20 ms·

FTX was registered with and licensed by the CFTC, which failed to regulate FTX

383 points by itronitron 4y ago

xwdv 4y ago
Everyone thinks Coinbase is safe because it’s regulated by the SEC as a public traded company… Coinbase is not safe, Coinbase will collapse. That’s word from the inside.
- infamouscow 4y ago
  Source: trust me bro.
uxx 4y ago
They also have a cypriot CySec new crypto license obtained just 2 month ago that was suspended, the license was obtained from another company that was involved in Financial investment scam in Europe.
LatteLazy 4y ago
There are multiple agencies that BOTH claim the right to regulate crypto AND refuse to actually do so. The SEC in particular is very vocal and brings cases against crypto users. But is actively avoids any case where a court might be asked to rule on whether it actually has the authority or where someone with the money for a real legal battle is the defendant. On top of that, there are 50 state governments all randomly passing non-sense. This mess is fundamentally the fault of congress which has refused to address the question. And it is congress that should make this decision, not the courts, both in a legal and democratic sense. As much as I'd like to see regulators dragged over the coals for talking big, and offering (or demanding) registration but actually doing nothing, it's politicians that have watched this grey legal space turn into a black hole and done nothing.
- flanked-evergl 4y ago
  > There are multiple agencies that BOTH claim the right to regulate crypto AND refuse to actually do so. I bet all those political contributions that SBF made did not hurt his prospects in this regard: https://fortune.com/2022/11/10/sam-bankman-fried-ftx-joe-biden-democratic-party-second-biggest-donor/ https://fortune.com/2022/11/10/sam-bankman-fried-ftx-joe-bid... (https://archive.ph/BBpQN#selection-417.0-424.0 https://archive.ph/BBpQN#selection-417.0-424.0) > The 30-year-old Bankman-Fried has been a major force in Democratic politics, ranking as the party’s second-biggest individual donor in the 2021–2022 election cycle, according to Open Secrets, with donations totaling $39.8 million. That ranks only behind George Soros (about $128 million) but ahead of many other big names, including Michael Bloomberg ($28.3 million). What’s more, he had promised to spend far more on Democrats moving forward, predicting in May that he’d fund “north of $100 million” and had a “soft ceiling” of $1 billion for the 2024 elections. > This mess is fundamentally the fault of congress which has refused to address the question. And it is congress that should make this decision, not the courts, both in a legal and democratic sense. SBF was using congress as sock-puppets to ghost-write regulation: https://prospect.org/power/sam-bankman-frieds-multimillion-dollar-game/ https://prospect.org/power/sam-bankman-frieds-multimillion-d... > Crypto’s supporters in Congress are determined to ignore the massive gap in capacity between the two agencies; in fact, they likely understand that its incapacity is part of its appeal to FTX. A bill proposed by Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) seeks to grant the CFTC “exclusive jurisdiction over any agreement, contract, or transaction involving a contract of sale of a digital asset that is offered, solicited, traded, executed, or otherwise dealt in interstate commerce, including market activities relating to ancillary assets.” Perhaps in anticipation of such a move, FTX has stocked up its ranks with former CFTC officials. Former CFTC commissioner and acting chair Mark Wetjen is FTX’s head of policy and regulatory strategy. Ryne Miller, who was legal counsel to Gensler when he led the CFTC, is FTX’s general counsel. The Tech Transparency Project has also identified 14 other cases of CFTC alumni revolving into the crypto industry.
  - skippyboxedhero 4y ago
    The current Chairman of the SEC worked with the CEO of Alameda's dad. Gensler initially didn't support the FTX bill, but was reportedly lobbying for it a few weeks before FTX collapsed (to be clear: this is a guy who was saying crypto should be regulated, SBF appears with a big chequebook, and he then says that his own regulator shouldn't be doing the regulating...not suspicious at all...).
- pavlov 4y ago
  Regulators should have acted against crypto years ago. But these agencies have been walking on eggshells because the conservative Supreme Court is inclined to take away much of their enforcement powers. A lot of crypto money has flowed to mostly Republican politicians who support turning the SEC and FTC into hollow shells. Ultimately the criminal is to blame for the crime. Law enforcement can’t be everywhere actively preventing people from sending money to shady actors, as much as we try to build systems to that effect. Hopefully the FTX collapse is a reminder to both American parties to beware “innovators” bearing gifts, and for SEC to better use the powers they have (for now anyway).
  - Tenoke 4y ago
    >A lot of crypto money has flowed to mostly Republican politicians This is such an ironically motivated thing to say in a thread about FTX given that SBF was Democrats' second largest donor.
    - kibwen 4y ago
      For some numbers: https://www.opensecrets.org/outside-spending/top_donors https://www.opensecrets.org/outside-spending/top_donors Bankman-Fried, the CEO of FTX, gave $35M to democrats. Ryan Salame, the "Co-CEO" of FTX, gave $18M to republicans, making him the 10th-largest republican donor (though this is slightly misleading as a comparison; republicans have more large donors than democrats, and Salame's donation would have been the 5th-largest if it had been for the latter). FTX was playing both sides.
      - leereeves 4y ago
        That doesn't seem to support the claim that "crypto money has flowed to mostly Republican politicians". Rather the opposite, as the amounts from those donors are $35M to Democrats vs $18M to Republicans. Are there some other donors who gave crypto money to Republicans?
        kibwen 4y ago
- psychlops 4y ago
  Insightful comment. It makes sense for the agencies to want control and no responsibility, the best of both worlds. If we are waiting for Congress to actually act, then nothing will happen. They are too busy empowering the executive branch. Regulation won't be a silver bullet, plenty of scams remain in regulated finance that they are supposed to fix as well.
  - skippyboxedhero 4y ago
    But they could establish rules that guarantee transparency. No regulator in the world has successfully stopped a scam before people lost money (afaik). But if you establish some regulatory framework in which people have to disclose information, establishes capital rules, etc. then it makes that less likely. Scams are a central component of financial innovation. But this specific kind of scam (stealing money from customers) is basically non-existent at scale today because of regulation.
    - JumpCrisscross 4y ago
      > no regulator in the world has successfully stopped a scam before people lost money It's impossible to prove anyone stopping anything before harms materialize because the prevented harms never happened. Regulators have definitely stopped scams early enough to reimburse victims. And where they couldn't (and where regulators were the ones to stop it) would have presumably kept going absent their interference. Americans are to a large degree shielded from FTX's collapse on account of regulation.
    - rattlesnakedave 4y ago
      >No regulator in the world has successfully stopped a scam before people lost money (afaik). But if you establish some regulatory framework in which people have to disclose information, establishes capital rules, etc. then it makes that less likely. Just trade on chain. Smart contracts are transparent by default.
      - vkou 4y ago
        If you're going to trade with smart contracts, the correct advice should be 'don't trade at all', because you're going to have your lunch eaten by software bugs.
- TEP_Kim_Il_Sung 4y ago
  Wasn't the SEC directly involved in one of the last few financial collapses? IIRC there was an whistleblower on how monitoring data could be annulled by deleting 3 files during transfer off an airgapped system. The SEC was all like 'it's a feature, not a bug'
- jimz 4y ago
  It's not really a legal grey area, congress deliberately writes vague laws so that administrative agencies can interpret and fill in gaps during their rulemaking process, which would then receive deference from courts if challenged and effectively become judge, jury, executioner. At this point I'm surprised that they haven't delegated out all the naming of post offices to some agency. Too bad the press release here is also hot garbage. For one, it's heavily based on speculative notions of what happened. Secondly, the withdrawal notice IS regulatory, and LedgerX is the legal entity that made the request. Changing it would look far more suspicious than following procedure. Also, what sort of regulation could have stopped this is very much an open question, since the whole phenomenon of affiliates, subsidiaries, and everything that led to FTX and FTX.US offering different products to different customers is entirely a product of anticipating or compliance with regulations, keeping in mind that FTX doesn't only operate in the US and some amorphous world but actual countries with their own regulatory frameworks. And the revolving door is effectively inevitable - those who are engaged in the field with any expertise on specific regulations is going to be a very small pool, and this goes for a lot more industries than CEXes, especially in technical fields and it doesn't even need to be rocket science. Courts and attorneys are setting a lot of junk precedent that will never be relevant or end up counterproductive because they don't know how CDNs work and some of the opinions from DMCA suits against absentee defendants are entirely based on infringement arising out of Cloudflare IPs while defining incidental (non-purposeful) availment of service as insufficient. Without a revolving door, it'll become farcical because you'd end up the equivalent of asking a dentist to do brain surgery. Without competent counsel, and facing down regulatory pressure, you will just lose the industry all-together, which is the apotheosis of an unregulated market because all activity is either underground or out of jurisdiction. The US is a big market, but nobody wants to go through what Ripple is going through, and calling it a regulatory failure when undercollateralized derivatives were offered on ftx.com but not ftx.us wasn't some 4D chess move but self-preservation, like Binance eventually did. I also can't figure out the logic behind the rationale that can include both "CFTC failed to regulate" and "CFTC should regulate more". 100 x 0 = 0. CFTC has acted incompetently before - like treating all holders of a token as an active member of a DAO in an enforcement action, seemingly forgetting that I can send anyone a few tokens, or hell, an offensive NFT for that matter, and there's not much you can do to stop that even if you catch it. Although reading bettermarkets I can't help but notice that its critiques are almost always on the regulators and their incompetence and the solution is... more regulation. They depict what can only be described as a fantasy world where crypto - that is all crypto, which is not a monolith - is the boogeyman while in reality, crypto is given the exact opposite of the too-big-to-fail treatment. > The key to that influence campaign is to buy as many former public officials and regulators as possible to gain access to their expertise, inside knowledge, and networks developed when they were supposedly working in the public interest. The importance of those revolving door hires cannot be overstated because they not only enable ready access to current policymakers and regulators, but also to the inside knowledge that enables crypto to precisely tailor and target their strategies to be optimally successful. Are they deliberately misleading the reader or genuinely talking out of their ass? You hire regulators for compliance, because the tech moves too quickly, and optimally successful strategy? Even MEV bots get salmonella. Not to mention that academia has much of that covered. Then, I checked out their CEO's litigation record on courtlistener and found that until last year he was at some big law defending predatory lenders. Well, there you go.
fxtentacle 4y ago
"the former CFTC Acting Chair is FTX’s Head of Policy and Regulatory Strategy and a former CFTC attorney to a former CFTC Chair is FTX’s General Counsel." So that's how they did it!
- chinathrow 4y ago
  Revolving door 2.0
- VLM 4y ago
  Also, follow the money.
- TacticalCoder 4y ago
  Meanwhile there are people explaining with a straight face that FTX.us and FTX have nothing to do whatsoever with each other. The name has to be a coindicence certainly!?
jkhdigital 4y ago
This is a bit misleading: FTX US Derivatives LLC, formerly known as LedgerX, is indeed a wholly owned subsidiary of FTX US (acquired Oct 2021). However, at an operational level, it is an entirely separate entity and will probably continue to operate as such (likely reverting to DBA LedgerX). The CFTC licensure was established well before the acquisition. It's debatable whether you can pin some kind of blame on the CFTC for failing to regulate the entirety of FTX's international operations when they were 100% decoupled from the operations of the one entity that was actually licensed. This article, while surely well-intentioned, is still mostly just grandstanding by a political lobbyist.
- manholio 4y ago
  I don't think that's entire believable anymore. This direct account from a Alameda employee linked in the other frontpage discussion alleges the Hong Kong office was busy at work trying to sell Alameda assets to cover ftx.us withdrawals (in addition to ftx.com). Why would ftx us need this support if they were fully segregated? https://twitter.com/libevm/status/1592383746551910400 https://twitter.com/libevm/status/1592383746551910400
  - pstrateman 4y ago
    ftx.us and FTX US Derivatives LLC (aka LedgerX) are different things.
    - blitzar 4y ago
      Its as if the reality contradicts the intention of the clickbait headline. The regulated company, couldnt share its funds with parent co, couldnt gamble them and is not going bankrupt.
      - parmenidean 4y ago
        It's also not hard to find this information — the Chairman of the CFTC said this exact thing yesterday: https://www.coindesk.com/policy/2022/11/14/health-of-ftxs-us-derivatives-arm-owed-to-oversight-says-cftc-chief-behnam/ https://www.coindesk.com/policy/2022/11/14/health-of-ftxs-us...
retail101 4y ago
This entire press release is a master class in misunderstanding the relationship between the CFTC, FTX, and FTX US (LedgerX). FTX US was registered, licensed, and regulated by the CFTC as both a DCM (designated contract market) and a DCO (derivatives clearing organization). FTX Intl bought LedgerX (the DCO and DCM) presumably as an entryway into the US marketplace and as an attempt to bypass the registration process for those types of entities, but FTX Intl was in no way registered, licensed, or regulated by the CFTC. It's a shame LedgerX may go down with the ship, and their marketplace has a lot of opportunity.
- SilasX 4y ago
  Okay but FTX US was also doing obviously shady stuff that should have shown up quickly in audits or other records the CFTC would have access to, so…?
  - kasey_junk 4y ago
    So the cftc is a tiny agency (~700 total employees) and has a lot of other things they regulate (everything from commodities exchange order book micro manipulation to gold fraud over the phone). At the end of the day FTX came apart too fast and didn’t impact enough people to generate a reason for them to spend their limited resources on them.
    - skippyboxedhero 4y ago
      This is not accurate. FTX is, afaik, the biggest fraud of it's kind that there has ever been. I saw today an estimate in the FT of 1m creditors. Biggest outright fraud since Madoff, in many ways this is even bigger (Madoff didn't steal directly from his investors, he just paid off old investors/himself with new investors, Madoff was a $60bn fraud but most of this money never existed at all, Madoff was maybe $20bn and a good portion of this has been recovered...SBF did actually steal $10bn...it seems). Generally, the issue is that regulators come down like a ton of bricks on the little guy but won't do anything when something is too big to regulate. There is no easy solution to this because you will never be able to overcome the lack of critical thought at regulatory agencies. It is also worth considering the actual scope of protection that regulators offer: the premise of most regulation is that regulators can regulate...when they can't (this is less true outside financial regulation btw, in financial markets you seem the same people do the same scam over and over with no consequences because there are slight variations...and then come down heavily on other people who are innovating...it is really despairing).
k__ 4y ago
A centralised entity, which should have been regulated by another centralised entity, gambled away billions. Seems like nothing changed since 2009.
- bboygravity 4y ago
  Just wait until the DTC, DTCC and Citadel (both of the Citadels) ponzi comes to light. I give it about a year more.
  - JumpCrisscross 4y ago
    > DTCC and Citadel (both of the Citadels) Is this a real conspiracy theory?
    - bboygravity 4y ago
      Yes. In the same way that "FTX is a ponzi scheme" was a conspiracy theory until a few days ago.
      - JumpCrisscross 4y ago
        > same way that "FTX is a ponzi scheme" was a conspiracy theory until a few days ago FTX’s failings weren’t widely acknowledged. But critics weren’t dismissed as unbelievable, even absent strong evidence. Most of us just don’t give a shit. Beyond Robinhood ramblings, there isn’t even circumstantial evidence of DTCC being corrupted in favour of Citadel, a claim which requires having the latter overpower every global bank plus every competing fund complex, from BlackRock to Bridgewater.
        jessaustin 4y ago
        The claim requires nothing of the sort. Reality doesn't confine itself to our imaginations.
        SilasX 4y ago
z9znz 4y ago
I have had limited but direct experience with CFTC (because of a cryptocurrency related project I did for a client), and I was not impressed. In this case, CFTC came at us with claims that we were breaking rules and then required us to prove that we were not. Just looking at our website it was very clear what we were doing and what we were selling (education content), and there was not a hint of anything to suggest that we were selling investments or commodities. Even still, we had to give our corp attorney annotated screenshots of our website, illustrating exactly what our business was, and have that sent back to CFTC. After doing so, we heard nothing back from them. They should have been satisifed by what we sent (presumably they were), but they didn't even both to say, "Ok, you may go." The whole thing felt really arbitrary and amateur.
- practice9 4y ago
  I think this experience could be replicated anywhere in the world. This type of agency (as well as tax offices) will pursue low-hanging fruit while overlooking more complex and critical situations. And the lack of actionable feedback really underscores their inefficiency. > The whole thing felt really arbitrary and amateur. Lack of domain knowledge + corruption + a lack of incentives to improve (because they are part of the government, it is difficult to hold them accountable for their claims)
- asah 4y ago
  -1: this is often how regulatory bodies work. In particular, their non-response gives them better CYA in case there's malfeasance vs an explicit approval.
  - themoonisachees 4y ago
    Then they are not good at regulating, are they not? A regulatory body should be able to say who they think is doing it wrong and who isn't.
    - deleted 4y ago
      [deleted]
    - 4y ago
022361166236174 4y ago
The regulator's purpose is to raise barriers to enter and prevent competition so that those already established on the market can make more money. The regulator has zero interest in protecting consumers. That's not what it's for. CFTC did not fail to regulate, and there is no reason to think the regulation was not effective at its actual purpose.
- rtkwe 4y ago
  Reflexive antiregulation is the empty ideology that keeps us in a cycle of boom, bust, and bailout with banks. We neuter Glass-Stegall and within a decade we had 2008 now the regulations in Dodd-Frank meant to keep guard rails on the banks has also AFAIK been thoroughly neutered but this time it lasted less than a decade and banks have already reinvented and rebranded the same financial instruments that blew up in '08.
  - skippyboxedhero 4y ago
    It is very difficult to be particularly brief. But the purpose of regulation is not to outlaw boom and bust, it was to stop TBTF...which it has largely done. But the issue is that outlawing XYZ did absolutely nothing because there was still an economic rationale for that activity. So a lot of activity moved to PE funds, and other non-bank lenders. The exact issue is that people think in the rear view mirror: we are in a cycle of "boom and bust" with banks...my guy, banks stopped being relevant years and years ago. But the problem now is: liquidity in markets has absolutely disappeared (current liquidity in USTs is as low as the depth of 2008, this is despite the market growing 5x since then), risk has moved to non-banks, etc. All these other side-effects have now been triggered. Also, the financial instruments that "blew up" in 2008 were ones that investors were demanding. It is like blaming the guy who sells you a gun if you shoot someone, "why did you sell me this?". The reason why investors wanted these securities was because the demand for AAA securities in 03-04 was very high but the Fed drove rates down to 1% so large institutions were legally unable to meet liabilities. Obviously, there was other stuff going on but the underlying logic of things like CDO/CMOs is strong (almost every country in the world wishes they had a financial market like this, Denmark is the only other one, ironically the issue with not having securitization markets is that risk gets centralized in banks, people in the US think the 2008 bailout was crazy...countries like Germany, that have heavily centralized financial markets, have had to bail out banks three times since then). Unf, the lessons of 2008 largely haven't been learned (and this is despite the fact that the US had, by far, the best/least interventionist response).
yieldcrv 4y ago
LedgerX is not included in the bankruptcy filings, is not a fractional reserve and is still functioning It is regulated but that has nothing to do with why it didn’t fail, its just managed better, fully collateralized, and maintained its separation in the ftx issue. for now.
mensetmanusman 4y ago
FTX is crypto’s Lehman Brothers moment. There will be movies about it.
- birracerveza 4y ago
  Plenty of movie-worthy stories in crypto to tell, I'd love a TV show on it. The last few years in particular have been a complete circus.
- JumpCrisscross 4y ago
  > will be movies about it Michael Lewis is somehow already selling the rights [1]. [1] https://theankler.com/p/hwood-ftx-frenzy-as-michael-lewis?sd=pf https://theankler.com/p/hwood-ftx-frenzy-as-michael-lewis?sd...
- pjc50 4y ago
  Eh, people incur billion pseudo-dollar losses on a monthly basis in crypto. Exchanges and token issuers rugpull all the time. This just happened to be a much better publicised fraud. I doubt even this will stop retail investors getting scammed.
  - jandrese 4y ago
    It's not every day that the second largest exchange in the sphere goes down the toilet. Well actually, if the knock on effects hit other exchanges like some people fear that might happen. The real hair on fire moment would be a Binance rug pull.
JumpCrisscross 4y ago
The CFTC has historically been a friendlier regulator than the SEC. It was born to protect farmers from Wall Street, amending in 1936 a 1922 Grain Futures Act, itself created to help farmers, by “prevent[ing] and remov[ing] obstructions and burdens upon interstate commerce in grains and other commodities by regulating transactions therein on commodity futures exchanges…” [1]. Inherently facilitating, in contrast to the adversarial Securities Act of 1932 [2]. This is why Coinbase’s Armstrong et al have been pushing for it, not the SEC, to regulate them [3]. Hopefully this puts a nail in that coffin. [1] https://en.m.wikipedia.org/wiki/Commodity_Exchange_Act https://en.m.wikipedia.org/wiki/Commodity_Exchange_Act [2] https://en.m.wikipedia.org/wiki/Securities_Act_of_1933 https://en.m.wikipedia.org/wiki/Securities_Act_of_1933 [3] https://decrypt.co/111106/coinbase-very-supportive-cftc-bitcoin-ethereum https://decrypt.co/111106/coinbase-very-supportive-cftc-bitc...
frankfrankfrank 4y ago
- SpicyLemonZest 4y ago
  The reason people try to avoid the "it's all fraud" kind of realization is that it deterministically leads to the second half of your comment, where you start to perceive every person and policy you don't like as a unitary web of badness. Plantation masters, bankers, and industrialists are all very different groups of people with different interests, goals, and practices. So if you find yourself with a grand unified theory of how they're all the same you've taken a wrong turn.
  - agos 4y ago
    I think one can find, with a little effort, a goal that plantation masters, bankers, and industrialists have in common. It’s not really subtle
    - SpicyLemonZest 4y ago
      They certainly have some. Like most people, they tend to aspire to making money, gaining social status, and building fulfilling relationships. Can one find a goal that only these groups have in common? I don't think so. The only commonality between them is that they're conventionally considered powerful in modern American society, and even that part is only true because the terms are understood to refer specifically to powerful members of the underlying group. A counter clerk at Wells Fargo isn't really a "banker" and a farmer who hires a handful of people to help with the harvest isn't really a "plantation owner".
- smcl 4y ago
  This feels like you wanted an excuse to shoe-horn an anti-immigration message into a comment
TacticalCoder 4y ago
The NY Times just ran an article on SBF and doesn't mention the word "fraud" or "crime" once. It looks like daddy and mommy's friends are hard at work here. It's completely surreal. https://www.nytimes.com/2022/11/14/technology/ftx-sam-bankman-fried-crypto-bankruptcy.html https://www.nytimes.com/2022/11/14/technology/ftx-sam-bankma...
- psychlops 4y ago
  This. It's astonishing to see how they are cushioning the fall.
  - koolba 4y ago
    Given the scale of the fraud, public opinion or even legal consequences are probably not the greatest of worries for SBF et al.
    - boppo1 4y ago
      He's still playing League. Seems like he feels he doesn't have worries, perhaps because he's so well connected.
      - xadhominemx 4y ago
        No, he’s worried. Come on.
        MichaelCollins 4y ago
        Is there any evidence of him being worried, or are you extrapolating this belief from the knowledge that you would be worried? Remember that sociopaths don't think the same as the rest of us.
        xadhominemx 4y ago
        Is there any reason to think he’s not worried other than the fact he’s blown of steam with a few hours of gaming?
pluc 4y ago
Say it with me: if you deal with crypto, you are a crook. Doesn't matter if you're a regulator or am ICO tycoon, you're a dirtbag hoping to get rich quick.
- px43 4y ago
  More accurate to replace "crypto" with "Wall Street". This is a story about nepotism and corruption in Wall Street. The fact that SBF was peddling cryptocurrencies didn't matter for the fraud, but is likely a key reason that he got caught.
- proffeatur8 4y ago
z_zetetic_z 4y ago
The SEC regulates the entire US banking industry, and yet 2008 still happened. How is this news? Answer, it's not.
- JumpCrisscross 4y ago
  > SEC regulates the entire US banking industry It pointedly does not.
- twblalock 4y ago
  The kind of risky behavior that caused the 2008 crisis would have happened a lot more often if the markets had been regulated as poorly as crypto. There would have been a 2008-style crisis every decade. What happened to banks in 2008 demonstrates the value of the regulations and other systems we had in place. Some banks did fail, but depositors didn't lose money because of the FDIC insurance.
ChoGGi 4y ago
I hope Sam enjoys his punishment for this whole kerfuffle (a light-hearted slap on the wrist by a sultry wood elf).
- throwaway290 4y ago
  I believe the technical term is "nymph"
  - ChoGGi 4y ago
    Oops, thank you https://web.archive.org/web/20221027181005/https://www.sequoiacap.com/article/sam-bankman-fried-spotlight/ https://web.archive.org/web/20221027181005/https://www.sequo...
lettergram 4y ago
Favorite set of tweets on the subject https://twitter.com/LibertyBlitz/status/1591418251132932096 https://twitter.com/LibertyBlitz/status/1591418251132932096 https://twitter.com/brucefenton/status/1591768410190655490 https://twitter.com/brucefenton/status/1591768410190655490 https://twitter.com/AKA_RealDirty/status/1591522972031852545 https://twitter.com/AKA_RealDirty/status/1591522972031852545 To me it seems obvious this was a government laundering operation. They were getting funds washed for what ever they wanted.
- deleted 4y ago
  [deleted]
deleted 4y ago
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jfengel 4y ago
"In my defense, I was left unsupervised."
api 4y ago
Reminds me a bit of my favorite cryptocurrency joke: "Cryptocurrency is full of scams, money laundering, gambling, and crime!" "So you're saying it's a real currency?"
- vkou 4y ago
  Most net flow of economic activity where real currency is involved is not 'scams, laundering, gambling, and crime'. They definitely make up less than 10% of the real economy, probably less than 5%. Meanwhile, the real economy of crypto seems to be coin issuers and early adopters and platform operators fleecing later entrants, with a generous helping of outright theft.
  - api 4y ago
    Agreed. Just thought it was a funny bit of snark.
balderdash 4y ago
As I understood it FTX did have a US subsidiary (which is what I assume was CFTC regulated entity), but that all the shenanigans were offshore. It’s the same reason that when Lehman folded, the US broker dealer clients were relatively unscathed vs European broker dealer clients who lost a pile due to different (laxer) regulatory regime
- darth_aardvark 4y ago
  FTX US collapsed too, as did Alameda Research (the hedge fund that was supposed to be totally separate and theoretically as regulated as any hedge fund).
  - balderdash 4y ago
    Which from the article is not FTX derivatives, the regulated entity.
TimJRobinson 4y ago
It's almost like we need some open source, transparent way of doing finance - where anyone can audit the books and companies have no ability to run off with user funds. We could call it decentralized finance, or DeFi for short. Throw in some zk proofs for user level privacy to really make it shine.
- theturtletalks 4y ago
  Forgive my naïveté, but aren’t you describing a decentralized exchange (DEX) instead of what FTX was? Looks like Uniswap, a popular DEX, is still alive and well.
  - conqueso 4y ago
    GP is most likely mocking what they see as circular logic in the crypto-sphere. Re: Uniswap - a study posted here few days ago found that 97.7% of tokens launched there are either scams or rug pulls: https://news.ycombinator.com/item?id=33572361 https://news.ycombinator.com/item?id=33572361
    - TimJRobinson 4y ago
      I'm sure 99% of emails are scams but that doesn't make email a bad technology.
      - polygamous_bat 4y ago
        1. I received useful emails each day, and spams are always around 10%. Maybe I am just conservative about wher I put my email? Not being in crypto may help as well, but it's definitely not 1%-99% for me, more like 90%-10%. 2. More importantly, an email provider that doesn't make an effort to distinguish between 99% of spam emails and 1% of legit ones is definitely useless and worthless.
        TimJRobinson 4y ago
        Uniswap the protocol is like SMTP - it's open and permissionless. Uniswap the website is more like Gmail, it has a whitelisted set of tokens to swap. Because it's a protocol anyone can build a frontend on top of it to filter out any information they like, just like Email. Zapper, DeFi Saver and Zerion are examples of this. Element Finance runs using Balancer under the hood but you wouldn't know and aren't exposed to any tokens or pools they don't manage.
p0pcult 4y ago
Failure to regulate.
KurvaKing 4y ago
asdajksah2123 4y ago
Were the futures market (if any) on FTX operating correctly? Because that's the role of the CFTC. It's not to regulate entire companies and identify fraud.
IanDrake 4y ago
Animats 4y ago
The crypto industry lobbying effort has been trying to have the CFTC regulate crypto, and escape SEC regulation.[1] Now we know why. The CFTC is mostly concerned about how things are traded. Not what the things are. Commodities are things like wheat and oil, which already exist. Not newly created things. There's nothing like an IPO in commodities. (The CFTC does regulate derivatives, which complicates this.) So the CFTC has no regulations which apply when someone issues a new crypto coin, NFT series, or whatever. The crypto issuers like that. The SEC has two main areas of regulation - securities issued by companies, and markets. Most of the SEC's efforts are on the issuer side. The definition of a security is very broad. If you raise money by offering the potential for future profit, it's probably a security. See Howey Test. There was litigation over whether the SEC had broad authority to regulate crypto issuers. So the SEC has been holding back on things that were not blatant fraud. On November 8, 2022, SEC vs LBRY was decided, which pretty much says crypto issues are securities, period. Current thinking on the SEC side is that Bitcoin is probably a commodity, because the issuer is long gone and not profiting from it, but everything in crypto with a live issuer behind it is probably a security. [1] https://www.reuters.com/markets/us/us-senators-unveil-bill-regulate-cryptocurrency-2022-06-07/ https://www.reuters.com/markets/us/us-senators-unveil-bill-r...
- dogman144 4y ago
  Your last isn’t accurate (Bitcoin is a commodity bc of…) Source - follow Gensler’s speeches and MIT classes, Hester Peirce’s speeches, and the SEC GitHub. Basically, Bitcoin is likely not a sec because of how it works as a system, ethereum likely is not a sec but it gets opaque, clones of ethereum/EVM have similar treatments. From there, the ICO coins and similar tokens since then likely are secs, bunch of them are hazy as we veer into L1 and L2 and …. The SEC has advocated for a “regulation beach” or whatever they call it to get companies to build a token within this beach, work with the SEC, and figure out the security vs commodity question. I don’t know if this has gotten traction though. There’s a SEC speech and GitHub repo somewhere for it.
  - unboxingelf 4y ago
    Ethereum is almost definitely a security. It had an unfair issuance and is controlled and influenced by a small group. I mean it has a roadmap by vitalik!
maxbond 4y ago
Just a tangential story. A few years ago I became convinced that there would be a collapse in the crypto space triggered by the insolvency of Tether. I was looking into ways to build a short position. I could only find three means that were legally available to me in the US (at the time at least); trading CME Bitcoin futures, shorting relevant equities (eg publicly traded Bitcoin miners), and trading options on LedgerX (which was purchased by FTX). I couldn't trade futures or short stocks, because I couldn't handle infinite downside risk. So that only left put options at LedgerX. LedgerX was supposed to be fully collateralized, and so should have had all my funds on hand even in the event of a contagion in the crypto market. But I could never shake the feeling in my gut that they'd get wiped out with everyone else. I let the idea go. Entire years passed and now the market is falling apart. Part of me wishes I'd been short somehow of course, but I know I couldn't have remained solvent this long.
- thesausageking 4y ago
  Tether was actually created to solve the problem you describe. Traders needed to be able to sometimes park assets in dollars with an exchange (if they're exiting a position for example), but couldn't because of US regulations, so Tether was created and has been wildly successful. And it's interesting how much hate it continues to get, especially from people in the US. It was released in 2014 and has maintained it peg since then, with trillions and trillions of dollars of value transacted in it. It's one of longest running and most successful crypto projects by far.
  - vkou 4y ago
    Every scam looks successful until it isn't. There's no reason to believe the Tether balance sheet looks at all better than that of FTX.
alpineidyll3 4y ago
This story has the details wrong. I have had an account with FTX US Derivatives since they were LedgerX (right after they got the CFTC charter). They complied with the regulations, They still do. My assets are liquid and I was able to wire everything out. Whoever made this story doesn't understand corporate structure, and also didn't bother to check their facts in even a superficial way.
thedangler 4y ago
I love how regulators are using this as a crux for saying crypto needs regulations meanwhile the wall street regulations don't really do anything except keep the big dogs in charge and the little guys being fleesed. I bet if there was a run on brokers, the exact same thing would happen because lots of peoples shares are just IOUs.
kubota 4y ago
I'm surprised the CFTC approved ICE Clear Credit's initiative to bring options to the credit default swap market, seeing how bank's over-levered CDS holdings contributed to the great recession. Options can be used to manage risk but can also be used to efficiently lever a position.

383 points by itronitron 4y ago

xwdv 4y ago

Everyone thinks Coinbase is safe because it’s regulated by the SEC as a public traded company… Coinbase is not safe, Coinbase will collapse. That’s word from the inside.

infamouscow 4y ago
Source: trust me bro.

uxx 4y ago

They also have a cypriot CySec new crypto license obtained just 2 month ago that was suspended, the license was obtained from another company that was involved in Financial investment scam in Europe.

LatteLazy 4y ago

There are multiple agencies that BOTH claim the right to regulate crypto AND refuse to actually do so. The SEC in particular is very vocal and brings cases against crypto users. But is actively avoids any case where a court might be asked to rule on whether it actually has the authority or where someone with the money for a real legal battle is the defendant. On top of that, there are 50 state governments all randomly passing non-sense. This mess is fundamentally the fault of congress which has refused to address the question. And it is congress that should make this decision, not the courts, both in a legal and democratic sense. As much as I'd like to see regulators dragged over the coals for talking big, and offering (or demanding) registration but actually doing nothing, it's politicians that have watched this grey legal space turn into a black hole and done nothing.

flanked-evergl 4y ago
> There are multiple agencies that BOTH claim the right to regulate crypto AND refuse to actually do so. I bet all those political contributions that SBF made did not hurt his prospects in this regard: https://fortune.com/2022/11/10/sam-bankman-fried-ftx-joe-biden-democratic-party-second-biggest-donor/ https://fortune.com/2022/11/10/sam-bankman-fried-ftx-joe-bid... (https://archive.ph/BBpQN#selection-417.0-424.0 https://archive.ph/BBpQN#selection-417.0-424.0) > The 30-year-old Bankman-Fried has been a major force in Democratic politics, ranking as the party’s second-biggest individual donor in the 2021–2022 election cycle, according to Open Secrets, with donations totaling $39.8 million. That ranks only behind George Soros (about $128 million) but ahead of many other big names, including Michael Bloomberg ($28.3 million). What’s more, he had promised to spend far more on Democrats moving forward, predicting in May that he’d fund “north of $100 million” and had a “soft ceiling” of $1 billion for the 2024 elections. > This mess is fundamentally the fault of congress which has refused to address the question. And it is congress that should make this decision, not the courts, both in a legal and democratic sense. SBF was using congress as sock-puppets to ghost-write regulation: https://prospect.org/power/sam-bankman-frieds-multimillion-dollar-game/ https://prospect.org/power/sam-bankman-frieds-multimillion-d... > Crypto’s supporters in Congress are determined to ignore the massive gap in capacity between the two agencies; in fact, they likely understand that its incapacity is part of its appeal to FTX. A bill proposed by Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) seeks to grant the CFTC “exclusive jurisdiction over any agreement, contract, or transaction involving a contract of sale of a digital asset that is offered, solicited, traded, executed, or otherwise dealt in interstate commerce, including market activities relating to ancillary assets.” Perhaps in anticipation of such a move, FTX has stocked up its ranks with former CFTC officials. Former CFTC commissioner and acting chair Mark Wetjen is FTX’s head of policy and regulatory strategy. Ryne Miller, who was legal counsel to Gensler when he led the CFTC, is FTX’s general counsel. The Tech Transparency Project has also identified 14 other cases of CFTC alumni revolving into the crypto industry.
- skippyboxedhero 4y ago
  The current Chairman of the SEC worked with the CEO of Alameda's dad. Gensler initially didn't support the FTX bill, but was reportedly lobbying for it a few weeks before FTX collapsed (to be clear: this is a guy who was saying crypto should be regulated, SBF appears with a big chequebook, and he then says that his own regulator shouldn't be doing the regulating...not suspicious at all...).
pavlov 4y ago
Regulators should have acted against crypto years ago. But these agencies have been walking on eggshells because the conservative Supreme Court is inclined to take away much of their enforcement powers. A lot of crypto money has flowed to mostly Republican politicians who support turning the SEC and FTC into hollow shells. Ultimately the criminal is to blame for the crime. Law enforcement can’t be everywhere actively preventing people from sending money to shady actors, as much as we try to build systems to that effect. Hopefully the FTX collapse is a reminder to both American parties to beware “innovators” bearing gifts, and for SEC to better use the powers they have (for now anyway).
- Tenoke 4y ago
  >A lot of crypto money has flowed to mostly Republican politicians This is such an ironically motivated thing to say in a thread about FTX given that SBF was Democrats' second largest donor.
  - kibwen 4y ago
    For some numbers: https://www.opensecrets.org/outside-spending/top_donors https://www.opensecrets.org/outside-spending/top_donors Bankman-Fried, the CEO of FTX, gave $35M to democrats. Ryan Salame, the "Co-CEO" of FTX, gave $18M to republicans, making him the 10th-largest republican donor (though this is slightly misleading as a comparison; republicans have more large donors than democrats, and Salame's donation would have been the 5th-largest if it had been for the latter). FTX was playing both sides.
    - leereeves 4y ago
      That doesn't seem to support the claim that "crypto money has flowed to mostly Republican politicians". Rather the opposite, as the amounts from those donors are $35M to Democrats vs $18M to Republicans. Are there some other donors who gave crypto money to Republicans?
      - kibwen 4y ago
psychlops 4y ago
Insightful comment. It makes sense for the agencies to want control and no responsibility, the best of both worlds. If we are waiting for Congress to actually act, then nothing will happen. They are too busy empowering the executive branch. Regulation won't be a silver bullet, plenty of scams remain in regulated finance that they are supposed to fix as well.
- skippyboxedhero 4y ago
  But they could establish rules that guarantee transparency. No regulator in the world has successfully stopped a scam before people lost money (afaik). But if you establish some regulatory framework in which people have to disclose information, establishes capital rules, etc. then it makes that less likely. Scams are a central component of financial innovation. But this specific kind of scam (stealing money from customers) is basically non-existent at scale today because of regulation.
  - JumpCrisscross 4y ago
    > no regulator in the world has successfully stopped a scam before people lost money It's impossible to prove anyone stopping anything before harms materialize because the prevented harms never happened. Regulators have definitely stopped scams early enough to reimburse victims. And where they couldn't (and where regulators were the ones to stop it) would have presumably kept going absent their interference. Americans are to a large degree shielded from FTX's collapse on account of regulation.
  - rattlesnakedave 4y ago
    >No regulator in the world has successfully stopped a scam before people lost money (afaik). But if you establish some regulatory framework in which people have to disclose information, establishes capital rules, etc. then it makes that less likely. Just trade on chain. Smart contracts are transparent by default.
    - vkou 4y ago
      If you're going to trade with smart contracts, the correct advice should be 'don't trade at all', because you're going to have your lunch eaten by software bugs.
TEP_Kim_Il_Sung 4y ago
Wasn't the SEC directly involved in one of the last few financial collapses? IIRC there was an whistleblower on how monitoring data could be annulled by deleting 3 files during transfer off an airgapped system. The SEC was all like 'it's a feature, not a bug'
jimz 4y ago
It's not really a legal grey area, congress deliberately writes vague laws so that administrative agencies can interpret and fill in gaps during their rulemaking process, which would then receive deference from courts if challenged and effectively become judge, jury, executioner. At this point I'm surprised that they haven't delegated out all the naming of post offices to some agency. Too bad the press release here is also hot garbage. For one, it's heavily based on speculative notions of what happened. Secondly, the withdrawal notice IS regulatory, and LedgerX is the legal entity that made the request. Changing it would look far more suspicious than following procedure. Also, what sort of regulation could have stopped this is very much an open question, since the whole phenomenon of affiliates, subsidiaries, and everything that led to FTX and FTX.US offering different products to different customers is entirely a product of anticipating or compliance with regulations, keeping in mind that FTX doesn't only operate in the US and some amorphous world but actual countries with their own regulatory frameworks. And the revolving door is effectively inevitable - those who are engaged in the field with any expertise on specific regulations is going to be a very small pool, and this goes for a lot more industries than CEXes, especially in technical fields and it doesn't even need to be rocket science. Courts and attorneys are setting a lot of junk precedent that will never be relevant or end up counterproductive because they don't know how CDNs work and some of the opinions from DMCA suits against absentee defendants are entirely based on infringement arising out of Cloudflare IPs while defining incidental (non-purposeful) availment of service as insufficient. Without a revolving door, it'll become farcical because you'd end up the equivalent of asking a dentist to do brain surgery. Without competent counsel, and facing down regulatory pressure, you will just lose the industry all-together, which is the apotheosis of an unregulated market because all activity is either underground or out of jurisdiction. The US is a big market, but nobody wants to go through what Ripple is going through, and calling it a regulatory failure when undercollateralized derivatives were offered on ftx.com but not ftx.us wasn't some 4D chess move but self-preservation, like Binance eventually did. I also can't figure out the logic behind the rationale that can include both "CFTC failed to regulate" and "CFTC should regulate more". 100 x 0 = 0. CFTC has acted incompetently before - like treating all holders of a token as an active member of a DAO in an enforcement action, seemingly forgetting that I can send anyone a few tokens, or hell, an offensive NFT for that matter, and there's not much you can do to stop that even if you catch it. Although reading bettermarkets I can't help but notice that its critiques are almost always on the regulators and their incompetence and the solution is... more regulation. They depict what can only be described as a fantasy world where crypto - that is all crypto, which is not a monolith - is the boogeyman while in reality, crypto is given the exact opposite of the too-big-to-fail treatment. > The key to that influence campaign is to buy as many former public officials and regulators as possible to gain access to their expertise, inside knowledge, and networks developed when they were supposedly working in the public interest. The importance of those revolving door hires cannot be overstated because they not only enable ready access to current policymakers and regulators, but also to the inside knowledge that enables crypto to precisely tailor and target their strategies to be optimally successful. Are they deliberately misleading the reader or genuinely talking out of their ass? You hire regulators for compliance, because the tech moves too quickly, and optimally successful strategy? Even MEV bots get salmonella. Not to mention that academia has much of that covered. Then, I checked out their CEO's litigation record on courtlistener and found that until last year he was at some big law defending predatory lenders. Well, there you go.

fxtentacle 4y ago

"the former CFTC Acting Chair is FTX’s Head of Policy and Regulatory Strategy and a former CFTC attorney to a former CFTC Chair is FTX’s General Counsel." So that's how they did it!

chinathrow 4y ago
Revolving door 2.0
VLM 4y ago
Also, follow the money.
TacticalCoder 4y ago
Meanwhile there are people explaining with a straight face that FTX.us and FTX have nothing to do whatsoever with each other. The name has to be a coindicence certainly!?

jkhdigital 4y ago

This is a bit misleading: FTX US Derivatives LLC, formerly known as LedgerX, is indeed a wholly owned subsidiary of FTX US (acquired Oct 2021). However, at an operational level, it is an entirely separate entity and will probably continue to operate as such (likely reverting to DBA LedgerX). The CFTC licensure was established well before the acquisition. It's debatable whether you can pin some kind of blame on the CFTC for failing to regulate the entirety of FTX's international operations when they were 100% decoupled from the operations of the one entity that was actually licensed. This article, while surely well-intentioned, is still mostly just grandstanding by a political lobbyist.

manholio 4y ago
I don't think that's entire believable anymore. This direct account from a Alameda employee linked in the other frontpage discussion alleges the Hong Kong office was busy at work trying to sell Alameda assets to cover ftx.us withdrawals (in addition to ftx.com). Why would ftx us need this support if they were fully segregated? https://twitter.com/libevm/status/1592383746551910400 https://twitter.com/libevm/status/1592383746551910400
- pstrateman 4y ago
  ftx.us and FTX US Derivatives LLC (aka LedgerX) are different things.
  - blitzar 4y ago
    Its as if the reality contradicts the intention of the clickbait headline. The regulated company, couldnt share its funds with parent co, couldnt gamble them and is not going bankrupt.
    - parmenidean 4y ago
      It's also not hard to find this information — the Chairman of the CFTC said this exact thing yesterday: https://www.coindesk.com/policy/2022/11/14/health-of-ftxs-us-derivatives-arm-owed-to-oversight-says-cftc-chief-behnam/ https://www.coindesk.com/policy/2022/11/14/health-of-ftxs-us...

retail101 4y ago

This entire press release is a master class in misunderstanding the relationship between the CFTC, FTX, and FTX US (LedgerX). FTX US was registered, licensed, and regulated by the CFTC as both a DCM (designated contract market) and a DCO (derivatives clearing organization). FTX Intl bought LedgerX (the DCO and DCM) presumably as an entryway into the US marketplace and as an attempt to bypass the registration process for those types of entities, but FTX Intl was in no way registered, licensed, or regulated by the CFTC. It's a shame LedgerX may go down with the ship, and their marketplace has a lot of opportunity.

SilasX 4y ago
Okay but FTX US was also doing obviously shady stuff that should have shown up quickly in audits or other records the CFTC would have access to, so…?
- kasey_junk 4y ago
  So the cftc is a tiny agency (~700 total employees) and has a lot of other things they regulate (everything from commodities exchange order book micro manipulation to gold fraud over the phone). At the end of the day FTX came apart too fast and didn’t impact enough people to generate a reason for them to spend their limited resources on them.
  - skippyboxedhero 4y ago
    This is not accurate. FTX is, afaik, the biggest fraud of it's kind that there has ever been. I saw today an estimate in the FT of 1m creditors. Biggest outright fraud since Madoff, in many ways this is even bigger (Madoff didn't steal directly from his investors, he just paid off old investors/himself with new investors, Madoff was a $60bn fraud but most of this money never existed at all, Madoff was maybe $20bn and a good portion of this has been recovered...SBF did actually steal $10bn...it seems). Generally, the issue is that regulators come down like a ton of bricks on the little guy but won't do anything when something is too big to regulate. There is no easy solution to this because you will never be able to overcome the lack of critical thought at regulatory agencies. It is also worth considering the actual scope of protection that regulators offer: the premise of most regulation is that regulators can regulate...when they can't (this is less true outside financial regulation btw, in financial markets you seem the same people do the same scam over and over with no consequences because there are slight variations...and then come down heavily on other people who are innovating...it is really despairing).

k__ 4y ago

A centralised entity, which should have been regulated by another centralised entity, gambled away billions. Seems like nothing changed since 2009.

bboygravity 4y ago
Just wait until the DTC, DTCC and Citadel (both of the Citadels) ponzi comes to light. I give it about a year more.
- JumpCrisscross 4y ago
  > DTCC and Citadel (both of the Citadels) Is this a real conspiracy theory?
  - bboygravity 4y ago
    Yes. In the same way that "FTX is a ponzi scheme" was a conspiracy theory until a few days ago.
    - JumpCrisscross 4y ago
      > same way that "FTX is a ponzi scheme" was a conspiracy theory until a few days ago FTX’s failings weren’t widely acknowledged. But critics weren’t dismissed as unbelievable, even absent strong evidence. Most of us just don’t give a shit. Beyond Robinhood ramblings, there isn’t even circumstantial evidence of DTCC being corrupted in favour of Citadel, a claim which requires having the latter overpower every global bank plus every competing fund complex, from BlackRock to Bridgewater.
      - jessaustin 4y ago
        The claim requires nothing of the sort. Reality doesn't confine itself to our imaginations.
      - SilasX 4y ago

z9znz 4y ago

I have had limited but direct experience with CFTC (because of a cryptocurrency related project I did for a client), and I was not impressed. In this case, CFTC came at us with claims that we were breaking rules and then required us to prove that we were not. Just looking at our website it was very clear what we were doing and what we were selling (education content), and there was not a hint of anything to suggest that we were selling investments or commodities. Even still, we had to give our corp attorney annotated screenshots of our website, illustrating exactly what our business was, and have that sent back to CFTC. After doing so, we heard nothing back from them. They should have been satisifed by what we sent (presumably they were), but they didn't even both to say, "Ok, you may go." The whole thing felt really arbitrary and amateur.

practice9 4y ago
I think this experience could be replicated anywhere in the world. This type of agency (as well as tax offices) will pursue low-hanging fruit while overlooking more complex and critical situations. And the lack of actionable feedback really underscores their inefficiency. > The whole thing felt really arbitrary and amateur. Lack of domain knowledge + corruption + a lack of incentives to improve (because they are part of the government, it is difficult to hold them accountable for their claims)
asah 4y ago
-1: this is often how regulatory bodies work. In particular, their non-response gives them better CYA in case there's malfeasance vs an explicit approval.
- themoonisachees 4y ago
  Then they are not good at regulating, are they not? A regulatory body should be able to say who they think is doing it wrong and who isn't.
  - deleted 4y ago
    [deleted]
  - 4y ago

022361166236174 4y ago

The regulator's purpose is to raise barriers to enter and prevent competition so that those already established on the market can make more money. The regulator has zero interest in protecting consumers. That's not what it's for. CFTC did not fail to regulate, and there is no reason to think the regulation was not effective at its actual purpose.

rtkwe 4y ago
Reflexive antiregulation is the empty ideology that keeps us in a cycle of boom, bust, and bailout with banks. We neuter Glass-Stegall and within a decade we had 2008 now the regulations in Dodd-Frank meant to keep guard rails on the banks has also AFAIK been thoroughly neutered but this time it lasted less than a decade and banks have already reinvented and rebranded the same financial instruments that blew up in '08.
- skippyboxedhero 4y ago
  It is very difficult to be particularly brief. But the purpose of regulation is not to outlaw boom and bust, it was to stop TBTF...which it has largely done. But the issue is that outlawing XYZ did absolutely nothing because there was still an economic rationale for that activity. So a lot of activity moved to PE funds, and other non-bank lenders. The exact issue is that people think in the rear view mirror: we are in a cycle of "boom and bust" with banks...my guy, banks stopped being relevant years and years ago. But the problem now is: liquidity in markets has absolutely disappeared (current liquidity in USTs is as low as the depth of 2008, this is despite the market growing 5x since then), risk has moved to non-banks, etc. All these other side-effects have now been triggered. Also, the financial instruments that "blew up" in 2008 were ones that investors were demanding. It is like blaming the guy who sells you a gun if you shoot someone, "why did you sell me this?". The reason why investors wanted these securities was because the demand for AAA securities in 03-04 was very high but the Fed drove rates down to 1% so large institutions were legally unable to meet liabilities. Obviously, there was other stuff going on but the underlying logic of things like CDO/CMOs is strong (almost every country in the world wishes they had a financial market like this, Denmark is the only other one, ironically the issue with not having securitization markets is that risk gets centralized in banks, people in the US think the 2008 bailout was crazy...countries like Germany, that have heavily centralized financial markets, have had to bail out banks three times since then). Unf, the lessons of 2008 largely haven't been learned (and this is despite the fact that the US had, by far, the best/least interventionist response).

yieldcrv 4y ago

LedgerX is not included in the bankruptcy filings, is not a fractional reserve and is still functioning It is regulated but that has nothing to do with why it didn’t fail, its just managed better, fully collateralized, and maintained its separation in the ftx issue. for now.

mensetmanusman 4y ago

FTX is crypto’s Lehman Brothers moment. There will be movies about it.

birracerveza 4y ago
Plenty of movie-worthy stories in crypto to tell, I'd love a TV show on it. The last few years in particular have been a complete circus.
JumpCrisscross 4y ago
> will be movies about it Michael Lewis is somehow already selling the rights [1]. [1] https://theankler.com/p/hwood-ftx-frenzy-as-michael-lewis?sd=pf https://theankler.com/p/hwood-ftx-frenzy-as-michael-lewis?sd...
pjc50 4y ago
Eh, people incur billion pseudo-dollar losses on a monthly basis in crypto. Exchanges and token issuers rugpull all the time. This just happened to be a much better publicised fraud. I doubt even this will stop retail investors getting scammed.
- jandrese 4y ago
  It's not every day that the second largest exchange in the sphere goes down the toilet. Well actually, if the knock on effects hit other exchanges like some people fear that might happen. The real hair on fire moment would be a Binance rug pull.

JumpCrisscross 4y ago

The CFTC has historically been a friendlier regulator than the SEC. It was born to protect farmers from Wall Street, amending in 1936 a 1922 Grain Futures Act, itself created to help farmers, by “prevent[ing] and remov[ing] obstructions and burdens upon interstate commerce in grains and other commodities by regulating transactions therein on commodity futures exchanges…” [1]. Inherently facilitating, in contrast to the adversarial Securities Act of 1932 [2]. This is why Coinbase’s Armstrong et al have been pushing for it, not the SEC, to regulate them [3]. Hopefully this puts a nail in that coffin. [1] https://en.m.wikipedia.org/wiki/Commodity_Exchange_Act https://en.m.wikipedia.org/wiki/Commodity_Exchange_Act [2] https://en.m.wikipedia.org/wiki/Securities_Act_of_1933 https://en.m.wikipedia.org/wiki/Securities_Act_of_1933 [3] https://decrypt.co/111106/coinbase-very-supportive-cftc-bitcoin-ethereum https://decrypt.co/111106/coinbase-very-supportive-cftc-bitc...

frankfrankfrank 4y ago

SpicyLemonZest 4y ago
The reason people try to avoid the "it's all fraud" kind of realization is that it deterministically leads to the second half of your comment, where you start to perceive every person and policy you don't like as a unitary web of badness. Plantation masters, bankers, and industrialists are all very different groups of people with different interests, goals, and practices. So if you find yourself with a grand unified theory of how they're all the same you've taken a wrong turn.
- agos 4y ago
  I think one can find, with a little effort, a goal that plantation masters, bankers, and industrialists have in common. It’s not really subtle
  - SpicyLemonZest 4y ago
    They certainly have some. Like most people, they tend to aspire to making money, gaining social status, and building fulfilling relationships. Can one find a goal that only these groups have in common? I don't think so. The only commonality between them is that they're conventionally considered powerful in modern American society, and even that part is only true because the terms are understood to refer specifically to powerful members of the underlying group. A counter clerk at Wells Fargo isn't really a "banker" and a farmer who hires a handful of people to help with the harvest isn't really a "plantation owner".
smcl 4y ago
This feels like you wanted an excuse to shoe-horn an anti-immigration message into a comment

TacticalCoder 4y ago

The NY Times just ran an article on SBF and doesn't mention the word "fraud" or "crime" once. It looks like daddy and mommy's friends are hard at work here. It's completely surreal. https://www.nytimes.com/2022/11/14/technology/ftx-sam-bankman-fried-crypto-bankruptcy.html https://www.nytimes.com/2022/11/14/technology/ftx-sam-bankma...

psychlops 4y ago
This. It's astonishing to see how they are cushioning the fall.
- koolba 4y ago
  Given the scale of the fraud, public opinion or even legal consequences are probably not the greatest of worries for SBF et al.
  - boppo1 4y ago
    He's still playing League. Seems like he feels he doesn't have worries, perhaps because he's so well connected.
    - xadhominemx 4y ago
      No, he’s worried. Come on.
      - MichaelCollins 4y ago
        Is there any evidence of him being worried, or are you extrapolating this belief from the knowledge that you would be worried? Remember that sociopaths don't think the same as the rest of us.
        xadhominemx 4y ago
        Is there any reason to think he’s not worried other than the fact he’s blown of steam with a few hours of gaming?

pluc 4y ago

Say it with me: if you deal with crypto, you are a crook. Doesn't matter if you're a regulator or am ICO tycoon, you're a dirtbag hoping to get rich quick.

px43 4y ago
More accurate to replace "crypto" with "Wall Street". This is a story about nepotism and corruption in Wall Street. The fact that SBF was peddling cryptocurrencies didn't matter for the fraud, but is likely a key reason that he got caught.
proffeatur8 4y ago

z_zetetic_z 4y ago

The SEC regulates the entire US banking industry, and yet 2008 still happened. How is this news? Answer, it's not.

JumpCrisscross 4y ago
> SEC regulates the entire US banking industry It pointedly does not.
twblalock 4y ago
The kind of risky behavior that caused the 2008 crisis would have happened a lot more often if the markets had been regulated as poorly as crypto. There would have been a 2008-style crisis every decade. What happened to banks in 2008 demonstrates the value of the regulations and other systems we had in place. Some banks did fail, but depositors didn't lose money because of the FDIC insurance.

ChoGGi 4y ago

I hope Sam enjoys his punishment for this whole kerfuffle (a light-hearted slap on the wrist by a sultry wood elf).

throwaway290 4y ago
I believe the technical term is "nymph"
- ChoGGi 4y ago
  Oops, thank you https://web.archive.org/web/20221027181005/https://www.sequoiacap.com/article/sam-bankman-fried-spotlight/ https://web.archive.org/web/20221027181005/https://www.sequo...

lettergram 4y ago

Favorite set of tweets on the subject https://twitter.com/LibertyBlitz/status/1591418251132932096 https://twitter.com/LibertyBlitz/status/1591418251132932096 https://twitter.com/brucefenton/status/1591768410190655490 https://twitter.com/brucefenton/status/1591768410190655490 https://twitter.com/AKA_RealDirty/status/1591522972031852545 https://twitter.com/AKA_RealDirty/status/1591522972031852545 To me it seems obvious this was a government laundering operation. They were getting funds washed for what ever they wanted.

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jfengel 4y ago

"In my defense, I was left unsupervised."

api 4y ago

Reminds me a bit of my favorite cryptocurrency joke: "Cryptocurrency is full of scams, money laundering, gambling, and crime!" "So you're saying it's a real currency?"

vkou 4y ago
Most net flow of economic activity where real currency is involved is not 'scams, laundering, gambling, and crime'. They definitely make up less than 10% of the real economy, probably less than 5%. Meanwhile, the real economy of crypto seems to be coin issuers and early adopters and platform operators fleecing later entrants, with a generous helping of outright theft.
- api 4y ago
  Agreed. Just thought it was a funny bit of snark.

balderdash 4y ago

As I understood it FTX did have a US subsidiary (which is what I assume was CFTC regulated entity), but that all the shenanigans were offshore. It’s the same reason that when Lehman folded, the US broker dealer clients were relatively unscathed vs European broker dealer clients who lost a pile due to different (laxer) regulatory regime

darth_aardvark 4y ago
FTX US collapsed too, as did Alameda Research (the hedge fund that was supposed to be totally separate and theoretically as regulated as any hedge fund).
- balderdash 4y ago
  Which from the article is not FTX derivatives, the regulated entity.

TimJRobinson 4y ago

It's almost like we need some open source, transparent way of doing finance - where anyone can audit the books and companies have no ability to run off with user funds. We could call it decentralized finance, or DeFi for short. Throw in some zk proofs for user level privacy to really make it shine.

theturtletalks 4y ago
Forgive my naïveté, but aren’t you describing a decentralized exchange (DEX) instead of what FTX was? Looks like Uniswap, a popular DEX, is still alive and well.
- conqueso 4y ago
  GP is most likely mocking what they see as circular logic in the crypto-sphere. Re: Uniswap - a study posted here few days ago found that 97.7% of tokens launched there are either scams or rug pulls: https://news.ycombinator.com/item?id=33572361 https://news.ycombinator.com/item?id=33572361
  - TimJRobinson 4y ago
    I'm sure 99% of emails are scams but that doesn't make email a bad technology.
    - polygamous_bat 4y ago
      1. I received useful emails each day, and spams are always around 10%. Maybe I am just conservative about wher I put my email? Not being in crypto may help as well, but it's definitely not 1%-99% for me, more like 90%-10%. 2. More importantly, an email provider that doesn't make an effort to distinguish between 99% of spam emails and 1% of legit ones is definitely useless and worthless.
      - TimJRobinson 4y ago
        Uniswap the protocol is like SMTP - it's open and permissionless. Uniswap the website is more like Gmail, it has a whitelisted set of tokens to swap. Because it's a protocol anyone can build a frontend on top of it to filter out any information they like, just like Email. Zapper, DeFi Saver and Zerion are examples of this. Element Finance runs using Balancer under the hood but you wouldn't know and aren't exposed to any tokens or pools they don't manage.

p0pcult 4y ago

Failure to regulate.

KurvaKing 4y ago

asdajksah2123 4y ago

Were the futures market (if any) on FTX operating correctly? Because that's the role of the CFTC. It's not to regulate entire companies and identify fraud.

IanDrake 4y ago

Animats 4y ago

The crypto industry lobbying effort has been trying to have the CFTC regulate crypto, and escape SEC regulation.[1] Now we know why. The CFTC is mostly concerned about how things are traded. Not what the things are. Commodities are things like wheat and oil, which already exist. Not newly created things. There's nothing like an IPO in commodities. (The CFTC does regulate derivatives, which complicates this.) So the CFTC has no regulations which apply when someone issues a new crypto coin, NFT series, or whatever. The crypto issuers like that. The SEC has two main areas of regulation - securities issued by companies, and markets. Most of the SEC's efforts are on the issuer side. The definition of a security is very broad. If you raise money by offering the potential for future profit, it's probably a security. See Howey Test. There was litigation over whether the SEC had broad authority to regulate crypto issuers. So the SEC has been holding back on things that were not blatant fraud. On November 8, 2022, SEC vs LBRY was decided, which pretty much says crypto issues are securities, period. Current thinking on the SEC side is that Bitcoin is probably a commodity, because the issuer is long gone and not profiting from it, but everything in crypto with a live issuer behind it is probably a security. [1] https://www.reuters.com/markets/us/us-senators-unveil-bill-regulate-cryptocurrency-2022-06-07/ https://www.reuters.com/markets/us/us-senators-unveil-bill-r...

dogman144 4y ago
Your last isn’t accurate (Bitcoin is a commodity bc of…) Source - follow Gensler’s speeches and MIT classes, Hester Peirce’s speeches, and the SEC GitHub. Basically, Bitcoin is likely not a sec because of how it works as a system, ethereum likely is not a sec but it gets opaque, clones of ethereum/EVM have similar treatments. From there, the ICO coins and similar tokens since then likely are secs, bunch of them are hazy as we veer into L1 and L2 and …. The SEC has advocated for a “regulation beach” or whatever they call it to get companies to build a token within this beach, work with the SEC, and figure out the security vs commodity question. I don’t know if this has gotten traction though. There’s a SEC speech and GitHub repo somewhere for it.
- unboxingelf 4y ago
  Ethereum is almost definitely a security. It had an unfair issuance and is controlled and influenced by a small group. I mean it has a roadmap by vitalik!

maxbond 4y ago

Just a tangential story. A few years ago I became convinced that there would be a collapse in the crypto space triggered by the insolvency of Tether. I was looking into ways to build a short position. I could only find three means that were legally available to me in the US (at the time at least); trading CME Bitcoin futures, shorting relevant equities (eg publicly traded Bitcoin miners), and trading options on LedgerX (which was purchased by FTX). I couldn't trade futures or short stocks, because I couldn't handle infinite downside risk. So that only left put options at LedgerX. LedgerX was supposed to be fully collateralized, and so should have had all my funds on hand even in the event of a contagion in the crypto market. But I could never shake the feeling in my gut that they'd get wiped out with everyone else. I let the idea go. Entire years passed and now the market is falling apart. Part of me wishes I'd been short somehow of course, but I know I couldn't have remained solvent this long.

thesausageking 4y ago
Tether was actually created to solve the problem you describe. Traders needed to be able to sometimes park assets in dollars with an exchange (if they're exiting a position for example), but couldn't because of US regulations, so Tether was created and has been wildly successful. And it's interesting how much hate it continues to get, especially from people in the US. It was released in 2014 and has maintained it peg since then, with trillions and trillions of dollars of value transacted in it. It's one of longest running and most successful crypto projects by far.
- vkou 4y ago
  Every scam looks successful until it isn't. There's no reason to believe the Tether balance sheet looks at all better than that of FTX.

alpineidyll3 4y ago

This story has the details wrong. I have had an account with FTX US Derivatives since they were LedgerX (right after they got the CFTC charter). They complied with the regulations, They still do. My assets are liquid and I was able to wire everything out. Whoever made this story doesn't understand corporate structure, and also didn't bother to check their facts in even a superficial way.

thedangler 4y ago

I love how regulators are using this as a crux for saying crypto needs regulations meanwhile the wall street regulations don't really do anything except keep the big dogs in charge and the little guys being fleesed. I bet if there was a run on brokers, the exact same thing would happen because lots of peoples shares are just IOUs.

kubota 4y ago

I'm surprised the CFTC approved ICE Clear Credit's initiative to bring options to the credit default swap market, seeing how bank's over-levered CDS holdings contributed to the great recession. Options can be used to manage risk but can also be used to efficiently lever a position.