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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

by 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
    - grey-area 4y ago
      Alameda
      - gruez 4y ago
        You mean the company that is very obviously and directly connected to them?
        grey-area 4y ago
        Yes it’s a glaring example of fraud and dodgy deals/assets, since you seem unable to accept that the obvious fraudsters are in in fact up to no good. Shell companies are most often used for fraud or tax evasion, there really are no good reasons to have such a complex web of companies.
        gruez 4y ago
        > Yes it’s a glaring example of fraud and dodgy deals/assets, since you seem unable to accept that the obvious fraudsters are in in fact up to no good. Did I claim that they weren't engaging in fraud, or that the deal wasn't dodgy? My objection was with "money laundering". Even with the loosest possible interpretation, there needs to be some sort of obfuscation involved. The facts seem to point towards something very straightforward (ie. Alemeda Research borrowing money from FTX), which suggests that no obfuscation was attempted. All of this confirms my prior comment: >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. Was there malfeasance at Alameda Research/FTX? Hell yes. Was there money laundering? No.
        grey-area 4y ago
        If you read the article is not just about money laundering, shell companies and complex corporate structures are fraud adjacent, something you seemed surprised by, that is why I gave you the link. > Alemeda Research borrowing money from FTX A company can't 'borrow' customer funds from another company. Companies also shouldn't try to price the assets they hold as security or swap securities on customers. There are so many examples of fraud here.
- JumpCrisscross 4y ago
  > what does corporate structure complexity have to do with fraud? Broadly speaking, inexplicable complexity in finance means fraud.
  - gruez 4y ago
    Except in this case there's a far simpler explanation floating around: 1. Alameda Research experienced some losses and needed capital injection 2. In a transaction that was probably not at arms-length and possibly fraudulent, they borrowed money from FTX by putting FTT and other tokens as collateral 3. The tokens taken as collateral crashed in value, which caused FTX to be unable to meet their liabilities
    - JamesianP 4y ago
      Obviously all their planning did not account for issue #3 either way. But perhaps their concern was simply having actions like #2 exposed, and more generally the value of their company (which goes hand-in-hand with the value of their various tokens) exposed. In that infamous interview, the guy talked about manipulating the prices of crypto using a small float as one tactic.
      - gruez 4y ago
        >Obviously all their planning did not account for issue #3 either way. But perhaps their concern was simply having actions like #2 exposed, and more generally the value of their company (which goes hand-in-hand with the value of their various tokens) exposed. So let me get this straight: They were concerned with "actions like #2 exposed", so they set up a super complicated corporate structure, and apparently... didn't make use of it? Once the leaked balance sheet came out on coindesk everybody pretty much immediately figured it out, and not because there was great internet sleuths, it was just that obvious.
    - skinnymuch 4y ago
      When you do number 2 you know number 3. It’s not possibly fraudulent. It is fraudulent.
- zwkrt 4y ago
  You're right that it is just an implication on my part (and thanks for the sister comment of yours for finding the diagram!). Comparing it to LB is just a little bit flippant. But you have to admit, LB was a 100 year old company that provided actual value in an incredibly complex and entrenched market. FTX was only a few years old and basically managed electronic trading cards for electronic trading card enthusiasts, yet has ~100 different entities in the corporate chart? Something is a bit off.
- deleted 4y ago
  [deleted]
- baobabKoodaa 4y ago
  > Okay, but what does corporate structure complexity have to do with fraud? Their point is that we can't look at those diagrams and determine if LB was more complex than FTX, because we suspect that those diagrams weren't drawn with the same granularity. So it's possible (perhaps even likely) that LB was more complex than FTX, and this would be apparent if we were to compare diagrams drawn with the same granularity.
  - lazide 4y ago
    The potential relation to fraud is that financial complexity can be used to obfuscate cash flows and a great many other things and hide malfeasance. Even if things like corporate officers and beneficial ownership info is easy to retrieve, having a Byzantine structure of entities can make it really hard to see the ‘one hand washing the other’ stuff, especially for outsiders. And corporate officers and beneficial ownership info is rarely easy to get when this is done offshore, like many of these were.
    - baobabKoodaa 4y ago
      Not sure if you replied to the wrong comment by accident, but that has absolutely nothing to do with my comment that you replied to.
      - lazide 4y ago
        Nope, my comment is definitely applicable.
        baobabKoodaa 4y ago
        Ok, care to explain? It seems to me that your comment concerns the connection between financial complexity and fraud (it's easier to conceal fraud when you have complex structures). My comment didn't concern that topic at all. My comment concerned "can we judge if A is more complex than B based on these 2 pictures". I said that we can't know if A is more complex than B, or if B is more complex than A, based on these 2 pictures. Your comment doesn't even mention the pictures. Nor does it attempt to draw any kind of conclusion about the comparison between A and B. Nor does it provide a general framework for drawing comparisons. So I don't see how it relates to what I said at all.
chinathrow 4y ago
https://i.redd.it/078p4g7m6cz91.jpg https://i.redd.it/078p4g7m6cz91.jpg
wjnc 4y ago
I saw those plots and I think there is a false comparison. No way the Lehman plot is at the same level of granularity as the FTX plot. My firm is mid-sized European insurer. We have a chart with low hundreds of entities. Most arise from compliance purposes. Many from acquisitions that have not been definitively integrated. Some follow from certain reinsurance deals. We have many funds in the market, some entities are related to ESG-activities, some are caretakers entities for certain customers. I get it though. In M&A of small firms I have seen ten people work in a firm with twenty entities and have raised questions. But it’s the story that counts. In larger companies you have notaries on retainer just to keep the legal structure follow the organizational reality.
saalweachter 4y ago
Hell, just the fact that all of Lehman's subsidiaries are named "Lehman", and most of FTX's are named like they used a code name generator.
- lazide 4y ago
  Almost like in Lehmans case, transparency and clear accountability were at least somewhere important. Less so for FTX.
andsoitis 4y ago
> Antigua, Seychelles, Cayman Islands, Switzerland All are tax havens and, afaik, provide a level of corporate veils that are not readily available elsewhere.

by zwkrt 4y ago

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
  - grey-area 4y ago
    Alameda
    - gruez 4y ago
      You mean the company that is very obviously and directly connected to them?
      - grey-area 4y ago
        Yes it’s a glaring example of fraud and dodgy deals/assets, since you seem unable to accept that the obvious fraudsters are in in fact up to no good. Shell companies are most often used for fraud or tax evasion, there really are no good reasons to have such a complex web of companies.
        gruez 4y ago
        > Yes it’s a glaring example of fraud and dodgy deals/assets, since you seem unable to accept that the obvious fraudsters are in in fact up to no good. Did I claim that they weren't engaging in fraud, or that the deal wasn't dodgy? My objection was with "money laundering". Even with the loosest possible interpretation, there needs to be some sort of obfuscation involved. The facts seem to point towards something very straightforward (ie. Alemeda Research borrowing money from FTX), which suggests that no obfuscation was attempted. All of this confirms my prior comment: >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. Was there malfeasance at Alameda Research/FTX? Hell yes. Was there money laundering? No.
        grey-area 4y ago
        If you read the article is not just about money laundering, shell companies and complex corporate structures are fraud adjacent, something you seemed surprised by, that is why I gave you the link. > Alemeda Research borrowing money from FTX A company can't 'borrow' customer funds from another company. Companies also shouldn't try to price the assets they hold as security or swap securities on customers. There are so many examples of fraud here.
JumpCrisscross 4y ago
> what does corporate structure complexity have to do with fraud? Broadly speaking, inexplicable complexity in finance means fraud.
- gruez 4y ago
  Except in this case there's a far simpler explanation floating around: 1. Alameda Research experienced some losses and needed capital injection 2. In a transaction that was probably not at arms-length and possibly fraudulent, they borrowed money from FTX by putting FTT and other tokens as collateral 3. The tokens taken as collateral crashed in value, which caused FTX to be unable to meet their liabilities
  - JamesianP 4y ago
    Obviously all their planning did not account for issue #3 either way. But perhaps their concern was simply having actions like #2 exposed, and more generally the value of their company (which goes hand-in-hand with the value of their various tokens) exposed. In that infamous interview, the guy talked about manipulating the prices of crypto using a small float as one tactic.
    - gruez 4y ago
      >Obviously all their planning did not account for issue #3 either way. But perhaps their concern was simply having actions like #2 exposed, and more generally the value of their company (which goes hand-in-hand with the value of their various tokens) exposed. So let me get this straight: They were concerned with "actions like #2 exposed", so they set up a super complicated corporate structure, and apparently... didn't make use of it? Once the leaked balance sheet came out on coindesk everybody pretty much immediately figured it out, and not because there was great internet sleuths, it was just that obvious.
  - skinnymuch 4y ago
    When you do number 2 you know number 3. It’s not possibly fraudulent. It is fraudulent.
zwkrt 4y ago
You're right that it is just an implication on my part (and thanks for the sister comment of yours for finding the diagram!). Comparing it to LB is just a little bit flippant. But you have to admit, LB was a 100 year old company that provided actual value in an incredibly complex and entrenched market. FTX was only a few years old and basically managed electronic trading cards for electronic trading card enthusiasts, yet has ~100 different entities in the corporate chart? Something is a bit off.
deleted 4y ago
[deleted]
baobabKoodaa 4y ago
> Okay, but what does corporate structure complexity have to do with fraud? Their point is that we can't look at those diagrams and determine if LB was more complex than FTX, because we suspect that those diagrams weren't drawn with the same granularity. So it's possible (perhaps even likely) that LB was more complex than FTX, and this would be apparent if we were to compare diagrams drawn with the same granularity.
- lazide 4y ago
  The potential relation to fraud is that financial complexity can be used to obfuscate cash flows and a great many other things and hide malfeasance. Even if things like corporate officers and beneficial ownership info is easy to retrieve, having a Byzantine structure of entities can make it really hard to see the ‘one hand washing the other’ stuff, especially for outsiders. And corporate officers and beneficial ownership info is rarely easy to get when this is done offshore, like many of these were.
  - baobabKoodaa 4y ago
    Not sure if you replied to the wrong comment by accident, but that has absolutely nothing to do with my comment that you replied to.
    - lazide 4y ago
      Nope, my comment is definitely applicable.
      - baobabKoodaa 4y ago
        Ok, care to explain? It seems to me that your comment concerns the connection between financial complexity and fraud (it's easier to conceal fraud when you have complex structures). My comment didn't concern that topic at all. My comment concerned "can we judge if A is more complex than B based on these 2 pictures". I said that we can't know if A is more complex than B, or if B is more complex than A, based on these 2 pictures. Your comment doesn't even mention the pictures. Nor does it attempt to draw any kind of conclusion about the comparison between A and B. Nor does it provide a general framework for drawing comparisons. So I don't see how it relates to what I said at all.

chinathrow 4y ago

https://i.redd.it/078p4g7m6cz91.jpg https://i.redd.it/078p4g7m6cz91.jpg

wjnc 4y ago

I saw those plots and I think there is a false comparison. No way the Lehman plot is at the same level of granularity as the FTX plot. My firm is mid-sized European insurer. We have a chart with low hundreds of entities. Most arise from compliance purposes. Many from acquisitions that have not been definitively integrated. Some follow from certain reinsurance deals. We have many funds in the market, some entities are related to ESG-activities, some are caretakers entities for certain customers. I get it though. In M&A of small firms I have seen ten people work in a firm with twenty entities and have raised questions. But it’s the story that counts. In larger companies you have notaries on retainer just to keep the legal structure follow the organizational reality.

saalweachter 4y ago

Hell, just the fact that all of Lehman's subsidiaries are named "Lehman", and most of FTX's are named like they used a code name generator.

lazide 4y ago
Almost like in Lehmans case, transparency and clear accountability were at least somewhere important. Less so for FTX.

andsoitis 4y ago

> Antigua, Seychelles, Cayman Islands, Switzerland All are tax havens and, afaik, provide a level of corporate veils that are not readily available elsewhere.