4 ms·

You're saying we shouldn't call out people who didn't do their due diligence on who they took money from? I say the opposite. Tar and feather them.

mikkergp 4y ago
I'm saying is calling people out the best way to solve the problem? Maybe Tar and feathering them _Elevates_ them and makes them more powerful or likely to stay in their tracks. Maybe this person is also complicit and just pointing the finger to take the focus off of themselves. Maybe we just keep circling around making the same mistakes because instead of educating eachother we just call each outer out, leading to people taking a side rather than trying to improve. I don't know.
jefftk 4y ago
What sort of due diligence would you have liked to see, and what do you expect it would have turned up? It was public that FTX money came from running a crypto exchange, but that FTX's CEO (SBF) secretly diverted customer funds to his hedge fund (Alameda) doesn't seem like something people would have discovered in due diligence. Major investors, with lots of money on the line, also didn't catch this.
- grenoire 4y ago
  There are two major ways in which you would not identify this flow of money: 1) You do a bad job at the due diligence and do not review anything beyond the income statement and top-level balance sheet accounts. 2) You turn a blind eye to it because it is favourable to you. Favourable can also be just the outcome of assessing the risk of 'cost of reversing fund diversion practices' vs. 'letting it slide because those diversions yield returns'.
  - jefftk 4y ago
    Can you say more about the level of diligence you think journalists should generally be doing when they receive funds from an organization? I think you're proposing a much deeper level than anyone currently does and which would be maybe hundreds of hours of research, but I'm not sure? Discovering a fraud when most people at the organization don't know about it and the people who do would like to your face is not a light task!
- notyourday 4y ago
  > ? It was public that FTX money came from running a crypto exchange, but that FTX's CEO (SBF) secretly diverted customer funds to his hedge fund (Alameda) doesn't seem like something people would have discovered in due diligence. I'm guessing algebra is difficult for journalists. > Major investors, with lots of money on the line, also didn't catch this. Major investors had all the incentives to keep the scam going as they stood to make big money from the scam. Journalists should have the incentives to expose the scams, except they were not in this ( and probably some other ) case because they were either getting money from the scam or were trying to be the best cheerleaders possible in hope of getting money from the scam.
  - jefftk 4y ago
    > I'm guessing algebra is difficult for journalists. Not sure what you're saying here? The amount of money the FTX Foundation was distributing was plausible given FTX's fees and volume. > Major investors had all the incentives to keep the scam going. That ignores new investors buying in, who I don't think had those incentives?
    - notyourday 4y ago
      > Not sure what you're saying here? The amount of money the FTX Foundation was plausible given FTX's fees and volume. Only if FTX and its founder found a way to create print money out of the thin air. > That ignores new investors buying in, who I don't think had those incentives? New investors are definitely not major investors and even those investors simply want to find an even greater fool. Two weeks ago I overheard a bartender in a dive bar where beer and a shot goes for $6 telling the regular drunk about all the mad money he is making at FTX. Here's a thing: there's not a single non-scam that would allow a bartender in a dive bar that sells $6 beer and a shot to make gobs of money "investing" or "trading"
      - jefftk 4y ago
        > Only if FTX and its founder found a way to create print money out of the thin air. It looks like FTX volume was something like $7B/day in July [1]. FTX fee structure [2] was complex, but assuming they got at least 0.04% seems reasonable? In which case they were making ~$3M/day ($7B * 0.04%) or ~$1B/year in fees. [1] https://web.archive.org/web/20220725151202/https://www.coingecko.com/en/exchanges/ftx https://web.archive.org/web/20220725151202/https://www.coing... [2] https://help.ftx.com/hc/en-us/articles/360024479432-Fees https://help.ftx.com/hc/en-us/articles/360024479432-Fees
- benmmurphy 4y ago
  this kind of thing is not completely straight forward to catch. if they are able to lie about their liabilities then they can be truthful about their assets and it is difficult to catch the lie about the liabilities. if I'm an external auditor and you tell me you have some assets then that is something I can try to verify myself or ask you for more evidence. if you tell me you only have a liabilities of $X but the value is actually $X+Y then this is much harder to find. in the case of FTX its probably easy to. shave customer liabilities without it showing up. probably, this is because they didn't have proper segmentation of client funds. if you have an external entity holding the assets in trust then you need to be doing very dodgy stuff in the company to be hiding customer liabilities. for example even in with a trust account setup you could have part of customer funds being diverted into secret accounts and they don't show up in the liabilities. as an external auditor you can ask to see systems and a paper trail but you are just seeing what people want you to see and if there is a conspiracy to lie then you are fucked. the best you can do is try to get some industry estimates and see if they match or compare to external statistics (like revenue, etc) and hope they have been reported truthfully. my guess in the case of FTX there probably were red flags like lack of proper segregation and these weren't reported by the external auditor.
  - jefftk 4y ago
    I agree this is tricky, and also that it seems like something auditors should have been able to catch. But "an experienced auditor would have caught this" is very different from "someone receiving funds from a foundation funded by this company should have caught this".

mikkergp 4y ago

I'm saying is calling people out the best way to solve the problem? Maybe Tar and feathering them _Elevates_ them and makes them more powerful or likely to stay in their tracks. Maybe this person is also complicit and just pointing the finger to take the focus off of themselves. Maybe we just keep circling around making the same mistakes because instead of educating eachother we just call each outer out, leading to people taking a side rather than trying to improve. I don't know.

jefftk 4y ago

What sort of due diligence would you have liked to see, and what do you expect it would have turned up? It was public that FTX money came from running a crypto exchange, but that FTX's CEO (SBF) secretly diverted customer funds to his hedge fund (Alameda) doesn't seem like something people would have discovered in due diligence. Major investors, with lots of money on the line, also didn't catch this.

grenoire 4y ago
There are two major ways in which you would not identify this flow of money: 1) You do a bad job at the due diligence and do not review anything beyond the income statement and top-level balance sheet accounts. 2) You turn a blind eye to it because it is favourable to you. Favourable can also be just the outcome of assessing the risk of 'cost of reversing fund diversion practices' vs. 'letting it slide because those diversions yield returns'.
- jefftk 4y ago
  Can you say more about the level of diligence you think journalists should generally be doing when they receive funds from an organization? I think you're proposing a much deeper level than anyone currently does and which would be maybe hundreds of hours of research, but I'm not sure? Discovering a fraud when most people at the organization don't know about it and the people who do would like to your face is not a light task!
notyourday 4y ago
> ? It was public that FTX money came from running a crypto exchange, but that FTX's CEO (SBF) secretly diverted customer funds to his hedge fund (Alameda) doesn't seem like something people would have discovered in due diligence. I'm guessing algebra is difficult for journalists. > Major investors, with lots of money on the line, also didn't catch this. Major investors had all the incentives to keep the scam going as they stood to make big money from the scam. Journalists should have the incentives to expose the scams, except they were not in this ( and probably some other ) case because they were either getting money from the scam or were trying to be the best cheerleaders possible in hope of getting money from the scam.
- jefftk 4y ago
  > I'm guessing algebra is difficult for journalists. Not sure what you're saying here? The amount of money the FTX Foundation was distributing was plausible given FTX's fees and volume. > Major investors had all the incentives to keep the scam going. That ignores new investors buying in, who I don't think had those incentives?
  - notyourday 4y ago
    > Not sure what you're saying here? The amount of money the FTX Foundation was plausible given FTX's fees and volume. Only if FTX and its founder found a way to create print money out of the thin air. > That ignores new investors buying in, who I don't think had those incentives? New investors are definitely not major investors and even those investors simply want to find an even greater fool. Two weeks ago I overheard a bartender in a dive bar where beer and a shot goes for $6 telling the regular drunk about all the mad money he is making at FTX. Here's a thing: there's not a single non-scam that would allow a bartender in a dive bar that sells $6 beer and a shot to make gobs of money "investing" or "trading"
    - jefftk 4y ago
      > Only if FTX and its founder found a way to create print money out of the thin air. It looks like FTX volume was something like $7B/day in July [1]. FTX fee structure [2] was complex, but assuming they got at least 0.04% seems reasonable? In which case they were making ~$3M/day ($7B * 0.04%) or ~$1B/year in fees. [1] https://web.archive.org/web/20220725151202/https://www.coingecko.com/en/exchanges/ftx https://web.archive.org/web/20220725151202/https://www.coing... [2] https://help.ftx.com/hc/en-us/articles/360024479432-Fees https://help.ftx.com/hc/en-us/articles/360024479432-Fees
benmmurphy 4y ago
this kind of thing is not completely straight forward to catch. if they are able to lie about their liabilities then they can be truthful about their assets and it is difficult to catch the lie about the liabilities. if I'm an external auditor and you tell me you have some assets then that is something I can try to verify myself or ask you for more evidence. if you tell me you only have a liabilities of $X but the value is actually $X+Y then this is much harder to find. in the case of FTX its probably easy to. shave customer liabilities without it showing up. probably, this is because they didn't have proper segmentation of client funds. if you have an external entity holding the assets in trust then you need to be doing very dodgy stuff in the company to be hiding customer liabilities. for example even in with a trust account setup you could have part of customer funds being diverted into secret accounts and they don't show up in the liabilities. as an external auditor you can ask to see systems and a paper trail but you are just seeing what people want you to see and if there is a conspiracy to lie then you are fucked. the best you can do is try to get some industry estimates and see if they match or compare to external statistics (like revenue, etc) and hope they have been reported truthfully. my guess in the case of FTX there probably were red flags like lack of proper segregation and these weren't reported by the external auditor.
- jefftk 4y ago
  I agree this is tricky, and also that it seems like something auditors should have been able to catch. But "an experienced auditor would have caught this" is very different from "someone receiving funds from a foundation funded by this company should have caught this".