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It appears (although everything is unclear) that the 8bn hole was caused by customer dollar payments for ftx going to alameda as ftx didn’t actually have a bank

It appears (although everything is unclear) that the 8bn hole was caused by customer dollar payments for ftx going to alameda as ftx didn’t actually have a bank account. For three years. So unclear it was ever good.

skippyboxedhero 4y ago
This alone is quite incredible. FTX, as a business, never actually existed. It was all just a smoke screen for his hedge fund. Employees were stealing from the company, there were no internal controls...the rules for VC are...different. If you were on a Board and this happened on your watch, you would never work on another Board again. If you did this in PE, fired. If you invested in such a public company, very likely fired or irreparable damage to your reputation. Sequoia are a huge fund, they are one of the doyens of the industry...it isn't even that they failed, they didn't even put in place the mechanism to try to protect their investor's money. It is unbelivable.
- oarabbus_ 4y ago
  I agree with you, but to play devil's advocate: >Sequoia are a huge fund, they are one of the doyens of the industry...it isn't even that they failed, they didn't even put in place the mechanism to try to protect their investor's money. It is unbelivable. Don't VCs typically expect 9 of 10 investments to fail, but for the one which succeeds to more than make up for the rest? From the VCs point of view, as long as the allocation to each company is balanced, does it even matter whether an investment resulted in 100% loss due to a scandalous fraud instead of "normal" company failure?
  - whatwherewhy 4y ago
    It does matter, the risk calculation gets way worse once you start counting in the possibility of fraud. It's going to be 9/10 if each one of the 10 actually try their hardest to succeed. It's going to be 10/10 if fraud isn't prevented.
  - skippyboxedhero 4y ago
    Yes, because the result here is that investor money has been stolen by employees. Again, if you work at an equity fund and you invest in a company that was obviously fraudulent, your investors don't go: "Oh well, better luck next time...shit happens, amirite?". If this happens in a PE fund, where there is direct oversight, then I would suspect that the investors would remove you as a manager. The only responsibility you have is to protect your shareholder's interests. Not only was this disregarded but Sequoia gave them the structure that allowed them to steal from their own investors. I have never seen a situation like this that didn't end up in charges against the fund managers because it is such an egregious failure (this, of course, won't happen here...everyone here has donated far too much money...but I have seen this professionally).
dragonwriter 4y ago
> It appears (although everything is unclear) that the 8bn hole was caused by customer dollar payments for ftx going to alameda as ftx didn’t actually have a bank account. Despite the notional legal structure, I think the key thing is that FTX, FTX.US, Alameda Research, and the other 130 or so entities involved were mostly not, in any meaningful sense, distinct businesses, it was all just three grifters in a trenchcoat.

skippyboxedhero 4y ago

This alone is quite incredible. FTX, as a business, never actually existed. It was all just a smoke screen for his hedge fund. Employees were stealing from the company, there were no internal controls...the rules for VC are...different. If you were on a Board and this happened on your watch, you would never work on another Board again. If you did this in PE, fired. If you invested in such a public company, very likely fired or irreparable damage to your reputation. Sequoia are a huge fund, they are one of the doyens of the industry...it isn't even that they failed, they didn't even put in place the mechanism to try to protect their investor's money. It is unbelivable.

oarabbus_ 4y ago
I agree with you, but to play devil's advocate: >Sequoia are a huge fund, they are one of the doyens of the industry...it isn't even that they failed, they didn't even put in place the mechanism to try to protect their investor's money. It is unbelivable. Don't VCs typically expect 9 of 10 investments to fail, but for the one which succeeds to more than make up for the rest? From the VCs point of view, as long as the allocation to each company is balanced, does it even matter whether an investment resulted in 100% loss due to a scandalous fraud instead of "normal" company failure?
- whatwherewhy 4y ago
  It does matter, the risk calculation gets way worse once you start counting in the possibility of fraud. It's going to be 9/10 if each one of the 10 actually try their hardest to succeed. It's going to be 10/10 if fraud isn't prevented.
- skippyboxedhero 4y ago
  Yes, because the result here is that investor money has been stolen by employees. Again, if you work at an equity fund and you invest in a company that was obviously fraudulent, your investors don't go: "Oh well, better luck next time...shit happens, amirite?". If this happens in a PE fund, where there is direct oversight, then I would suspect that the investors would remove you as a manager. The only responsibility you have is to protect your shareholder's interests. Not only was this disregarded but Sequoia gave them the structure that allowed them to steal from their own investors. I have never seen a situation like this that didn't end up in charges against the fund managers because it is such an egregious failure (this, of course, won't happen here...everyone here has donated far too much money...but I have seen this professionally).

dragonwriter 4y ago

> It appears (although everything is unclear) that the 8bn hole was caused by customer dollar payments for ftx going to alameda as ftx didn’t actually have a bank account. Despite the notional legal structure, I think the key thing is that FTX, FTX.US, Alameda Research, and the other 130 or so entities involved were mostly not, in any meaningful sense, distinct businesses, it was all just three grifters in a trenchcoat.