheel"). Presumably, SBF was hoping that the crypto winter would end soon, which would bring everything else massively profitable for them again, and then plug the holes he had.
• deleted 4y ago
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