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Are you sure? FTX was collecting deposits in many countries, so I think they had to have local subsidiaries to enable that...The corporate structure seems ortho

Are you sure? FTX was collecting deposits in many countries, so I think they had to have local subsidiaries to enable that...The corporate structure seems orthogonal to their fraud

btilly 4y ago
Yes, I'm sure. For example FTX was able to claim, with a vague semblance of honesty, that it had assets to cover liabilities. But in fact what it did was transfer money to other companies that were part of the network, like Alameda, and get back tokens with a book value but no real market value, like Serum. On paper both companies had engaged in a fair transaction. In reality customer money got moved to another company that was then free to do with it what it wanted, all hidden behind the corporate structure. Read https://archive.ph/TOgjK https://archive.ph/TOgjK for Matt Levine explaining exactly how this actually worked.
- basch 4y ago
  That relationship only requires two companies, not 130.
- tibbar 4y ago
  I don't think this is quite right. Matt is saying that the Serum wasn't exchanged for customer money -- it was more or less created out of thin air. He suggests that most of FTX's magical crypto assets like Serum were created for < 1 billion of customer money. He points out that we don't know from the balance sheet where they flushed the $16billion of investments. (It does seem like a lot of it went to Alameda, but not in exchange for Serum. And we still don't know how Alameda lost all the money it lost.)
  - espadrine 4y ago
    Since they used Serum’s diluted market cap to justify it as an increase in assets, and focused on having more assets than liabilities, it implies they took this higher total asset balance to shoulder liabilities that their existing assets did not cover. Since every dollar they received in customer deposits appeared both in assets and liabilities, the only way they ended up with liabilities that their (non-Serum, non-FTT) assets did not cover, is by exchanging the dollars with something that lost value.
    - tibbar 4y ago
      > Since every dollar they received in customer deposits appeared both in assets and liabilities, the only way they ended up with liabilities that their (non-Serum, non-FTT) assets did not cover, is by exchanging the dollars with something that lost value. That's the way it ought to work in the absence of fraud or theft. But as Matt says, the reason this balance sheet is so insane is that there's no evidence this happened. Only a very small amount of customer dollars could have been used to generate Serum. FTX invented several cryptocurrencies which, at a 10x inflated valuation, obscure the fact that they completely lost $16 billion of assets. In fact, it seems that SBF used a backdoor in his own software to secretly transfer customer funds to Alameda. There's no evidence that any sort of internal accounting actually balanced the books in the way you suggest, which is what's so insane about this whole story.
      - lazide 4y ago
        It doesn’t matter how thoroughly you do your double entry accounting if you can’t trust the statement (or there is no statement) you reconcile against. Or no one ever tries to reconcile shit. How does it go again? “ The government are very keen on amassing statistics. They collect them, add them, raise them to the nth power, take the cube root and prepare wonderful diagrams. But you must never forget that every one of these figures comes in the first instance from the village watchman, who just puts down what he damn pleases.” - Josiah Stamp
  - djbusby 4y ago
    Alameda Research has a profile on CrunchBase, they invested in a cannabis bank for example.
  - meltedcapacitor 4y ago
    Creating out of thin air is step 1. Step 2 is for Alameda to deposit on FTX, and then withdraw 95% of its notional value in USD or say BTC/ETH. Then on FTX they have a negative balance on this matched by a positive balance in FTT or other Sam coins. The USD or BTC/ETH withdrawn comes from someone on platform who has clicked "lend" on their positive balance of same in exchange of some yield. To be fair, any user could do that, deposit shitcoin, withdraw non-shit, up to 100% of the funds where people had clicked "lend" and that without any fraud. If the value of the shitcoin collapsed their account just got zeroed and FTX took the corresponding loss on their books. The list of shitcoins allowed in this genius scheme is still up: https://help.ftx.com/hc/en-us/articles/360031149632-Non-USD-Collateral https://help.ftx.com/hc/en-us/articles/360031149632-Non-USD-...
zwkrt 4y ago
There was a breakdown recently that I can't find that showed that FTX's corporate structure was at least an order of magnitude more complex than Lehman Bro's at the time of it's collapse. EDIT: here's the diagrams (thanks HN!) https://www.manchesteropenhive.com/view/9781526100580/figures/Image_228.jpg https://www.manchesteropenhive.com/view/9781526100580/figure... https://i.redd.it/078p4g7m6cz91.jpg https://i.redd.it/078p4g7m6cz91.jpg Note that for LB, like most normal companies, it has subsidiaries where it makes sense to operate under different tax laws, etc. So they have a Japanese company, and Australian company... For FTX there is no such rhyme or reason. Most of the entities outside of DE are in Antigua, Seychelles, Cayman Islands, Switzerland. I don't know enough about finance to understand if this is a red flag, but given the circumstances the intent behind such a structure is certainly suspiscious.
- gruez 4y ago
  >>corporate structure seems orthogonal to their fraud >FTX's corporate structure was at least an order of magnitude more complex than Lehman Bro's at the time of it's collapse. Okay, but what does corporate structure complexity have to do with fraud? It seems like you're trying to argue something along the lines of "lehman brothers was complex and collapsed due to fraud. FTX is even more complex than lehman brothers, therefore it's even more fraud then lehman!", but we didn't even establish how complexity has to do with fraud.
  - grey-area 4y ago
    https://www.tookitaki.com/compliance_hub/shell-companies-money-laundering/ https://www.tookitaki.com/compliance_hub/shell-companies-mon...
    - gruez 4y ago
      It feels like certain terms (eg. "ponzi scheme", "money laundering", "shell companies") get thrown around any time there's any sort of financial malfeasance, without regard to their specific meaning. For the money laundering claim, do we have any reason to believe that SBF is trying to launder money (ie. trying to conceal the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source[1])? Is he secretly also a darknet drug dealer or something? I guess you could argue the embezzle angle, but the guy isn't exactly known for a lavish lifestyle. He does use company funds to fund his charities/PACs and buy expensive properties (I think there was a group penthouse in Bermuda that's for sale now), but that's all in the open. [1] https://en.wikipedia.org/wiki/Money_laundering https://en.wikipedia.org/wiki/Money_laundering

Are you sure? FTX was collecting deposits in many countries, so I think they had to have local subsidiaries to enable that...The corporate structure seems orthogonal to their fraud

btilly 4y ago

Yes, I'm sure. For example FTX was able to claim, with a vague semblance of honesty, that it had assets to cover liabilities. But in fact what it did was transfer money to other companies that were part of the network, like Alameda, and get back tokens with a book value but no real market value, like Serum. On paper both companies had engaged in a fair transaction. In reality customer money got moved to another company that was then free to do with it what it wanted, all hidden behind the corporate structure. Read https://archive.ph/TOgjK https://archive.ph/TOgjK for Matt Levine explaining exactly how this actually worked.

basch 4y ago
That relationship only requires two companies, not 130.
tibbar 4y ago
I don't think this is quite right. Matt is saying that the Serum wasn't exchanged for customer money -- it was more or less created out of thin air. He suggests that most of FTX's magical crypto assets like Serum were created for < 1 billion of customer money. He points out that we don't know from the balance sheet where they flushed the $16billion of investments. (It does seem like a lot of it went to Alameda, but not in exchange for Serum. And we still don't know how Alameda lost all the money it lost.)
- espadrine 4y ago
  Since they used Serum’s diluted market cap to justify it as an increase in assets, and focused on having more assets than liabilities, it implies they took this higher total asset balance to shoulder liabilities that their existing assets did not cover. Since every dollar they received in customer deposits appeared both in assets and liabilities, the only way they ended up with liabilities that their (non-Serum, non-FTT) assets did not cover, is by exchanging the dollars with something that lost value.
  - tibbar 4y ago
    > Since every dollar they received in customer deposits appeared both in assets and liabilities, the only way they ended up with liabilities that their (non-Serum, non-FTT) assets did not cover, is by exchanging the dollars with something that lost value. That's the way it ought to work in the absence of fraud or theft. But as Matt says, the reason this balance sheet is so insane is that there's no evidence this happened. Only a very small amount of customer dollars could have been used to generate Serum. FTX invented several cryptocurrencies which, at a 10x inflated valuation, obscure the fact that they completely lost $16 billion of assets. In fact, it seems that SBF used a backdoor in his own software to secretly transfer customer funds to Alameda. There's no evidence that any sort of internal accounting actually balanced the books in the way you suggest, which is what's so insane about this whole story.
    - lazide 4y ago
      It doesn’t matter how thoroughly you do your double entry accounting if you can’t trust the statement (or there is no statement) you reconcile against. Or no one ever tries to reconcile shit. How does it go again? “ The government are very keen on amassing statistics. They collect them, add them, raise them to the nth power, take the cube root and prepare wonderful diagrams. But you must never forget that every one of these figures comes in the first instance from the village watchman, who just puts down what he damn pleases.” - Josiah Stamp
- djbusby 4y ago
  Alameda Research has a profile on CrunchBase, they invested in a cannabis bank for example.
- meltedcapacitor 4y ago
  Creating out of thin air is step 1. Step 2 is for Alameda to deposit on FTX, and then withdraw 95% of its notional value in USD or say BTC/ETH. Then on FTX they have a negative balance on this matched by a positive balance in FTT or other Sam coins. The USD or BTC/ETH withdrawn comes from someone on platform who has clicked "lend" on their positive balance of same in exchange of some yield. To be fair, any user could do that, deposit shitcoin, withdraw non-shit, up to 100% of the funds where people had clicked "lend" and that without any fraud. If the value of the shitcoin collapsed their account just got zeroed and FTX took the corresponding loss on their books. The list of shitcoins allowed in this genius scheme is still up: https://help.ftx.com/hc/en-us/articles/360031149632-Non-USD-Collateral https://help.ftx.com/hc/en-us/articles/360031149632-Non-USD-...

zwkrt 4y ago

There was a breakdown recently that I can't find that showed that FTX's corporate structure was at least an order of magnitude more complex than Lehman Bro's at the time of it's collapse. EDIT: here's the diagrams (thanks HN!) https://www.manchesteropenhive.com/view/9781526100580/figures/Image_228.jpg https://www.manchesteropenhive.com/view/9781526100580/figure... https://i.redd.it/078p4g7m6cz91.jpg https://i.redd.it/078p4g7m6cz91.jpg Note that for LB, like most normal companies, it has subsidiaries where it makes sense to operate under different tax laws, etc. So they have a Japanese company, and Australian company... For FTX there is no such rhyme or reason. Most of the entities outside of DE are in Antigua, Seychelles, Cayman Islands, Switzerland. I don't know enough about finance to understand if this is a red flag, but given the circumstances the intent behind such a structure is certainly suspiscious.

gruez 4y ago
>>corporate structure seems orthogonal to their fraud >FTX's corporate structure was at least an order of magnitude more complex than Lehman Bro's at the time of it's collapse. Okay, but what does corporate structure complexity have to do with fraud? It seems like you're trying to argue something along the lines of "lehman brothers was complex and collapsed due to fraud. FTX is even more complex than lehman brothers, therefore it's even more fraud then lehman!", but we didn't even establish how complexity has to do with fraud.
- grey-area 4y ago
  https://www.tookitaki.com/compliance_hub/shell-companies-money-laundering/ https://www.tookitaki.com/compliance_hub/shell-companies-mon...
  - gruez 4y ago
    It feels like certain terms (eg. "ponzi scheme", "money laundering", "shell companies") get thrown around any time there's any sort of financial malfeasance, without regard to their specific meaning. For the money laundering claim, do we have any reason to believe that SBF is trying to launder money (ie. trying to conceal the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source[1])? Is he secretly also a darknet drug dealer or something? I guess you could argue the embezzle angle, but the guy isn't exactly known for a lavish lifestyle. He does use company funds to fund his charities/PACs and buy expensive properties (I think there was a group penthouse in Bermuda that's for sale now), but that's all in the open. [1] https://en.wikipedia.org/wiki/Money_laundering https://en.wikipedia.org/wiki/Money_laundering