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In a separate article Ray also said: “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy f

by boh 4y ago

In a separate article Ray also said: “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” And this is the same man who oversaw the liquidation of Enron. "Ray said he had found at FTX international, FTX US and Bankman-Fried’s Alameda Research trading company “compromised systems integrity”, “faulty regulatory oversight” and a “concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals”. via https://archive.ph/jBZKM https://archive.ph/jBZKM

gdw2 4y ago
I wonder if this could result in another round of costly SOX-like regulations?
- mikeyouse 4y ago
  I really doubt it - it was just a dumb unregulated offshore startup doing a bunch of stuff that's already illegal. SOX wouldn’t help since FTX apparently didn’t have anything resembling audited financials vs Enron, a public company that abused GAAP to generate misleading financials. It would be a much different story if FTX had gone public or if they had a reputable audit firm vouching for them.
- PragmaticPulp 4y ago
  Why would it? FTX wasn’t playing by existing US regulations anyway. Even the most basic regulations would have squashed FTX’s entire fraud from the start. They weren’t bothering to play by any rules because they knew they could get away with it.
  - whatshisface 4y ago
    Regulations didn't stop Enron.
    - muglug 4y ago
      Yes, which is why the US Congress added a whole bunch of new regulations (Sarbanes-Oxley) to prevent future Enrons.
      - alfalfasprout 4y ago
        Which require compliance with them. If you work at a company that cares to actually comply they will. I luckily work somewhere where it's taken seriously. But it's shockingly easy not to and auditors couldn't possibly catch all of the instances of non-compliance
        datavirtue 4y ago
        The banking, finance, and corporate accounting world and their practices would shock most devs to the core. Most people just assume that certain controls are being enacted with precision. Things like: customer account reconciliation, bank account reconciliation, etc. Most of the time people just aggregate values and never inspect the detail. They record those aggregates in the GL and move on. I have never seen granular recon. That is why embezzlement is only discovered by accident years later.
        andrekandre 4y ago
        > They record those aggregates in the GL and move on. what is gl?
        c22 4y ago
        Perhaps general ledger?
        zevra 4y ago
        general ledger?
        TuringNYC 4y ago
        >> But it's shockingly easy not to and auditors couldn't possibly catch all of the instances of non-compliance Regulations are usually backwards looking. So at least we never get Enron/GlobalCrossing/etc again. Then another waves of crises happen, and we get new regulations. So Fannie/Freddie happened in 2004-2007 and we got brightline guidance and application of FAS91 and EITF-9920. So then AIG/Lehman/Bear happened in 2007/2008 and we got Dodd Frank. Again backwards looking but we end up in a better place. The regulation stacks upon regulation, but I think this is good.
  - stale2002 4y ago
    I think the way to attack this would be on them having US customers. Yeah, technically they "banned" US customers. They were also doing sponsorships, and advertisement in literal US basketball stadiums. Clearly they knew they had US customers and were attempting to get them.
    - TuringNYC 4y ago
      >> Clearly they knew they had US customers and were attempting to get them. And they did, except they got overseas-registered hedge fund subsidiaries, where the managers were US residents (probably living in NY/CT/FL.) We arent providing SIPC/FDIC backstopping to the customers, since it aint our jurisdiction. We arent bailing them out, so far.
    - rippercushions 4y ago
      FTX had two exchanges: FTX.us for US customers (with limited features), and FTX.com for the rest of the world.
  - marcosdumay 4y ago
    The favorite pastime of politicians is creating regulations to make safer an environment where nobody follows regulations.
    - oblio 4y ago
      This is provably wrong and it would take you 2 minutes to find out why. Yes, there are failures. But we have minimum wages, no child labor, protection against harassment, seat belts, fraud laws, etc, etc, all thanks to regulation. Regulation created by politicians.
- alecco 4y ago
  I bet it's going to be used to push CBDC.
- SoftTalker 4y ago
  Serious prison time for the executives involved would probably be more effective.
  - realist20222 4y ago
    >> Serious prison time for the executives involved would probably be more effective. Top executives, especially well-connected ones never get prison time. Instead, you usually have Indian/Chinese scapegoats or someone equally disliked. The entire flash crash was blamed on a lone indian man living with his parents: https://www.bbc.com/news/explainers-51265169 https://www.bbc.com/news/explainers-51265169 Nevermind Citadel, 2Sigma, Jane Street, Goldman Sachs The 2008 scandal fell upon an Arab man: https://en.wikipedia.org/wiki/Kareem_Serageldin https://en.wikipedia.org/wiki/Kareem_Serageldin He is notable for being the only banker in the United States to be sentenced to jail time as a result of the financial crisis of 2007–2008, a conviction resulting from mismarking bond prices to hide losses.[1][2] If I were this guy, i'd be really really worried about now: https://timesofindia.indiatimes.com/business/cryptocurrency/ftx-collapse-indian-origin-executive-nishad-singh-was-part-of-co-founders-inner-circle-that-ran-crypto-empire/articleshow/95491869.cms https://timesofindia.indiatimes.com/business/cryptocurrency/... Side note: If you work for a shady company, and you're the only colored guy on the exec team, you are probably there for a reason, and the reason isnt good.
    - ceejayoz 4y ago
      Never say never. https://en.wikipedia.org/wiki/Jeffrey_Skilling https://en.wikipedia.org/wiki/Jeffrey_Skilling
    - spfzero 4y ago
      Bernie Madoff was a top executive, with great connections.
      - nullc 4y ago
        most of big beneficiaries of the Madoff scam e.g. Picower (found dead the the bottom of his pool) and including Madoff's children, were dead within a couple years after the collapse.
jerf 4y ago
The filing is amazing: https://pacer-documents.s3.amazonaws.com/33/188450/042020648197.pdf https://pacer-documents.s3.amazonaws.com/33/188450/042020648... Don't forget to read this with the "diplomatic/legal/lawyer" mindset. These are not internet comments, these are legal filings. Sentences like "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented." are not the words of someone seeking updoots, this is a very serious individual in a serious legal filing. Read this way this entire filing is filled with zingers and knee-slappers. Truly an amazing work.
- saurik 4y ago
  I mean, my experience reading legal filings is that lawyers love to throw in these "zingers", in no small part because it is their job to present the most brutal version of the argument on their side. One of my favorite legal filings ever was "Six Ways Buzzfeed Has Misled the Court (Number Two Will Amaze You) … and a Picture of a Kitten".
  - jerf 4y ago
    Yes, sorry, I didn't mean to say this never happens, just wanted to help orient people as to what they look like and calibrate expectations. Though I would point out this is nominally not an adversarial filing. In practice, though, if I were FTX's CEO I would certainly be treating it as such, and he clearly is. This is sticky radioactive waste and I would be taking any measures necessary to keep it off of me.
    - skippyboxedhero 4y ago
      This guy is FTX's CEO. The reason he is saying this is because the former CEO and employees appear to have stolen large amounts of money from the company.
  - 4y ago
tootie 4y ago
The guy who says regulations are dumb has no idea what he spent his money on or even how many employees he has. This guy is almost worse than Elizabeth Holmes.
- camjohnson26 4y ago
  He was saying the opposite, one of the biggest supporters of regulation in the space, and reportedly had several one on one conversations with Gary Gensler of the SEC and was the second largest donor to Joe Biden
  - shawabawa3 4y ago
    He admitted in what he thought was a private conversation that that was all a public front but that his true opinion is "fuck regulation"
  - dwohnitmok 4y ago
    He recanted all that in his latest interview and said that all that was basically a lie for him to build legitimacy. Whether you believe him based on his other lies is of course the tricky bit. > fuck regulators > they make everything worse https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy https://www.vox.com/future-perfect/23462333/sam-bankman-frie...
  - rattlesnakedave 4y ago
    He’s pro crypto regulation (keep competitors out of his space), and fuck any regulation that might reveal his massive fraud.
    - LilBytes 4y ago
      Yeah he's not pro regulation is pro _regulatory capture_.
  - sgammon 4y ago
    His lieutenant was a major Republican donor.
UncleOxidant 4y ago
And this is only after a few days that's he's had to examine the FTX books. There's likely a lot more bodies buried that will take a bit longer to find.
- soperj 4y ago
  I have my doubts that they actually took time to bury the bodies.
  - nradov 4y ago
    It's more that the bodies are scattered over a wide area rather than being deeply buried.
vkou 4y ago
Having glanced at the accounts, I don't see why SBF filed for Chapter 11. Assets across all silos seem to exceed liabilities. :) > Because such balance sheet was produced while the Debtors were controlled by Mr. Bankman-Fried, I do not have confidence in it, and the information therein may not be correct as of the date stated. ... Oh. > I have substantial concerns as to the information presented in these audited financial statements, especially with respect to the Dotcom Silo. As a practical matter, I do not believe it appropriate for stakeholders or the Court to rely on the audited financial statements as a reliable indication of the financial circumstances of these Silos ... Hmm. > The Debtors have not yet been able to locate any audited financial statements with respect to the Alameda Silo or the Ventures Silo. Oh, my.
- richardwhiuk 4y ago
  The balance sheet doesn't include the crypto funds associated with depositors on the exchange. Which is sort of a problem - they should be both asset and liabilities, and 1:1 match.
adam_arthur 4y ago
I was trying to reason through why somebody would step in as CEO specifically for the bankruptcy. How does he get compensated? I’m assuming it’s not simply a goodwill/hobby thing
- solresol 4y ago
  He's a specialist in bankruptcy and liquidation administration. Essentially the debtors have appointed him to take over and identify what can be sold or salvaged. He gets paid out of whatever funds he can find.
  - adam_arthur 4y ago
    Ah yeah, that makes sense. I’m surprised the debtors assumed control of the company that quickly though. Figured it would take some time to play out
    - skippyboxedhero 4y ago
      It starts when bankruptcy is filed. Ofc, if I lend $100m to a company that you control, and you start siphoning that money into your bank account...then you aren't going to declare bankruptcy until the stealing is finished. So there are provisions to claw back money even ex-post (i.e. time doesn't matter) when someone has committed a crime...but the idea is that bankruptcies are wrapped up quickly because the longer it goes on the more value is lost by everyone (apart from lawyers)...speedy liquidation is also a central component of a well-functioning capitalist economy.
    - dragonwriter 4y ago
      > I’m surprised the debtors assumed control of the company that quickly though. ”Debtors” are people that owe money (i.e., here, the FTX family of corps). This is not a case where the creditors (the people to whom money is owed) are in possession (or even yet identified), though that can happen in bankruptcy.
- aksss 4y ago
  He’s there on behalf of the new owners (the people who FTX owed money to) and his job is to untangle what happened, see what can be salvaged if anything, and then part up the carcass and dispose of it. Read his filing and in the first three pages he explains what he’s doing there and what his priorities are. He’s basically a trusted neutral party who’s made a career of stepping in to sort out messes like this. A very niche career track and nothing like the job of a CEO in a healthy organization. More like part forensic investigator, part salvage operator, part corp lawyer.
lanamo 4y ago
Nassim Taleb said it: "Crypto is a gigantic construction built by maladjusted children." https://mobile.twitter.com/nntaleb/status/1590599604835606528 https://mobile.twitter.com/nntaleb/status/159059960483560652...
- notacop31337 4y ago
  I love Taleb, but given that the majority of his wealth was made from derivatives markets, I'm not entirely sure if his moral pontificating is always the best or most accurate commentary available to quote.
fisherjeff 4y ago
What is also wild is that none of their investors obviously ever asked for even, like, a single account reconciliation, because obviously there were none! Until the Chapter 11 filing, I assumed the books were pretty much normal until Alameda started to tank and then shady stuff started happening, but it turns out they were always just guesstimates in Excel. Which is apparently fine when raising ~$2B.
ilrwbwrkhv 4y ago
A lot of people will fake surprise now ;). Oh what a surprise. Thanks for the millions under the table though.
deleted 4y ago
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- deleted 4y ago
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by boh 4y ago

gdw2 4y ago

I wonder if this could result in another round of costly SOX-like regulations?

mikeyouse 4y ago
I really doubt it - it was just a dumb unregulated offshore startup doing a bunch of stuff that's already illegal. SOX wouldn’t help since FTX apparently didn’t have anything resembling audited financials vs Enron, a public company that abused GAAP to generate misleading financials. It would be a much different story if FTX had gone public or if they had a reputable audit firm vouching for them.
PragmaticPulp 4y ago
Why would it? FTX wasn’t playing by existing US regulations anyway. Even the most basic regulations would have squashed FTX’s entire fraud from the start. They weren’t bothering to play by any rules because they knew they could get away with it.
- whatshisface 4y ago
  Regulations didn't stop Enron.
  - muglug 4y ago
    Yes, which is why the US Congress added a whole bunch of new regulations (Sarbanes-Oxley) to prevent future Enrons.
    - alfalfasprout 4y ago
      Which require compliance with them. If you work at a company that cares to actually comply they will. I luckily work somewhere where it's taken seriously. But it's shockingly easy not to and auditors couldn't possibly catch all of the instances of non-compliance
      - datavirtue 4y ago
        The banking, finance, and corporate accounting world and their practices would shock most devs to the core. Most people just assume that certain controls are being enacted with precision. Things like: customer account reconciliation, bank account reconciliation, etc. Most of the time people just aggregate values and never inspect the detail. They record those aggregates in the GL and move on. I have never seen granular recon. That is why embezzlement is only discovered by accident years later.
        andrekandre 4y ago
        > They record those aggregates in the GL and move on. what is gl?
        c22 4y ago
        Perhaps general ledger?
        zevra 4y ago
        general ledger?
      - TuringNYC 4y ago
        >> But it's shockingly easy not to and auditors couldn't possibly catch all of the instances of non-compliance Regulations are usually backwards looking. So at least we never get Enron/GlobalCrossing/etc again. Then another waves of crises happen, and we get new regulations. So Fannie/Freddie happened in 2004-2007 and we got brightline guidance and application of FAS91 and EITF-9920. So then AIG/Lehman/Bear happened in 2007/2008 and we got Dodd Frank. Again backwards looking but we end up in a better place. The regulation stacks upon regulation, but I think this is good.
- stale2002 4y ago
  I think the way to attack this would be on them having US customers. Yeah, technically they "banned" US customers. They were also doing sponsorships, and advertisement in literal US basketball stadiums. Clearly they knew they had US customers and were attempting to get them.
  - TuringNYC 4y ago
    >> Clearly they knew they had US customers and were attempting to get them. And they did, except they got overseas-registered hedge fund subsidiaries, where the managers were US residents (probably living in NY/CT/FL.) We arent providing SIPC/FDIC backstopping to the customers, since it aint our jurisdiction. We arent bailing them out, so far.
  - rippercushions 4y ago
    FTX had two exchanges: FTX.us for US customers (with limited features), and FTX.com for the rest of the world.
- marcosdumay 4y ago
  The favorite pastime of politicians is creating regulations to make safer an environment where nobody follows regulations.
  - oblio 4y ago
    This is provably wrong and it would take you 2 minutes to find out why. Yes, there are failures. But we have minimum wages, no child labor, protection against harassment, seat belts, fraud laws, etc, etc, all thanks to regulation. Regulation created by politicians.
alecco 4y ago
I bet it's going to be used to push CBDC.
SoftTalker 4y ago
Serious prison time for the executives involved would probably be more effective.
- realist20222 4y ago
  >> Serious prison time for the executives involved would probably be more effective. Top executives, especially well-connected ones never get prison time. Instead, you usually have Indian/Chinese scapegoats or someone equally disliked. The entire flash crash was blamed on a lone indian man living with his parents: https://www.bbc.com/news/explainers-51265169 https://www.bbc.com/news/explainers-51265169 Nevermind Citadel, 2Sigma, Jane Street, Goldman Sachs The 2008 scandal fell upon an Arab man: https://en.wikipedia.org/wiki/Kareem_Serageldin https://en.wikipedia.org/wiki/Kareem_Serageldin He is notable for being the only banker in the United States to be sentenced to jail time as a result of the financial crisis of 2007–2008, a conviction resulting from mismarking bond prices to hide losses.[1][2] If I were this guy, i'd be really really worried about now: https://timesofindia.indiatimes.com/business/cryptocurrency/ftx-collapse-indian-origin-executive-nishad-singh-was-part-of-co-founders-inner-circle-that-ran-crypto-empire/articleshow/95491869.cms https://timesofindia.indiatimes.com/business/cryptocurrency/... Side note: If you work for a shady company, and you're the only colored guy on the exec team, you are probably there for a reason, and the reason isnt good.
  - ceejayoz 4y ago
    Never say never. https://en.wikipedia.org/wiki/Jeffrey_Skilling https://en.wikipedia.org/wiki/Jeffrey_Skilling
  - spfzero 4y ago
    Bernie Madoff was a top executive, with great connections.
    - nullc 4y ago
      most of big beneficiaries of the Madoff scam e.g. Picower (found dead the the bottom of his pool) and including Madoff's children, were dead within a couple years after the collapse.

jerf 4y ago

The filing is amazing: https://pacer-documents.s3.amazonaws.com/33/188450/042020648197.pdf https://pacer-documents.s3.amazonaws.com/33/188450/042020648... Don't forget to read this with the "diplomatic/legal/lawyer" mindset. These are not internet comments, these are legal filings. Sentences like "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented." are not the words of someone seeking updoots, this is a very serious individual in a serious legal filing. Read this way this entire filing is filled with zingers and knee-slappers. Truly an amazing work.

saurik 4y ago
I mean, my experience reading legal filings is that lawyers love to throw in these "zingers", in no small part because it is their job to present the most brutal version of the argument on their side. One of my favorite legal filings ever was "Six Ways Buzzfeed Has Misled the Court (Number Two Will Amaze You) … and a Picture of a Kitten".
- jerf 4y ago
  Yes, sorry, I didn't mean to say this never happens, just wanted to help orient people as to what they look like and calibrate expectations. Though I would point out this is nominally not an adversarial filing. In practice, though, if I were FTX's CEO I would certainly be treating it as such, and he clearly is. This is sticky radioactive waste and I would be taking any measures necessary to keep it off of me.
  - skippyboxedhero 4y ago
    This guy is FTX's CEO. The reason he is saying this is because the former CEO and employees appear to have stolen large amounts of money from the company.
- 4y ago

tootie 4y ago

The guy who says regulations are dumb has no idea what he spent his money on or even how many employees he has. This guy is almost worse than Elizabeth Holmes.

camjohnson26 4y ago
He was saying the opposite, one of the biggest supporters of regulation in the space, and reportedly had several one on one conversations with Gary Gensler of the SEC and was the second largest donor to Joe Biden
- shawabawa3 4y ago
  He admitted in what he thought was a private conversation that that was all a public front but that his true opinion is "fuck regulation"
- dwohnitmok 4y ago
  He recanted all that in his latest interview and said that all that was basically a lie for him to build legitimacy. Whether you believe him based on his other lies is of course the tricky bit. > fuck regulators > they make everything worse https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy https://www.vox.com/future-perfect/23462333/sam-bankman-frie...
- rattlesnakedave 4y ago
  He’s pro crypto regulation (keep competitors out of his space), and fuck any regulation that might reveal his massive fraud.
  - LilBytes 4y ago
    Yeah he's not pro regulation is pro _regulatory capture_.
- sgammon 4y ago
  His lieutenant was a major Republican donor.

UncleOxidant 4y ago

And this is only after a few days that's he's had to examine the FTX books. There's likely a lot more bodies buried that will take a bit longer to find.

soperj 4y ago
I have my doubts that they actually took time to bury the bodies.
- nradov 4y ago
  It's more that the bodies are scattered over a wide area rather than being deeply buried.

vkou 4y ago

Having glanced at the accounts, I don't see why SBF filed for Chapter 11. Assets across all silos seem to exceed liabilities. :) > Because such balance sheet was produced while the Debtors were controlled by Mr. Bankman-Fried, I do not have confidence in it, and the information therein may not be correct as of the date stated. ... Oh. > I have substantial concerns as to the information presented in these audited financial statements, especially with respect to the Dotcom Silo. As a practical matter, I do not believe it appropriate for stakeholders or the Court to rely on the audited financial statements as a reliable indication of the financial circumstances of these Silos ... Hmm. > The Debtors have not yet been able to locate any audited financial statements with respect to the Alameda Silo or the Ventures Silo. Oh, my.

richardwhiuk 4y ago
The balance sheet doesn't include the crypto funds associated with depositors on the exchange. Which is sort of a problem - they should be both asset and liabilities, and 1:1 match.

adam_arthur 4y ago

I was trying to reason through why somebody would step in as CEO specifically for the bankruptcy. How does he get compensated? I’m assuming it’s not simply a goodwill/hobby thing

solresol 4y ago
He's a specialist in bankruptcy and liquidation administration. Essentially the debtors have appointed him to take over and identify what can be sold or salvaged. He gets paid out of whatever funds he can find.
- adam_arthur 4y ago
  Ah yeah, that makes sense. I’m surprised the debtors assumed control of the company that quickly though. Figured it would take some time to play out
  - skippyboxedhero 4y ago
    It starts when bankruptcy is filed. Ofc, if I lend $100m to a company that you control, and you start siphoning that money into your bank account...then you aren't going to declare bankruptcy until the stealing is finished. So there are provisions to claw back money even ex-post (i.e. time doesn't matter) when someone has committed a crime...but the idea is that bankruptcies are wrapped up quickly because the longer it goes on the more value is lost by everyone (apart from lawyers)...speedy liquidation is also a central component of a well-functioning capitalist economy.
  - dragonwriter 4y ago
    > I’m surprised the debtors assumed control of the company that quickly though. ”Debtors” are people that owe money (i.e., here, the FTX family of corps). This is not a case where the creditors (the people to whom money is owed) are in possession (or even yet identified), though that can happen in bankruptcy.
aksss 4y ago
He’s there on behalf of the new owners (the people who FTX owed money to) and his job is to untangle what happened, see what can be salvaged if anything, and then part up the carcass and dispose of it. Read his filing and in the first three pages he explains what he’s doing there and what his priorities are. He’s basically a trusted neutral party who’s made a career of stepping in to sort out messes like this. A very niche career track and nothing like the job of a CEO in a healthy organization. More like part forensic investigator, part salvage operator, part corp lawyer.

lanamo 4y ago

Nassim Taleb said it: "Crypto is a gigantic construction built by maladjusted children." https://mobile.twitter.com/nntaleb/status/1590599604835606528 https://mobile.twitter.com/nntaleb/status/159059960483560652...

notacop31337 4y ago
I love Taleb, but given that the majority of his wealth was made from derivatives markets, I'm not entirely sure if his moral pontificating is always the best or most accurate commentary available to quote.

fisherjeff 4y ago

What is also wild is that none of their investors obviously ever asked for even, like, a single account reconciliation, because obviously there were none! Until the Chapter 11 filing, I assumed the books were pretty much normal until Alameda started to tank and then shady stuff started happening, but it turns out they were always just guesstimates in Excel. Which is apparently fine when raising ~$2B.

ilrwbwrkhv 4y ago

A lot of people will fake surprise now ;). Oh what a surprise. Thanks for the millions under the table though.

deleted 4y ago

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deleted 4y ago
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