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It's sort of curious that this SEC action is to protect the venture capital investors like Sequoia who invested in FTX shares directly. If I were a retail inve

by pavlov 4y ago

It's sort of curious that this SEC action is to protect the venture capital investors like Sequoia who invested in FTX shares directly. If I were a retail investor who lost my savings in FTX, I might be feeling upset that the government is rushing to action in defense of billion-dollar funds whose own due diligence failed massively, while seemingly nothing is being done to help those who invested in crypto based on FTX's Super Bowl ads and celebrity endorsements... At the same time, I fully understand why it's like this. Because the VCs bought actual FTX shares, the SEC has a clear case of securities fraud. The law is pretty clear about what happens when you sell shares in your company and lie about it. In contrast, it's not really settled whether the little people who sent money to FTX in exchange for a crypto ledger entry were actually buying securities, commodities, custodial services, or something else — maybe nothing at all. (The crypto guys love this ambiguity, of course! They've been lobbying for regulation that keeps crypto in a no-man's-land where tokens that look and work like securities would still be something else.) This seems to be the reason why the SEC doesn't have a clear-cut case to protect FTX customers, but does have a case to protect rich VC crypto-bro partners.

ethanbond 4y ago
Whoa, are you trying to tell me all the big fish hyping up the Regulators Are Evil Economy get near-total legal protection of a regulated market, but all the little people who got taken in by it are going to get screwed? An incredible and unforeseeable development! Surely there will be more charges over time but the end result isn’t going to change much. The wealthy people who’ve been boosting all of this will take the smallest losses of all.
- Frost1x 4y ago
  I always find it interesting how in our implementation of capitalism here in the US, wealth is able to insulate and protect itself from many of the very measures capitalism is supposed to peel away and counter (in the interest of society at large). It's almost like it there are fundamental inherent flaws that need to be fixed to continue on and we can't keep treating things like business is usual if we want to enable continued growth vs stagnation due to power concentration like we've seen in non-capitalist systems in the past. You're going to see the big players like Sequoia get some retribution here and to a magnitude that's significant enough to be usable and recoverable, meanwhile you're going to see all sorts of others life savings evaporate, resulting in a far less recoverable scenario, with little to nothing recovered--at least that's how this tends to play out, historically. Everyone will of course lose, but you'll see disproportionate losses and disproportionate recoverability. Disproportionate wealth as a proxy to power does this.
  - simple-thoughts 4y ago
    It’s the fundamental contradiction of modern capitalism (capitalist ownership of the means of production). On the one hand, it claims itself as privately owned capital, but on the other hand relies on the state to maintain this ownership. At some point this will break either into an ancap privatism or a communist socialism, because one side on the rope will eventually win as technology breaks down the human social control systems that allow this contradiction to persist.
- JackFr 4y ago
  None of the big fish are getting money back. No one is going get money back. It's gone. At the same time, I have trouble finding sympathy for anyone involved. SBF is a sociopath, thief and liar. Those big-name investors should have known better and I'm sure in many cases they did. They probably should start lawyering up too, because they've got investors of their own who have been harmed either through malfeasance of actionable incompetence. And the 'small time' investors -- mom-and-pop, widows and orphans investing the life savings on the platform -- all crypto is a scam, a Ponzi scheme, at the very best it's a casino or playing the numbers. Always has been. Always will be. All they had to do was open their eyes or maintain critical thinking in the face of promoters trying to bamboozle them. And yet dumb money says I'm wrong. BTC up 4% on the day....
  - deleted 4y ago
    [deleted]
  - ethanbond 4y ago
    You don't need money going back for it to be the case that the big fish will be fine, have many avenues for recourse, and the small people will be completely and thoroughly burned.
  - Sporktacular 4y ago
    It wasn't a crypto investment for the mums and dads! That's the whole issue. They were treasuries - holdings that shouldn't have been at risk. SBF and his asshole friends dipped into them to close positions and shore up riskier trades made by another company Alameda. People rush to simplify here with 'there are no angels" arguments. It doesn't matter that it was crypto. Those funds were stolen.
  - LarryMullins 4y ago
    It is often the case that the victims of scammers were up to no good themselves, and allowed greed to cloud their judgement. People sign up for schemes that are flagrantly pyramid schemes, knowing it's a pyramid scheme, because they think they'll be able to get in and get out before the pyramid collapses. This kind of behavior is the norm in the crypto currency scene. 8% APR from a crypto company was obviously a pyramid scheme. Anybody who put their money into FTX was either unbelievably stupid, or knew they were playing with fire and hoped they wouldn't be the ones to get burnt. If somehow all the money has been utterly destroyed so nobody involved gets any of it, that would probably be the best outcome. If the cryptobro investors get their money back, they're just going to use it in other scams to hurt more people.
- deleted 4y ago
  [deleted]
- jstx1 4y ago
  Give it some time, he only got arrested hours ago and the DOJ still haven't unsealed their case.
nikanj 4y ago
The various players in crypto space have written a ton of EULA mumbo-jumbo explaining that the coins are not securities (as they want the freedom to pump&dump/front run orders/etc). If they admitted the cryptos are securities, all sorts of pesky regulations would apply
- MrPatan 4y ago
  Stealing securities you're supposed to store for me is a crime. Stealing non-securities you're supposed to store for me is also a crime.
  - master_crab 4y ago
    Yup. At the end of the day, this isn’t complicated. The man directed assets (whatever you label them) that were clearly meant for the use of the owner only into SBFs investment vehicle for his use (Alameda). He stole coins, period.
  - Sporktacular 4y ago
    Yes, thank you! So many comments are like "it's a crypto investment, you shouldn't expect safety" when they weren't investments but holdings. As if this was just market forces at play. They have no idea about happened here.
- freejazz 4y ago
  Admitting or not that something is a security is not a requisite for the thing to be found to be a security.
rundmc 4y ago
He essentially admitted this in recent calls so it's a 'safe' charge that the SEC used to get him arrested in Bahamas and presumably his personal assets will also now be frozen while they assemble the rest of the consumer fraud and other charges.
- nradov 4y ago
  The SEC didn't get SBF arrested in the Bahamas. That was done by the DOJ. The SEC has brought a separate parallel civil enforcement action.
  - DannyBee 4y ago
    correct the SEC cannot charge people criminally
- deleted 4y ago
  [deleted]
fredgrott 4y ago
You seem to forget the debate between the SEC and the other org that want to regulate crypto. The reason SEC moved this fast was to add to their counter-point argument that they should be allowed to fully regulate crypto as securities.
- pavlov 4y ago
  No, this case is not about crypto at all. It’s about FTX shares and that’s unequivocally the SEC’s jurisdiction.
  - tiahura 4y ago
    Here’s Harvey Pitt - the former SEC Chairman explaining this morning why the SEC doesn’t have jurisdiction. https://www.cnbc.com/video/2022/12/13/regulating-cryptocurrencies-is-a-national-concern-not-a-political-issue-says-former-sec-chair.html https://www.cnbc.com/video/2022/12/13/regulating-cryptocurre...
warinukraine 4y ago
> It's sort of curious that this SEC action is to protect the venture capital investors like Sequoia who invested in FTX shares directly. This action is to protect investors. No need to make it into a conspiracy.
empathy_m 4y ago
It's possible that we will hear from individual investors at trial or sentencing. Even though the Theranos trial was about defrauding investors, there was still testimony from an actual customer. ("The first patient to take the stand in trial of former Theranos CEO Elizabeth Holmes said that the company’s blood test inaccurately showed she was suffering a miscarriage when in fact she had a healthy pregnancy.")
pcl 4y ago
I would expect that the bankruptcy proceedings and any future civil lawsuits are the main avenues for individuals to seek individual redress. If I were an individual, I wouldn’t really care about how the criminal charges were structured, since it’s not like I would get any individual benefit out of his jail time, one way or the other.
- krisoft 4y ago
  > If I were an individual, I wouldn’t really care about how the criminal charges were structured Yes. But! As an individual I care if the laws protect me. Have they been clever enough to only scam people like me, would they still go to prison? As long as the answer to that is yes, I don’t mind if something else they have done is easier to prosecute.
dwighttk 4y ago
DoJ also filed charges (I think the indictment is sealed)
blanketlamp 4y ago
> This seems to be the reason why the SEC doesn't have a clear-cut case to protect FTX customers, but does have a case to protect rich VC crypto-bro partners. I mean, given that FTX.us was supposedly completely isolated from FTX.com isn't that true? Assuming (and I understand this is a big assumption) that SBF is correct that FTX.us deposits were completely isolated and US customers can be reimbursed in full, the only US citizens harmed by this would be Sequoia et al. Even if it turns out US customers are actually left holding the bag as well, does the SEC even have clear jurisdiction over FTX on that? Maybe? Wouldn't the DOJ criminal charges be much better wrt nailing him for that though? Seems much easier for the SEC to charge him with defrauding investors, as that's pretty much a slam dunk case at this point and also clearly the jurisdiction of the SEC. You can draw analogies here to Capone and tax fraud etc. etc.
dom96 4y ago
I'm no lawyer, but to be fair it seems the SEC charges document[1] does allege that Sam Bankman-Fried defrauded FTX's customers too. 1 - https://www.sec.gov/litigation/complaints/2022/comp-pr2022-219.pdf https://www.sec.gov/litigation/complaints/2022/comp-pr2022-2...
jack_pp 4y ago
Maybe financial companies not founded in the US shouldn't be allowed to advertise to US companies at all.
- jacquesm 4y ago
  I don't see how that would work in practice, nor would the US want it that way because it would almost certainly be mirrored in the other direction.
  - jack_pp 4y ago
    Then ban companies in jurisdictions that protect criminals
duxup 4y ago
It should be noted Samuel is a really rich guy too, and he is being charged.
- deleted 4y ago
  [deleted]
boplicity 4y ago
Frankly, it seems to me that VCs should be liable for money FTX owes its customers. These are professional investors who didn't insist on very basic things, such as proper financial sheets from a finance company. Frankly, that's gross negligence. Professional investors should have legal responsibility to do at least some due diligence. In addition, they're becoming owners of a company. As owners, why shouldn't they be exposed to liability that could have been prevented with some basic due diligence?
- pavlov 4y ago
  I agree! For VCs, crypto has been a “Heads we win, tails you lose” proposition. Normally it takes 3-10 years for a VC investment to reach an exit. In crypto, they get tokens that they’ve been able to dump to retail almost immediately. A16Z has a particularly suspicious shitcoin pipeline via their Coinbase board seat. I hope SEC also ends up prosecuting investors who participated in these token offerings, and ideally also employees who got paid in tokens [1]. But I have no idea if there’s a legal basis because American securities law is designed to protect investors and doesn’t necessarily seem to account for the A16Z-style case where they’re essentially co-conspirators in the fraud: supplying crypto founders with money for marketing which pulled in retail dollars which ended up straight back to the VC’s and founders’ pockets. [1] What difference does it really make if you’re a founder selling unlicensed securities, or an employee who signed a contract where you get paid in those unlicensed securities and then you dump them on retail investors? The SEC should look at these schemes which were popular with companies that hire on HN too.
  - LarryMullins 4y ago
    > I hope SEC also ends up prosecuting [...] employees who got paid in tokens Prosecuting those rubes for being among the victims? If there is evidence they pumped and dumped those tokens or didn't report their income correctly, then sure. But otherwise, why prosecute people for being stupid enough to accept payment crypto?
- phphphphp 4y ago
  Setting aside the arguments to be made for/against the idea, and focusing on the implementation instead: most investments are handled through some sort of limited liability vehicle and so even if the “investor” was held responsible it would not necessarily impact the human(s) that stood to gain.
jstx1 4y ago
> If I were a retail investor who lost my savings in FTX, I might be feeling upset that the government is rushing to action in defense of billion-dollar funds whose own due diligence failed massively, while seemingly nothing is being done to help those who invested in crypto based on FTX's Super Bowl ads and celebrity endorsements... It's not one or the other, he can be charged for both. It's up to the DOJ to file a criminal case, and they didn't arrest him for no reason.
winstonprivacy 4y ago
It's not that curious at all really. The SEC is authorized to pursue criminal cases for securities fraud (among many other things). Furthermore, they can refer criminal cases to the Dept of Justice, which has almost certainly happened. To the extent that FTX defrauded consumers, these will be reflected in civil and criminal cases. To my knowledge, the SEC does not protect deposits in the event of bankruptcy. Most individuals with assets on deposit at FTX are unsecured creditors.
nova22033 4y ago
a case to protect rich VC crypto-bro partners This may seem unfair but this is their best shot at securing a conviction. Elizbeth Holmes was convicted for defrauding investors, not users of Theranos devices. Either way, the money is likely gone. Nobody is being protected.
adrr 4y ago
Pension funds are a large investor in VCs. Calpers has hundreds of millions of investment in sequoia and tiger global both invested in FTX.
323 4y ago
> If I were a retail investor who lost my savings in FTX, I might be feeling upset that the government is rushing to action in defense The customers will be paid before investors with whatever money is there. This is well established by previous case precedents, including in places like unregulated poker betting sites. Anybody can have a claim, including the SEC, but the courts decide allocation order.
- robocat 4y ago
  > The customers will be paid before investors with whatever money is there. That really depends whether the investment is structured as a secured loan (senior debt) or not. Secured loans get paid out in full, before the unsecured creditors such as customers. > but the courts decide allocation order Mostly that is defined by the laws of the jurisdiction, not the individual court. In the Bahamas, the ranking of creditors and shareholders are as follows[1]: Creditors with a mortgage or fixed charge: assets secured in this way are outside the scope of the insolvency. Costs of insolvency proceedings: all costs and expenses properly incurred in the company's winding-up (including liquidator's fees). Employees' debts: sums due to employees under the terms of their employment contract. Preferential payments, such as unpaid taxes, contributions to occupational pension schemes and liability for compensation for injury or occupational disease. Creditors with a floating charge. Unsecured creditors. Shareholder loans. Shareholders' equity. In the US[2]: Under the Bankruptcy Code, the priority of allowed claims and interests is, in descending order: Secured claims. Administrative expenses and priority claims. General unsecured claims. Subordinated claims. Equity interests. Outside of bankruptcy, creditor ranking is determined by state law and in certain circumstances, the agreement of the parties, such as in an intercreditor agreement. In bankruptcy, the priority of creditors' claims and interests in a debtor's estate is set out in the Bankruptcy Code. VC early investments may be a convertible note, often senior debt that can be converted to equity in the next investment round[3]. The costs of insolvency proceedings, or administrative costs, may be determined by the liquidator. The liquidator will generally milk the system (within their legal limitations) as much as possible (extremely high charge-out costs per hour, etcetera), so customers will often get didly squat. A senior liquidator might be charged out at say USD800 per hour, down to the secretary who might be charged out at USD120 per hour. The liquidator’s goal is to charge as many hours as possible, without being so extreme that the court pulls them up on it, or to finish up quickly if there is no more money left to suck. [1] https://uk.practicallaw.thomsonreuters.com/9-518-5211 https://uk.practicallaw.thomsonreuters.com/9-518-5211 [2] https://uk.practicallaw.thomsonreuters.com/7-501-6870 https://uk.practicallaw.thomsonreuters.com/7-501-6870 [3] https://www.investopedia.com/terms/s/senior-convertible-note.asp https://www.investopedia.com/terms/s/senior-convertible-note...
hnmullany 4y ago
The "S" in SEC stands for "Securities" -> they are chartered to protect investors. There are other bodies who are chartered to protect consumers.
- pavlov 4y ago
  People who bought the FTT token on the FTX exchange most likely thought of themselves as investors, since the token promised rewards tied to the exchange’s cash flows. I’m not sure it’s fair that the big boys get investor treatment and the retail suckers who were led to believe they’re investing get… nothing so far.
blitzar 4y ago
Theranos and holmes ... convicted ONLY of defrauding VC investors. Not guilty of defrauding customers by faking medical tests etc.
chewz 4y ago
Well, for start investors put in dollars while customers put in some funny coins... It is hard to defraud someone out of some made up money...

by pavlov 4y ago

ethanbond 4y ago

Whoa, are you trying to tell me all the big fish hyping up the Regulators Are Evil Economy get near-total legal protection of a regulated market, but all the little people who got taken in by it are going to get screwed? An incredible and unforeseeable development! Surely there will be more charges over time but the end result isn’t going to change much. The wealthy people who’ve been boosting all of this will take the smallest losses of all.

Frost1x 4y ago
I always find it interesting how in our implementation of capitalism here in the US, wealth is able to insulate and protect itself from many of the very measures capitalism is supposed to peel away and counter (in the interest of society at large). It's almost like it there are fundamental inherent flaws that need to be fixed to continue on and we can't keep treating things like business is usual if we want to enable continued growth vs stagnation due to power concentration like we've seen in non-capitalist systems in the past. You're going to see the big players like Sequoia get some retribution here and to a magnitude that's significant enough to be usable and recoverable, meanwhile you're going to see all sorts of others life savings evaporate, resulting in a far less recoverable scenario, with little to nothing recovered--at least that's how this tends to play out, historically. Everyone will of course lose, but you'll see disproportionate losses and disproportionate recoverability. Disproportionate wealth as a proxy to power does this.
- simple-thoughts 4y ago
  It’s the fundamental contradiction of modern capitalism (capitalist ownership of the means of production). On the one hand, it claims itself as privately owned capital, but on the other hand relies on the state to maintain this ownership. At some point this will break either into an ancap privatism or a communist socialism, because one side on the rope will eventually win as technology breaks down the human social control systems that allow this contradiction to persist.
JackFr 4y ago
None of the big fish are getting money back. No one is going get money back. It's gone. At the same time, I have trouble finding sympathy for anyone involved. SBF is a sociopath, thief and liar. Those big-name investors should have known better and I'm sure in many cases they did. They probably should start lawyering up too, because they've got investors of their own who have been harmed either through malfeasance of actionable incompetence. And the 'small time' investors -- mom-and-pop, widows and orphans investing the life savings on the platform -- all crypto is a scam, a Ponzi scheme, at the very best it's a casino or playing the numbers. Always has been. Always will be. All they had to do was open their eyes or maintain critical thinking in the face of promoters trying to bamboozle them. And yet dumb money says I'm wrong. BTC up 4% on the day....
- deleted 4y ago
  [deleted]
- ethanbond 4y ago
  You don't need money going back for it to be the case that the big fish will be fine, have many avenues for recourse, and the small people will be completely and thoroughly burned.
- Sporktacular 4y ago
  It wasn't a crypto investment for the mums and dads! That's the whole issue. They were treasuries - holdings that shouldn't have been at risk. SBF and his asshole friends dipped into them to close positions and shore up riskier trades made by another company Alameda. People rush to simplify here with 'there are no angels" arguments. It doesn't matter that it was crypto. Those funds were stolen.
- LarryMullins 4y ago
  It is often the case that the victims of scammers were up to no good themselves, and allowed greed to cloud their judgement. People sign up for schemes that are flagrantly pyramid schemes, knowing it's a pyramid scheme, because they think they'll be able to get in and get out before the pyramid collapses. This kind of behavior is the norm in the crypto currency scene. 8% APR from a crypto company was obviously a pyramid scheme. Anybody who put their money into FTX was either unbelievably stupid, or knew they were playing with fire and hoped they wouldn't be the ones to get burnt. If somehow all the money has been utterly destroyed so nobody involved gets any of it, that would probably be the best outcome. If the cryptobro investors get their money back, they're just going to use it in other scams to hurt more people.
deleted 4y ago
[deleted]
jstx1 4y ago
Give it some time, he only got arrested hours ago and the DOJ still haven't unsealed their case.

nikanj 4y ago

The various players in crypto space have written a ton of EULA mumbo-jumbo explaining that the coins are not securities (as they want the freedom to pump&dump/front run orders/etc). If they admitted the cryptos are securities, all sorts of pesky regulations would apply

MrPatan 4y ago
Stealing securities you're supposed to store for me is a crime. Stealing non-securities you're supposed to store for me is also a crime.
- master_crab 4y ago
  Yup. At the end of the day, this isn’t complicated. The man directed assets (whatever you label them) that were clearly meant for the use of the owner only into SBFs investment vehicle for his use (Alameda). He stole coins, period.
- Sporktacular 4y ago
  Yes, thank you! So many comments are like "it's a crypto investment, you shouldn't expect safety" when they weren't investments but holdings. As if this was just market forces at play. They have no idea about happened here.
freejazz 4y ago
Admitting or not that something is a security is not a requisite for the thing to be found to be a security.

rundmc 4y ago

He essentially admitted this in recent calls so it's a 'safe' charge that the SEC used to get him arrested in Bahamas and presumably his personal assets will also now be frozen while they assemble the rest of the consumer fraud and other charges.

nradov 4y ago
The SEC didn't get SBF arrested in the Bahamas. That was done by the DOJ. The SEC has brought a separate parallel civil enforcement action.
- DannyBee 4y ago
  correct the SEC cannot charge people criminally
deleted 4y ago
[deleted]

fredgrott 4y ago

You seem to forget the debate between the SEC and the other org that want to regulate crypto. The reason SEC moved this fast was to add to their counter-point argument that they should be allowed to fully regulate crypto as securities.

pavlov 4y ago
No, this case is not about crypto at all. It’s about FTX shares and that’s unequivocally the SEC’s jurisdiction.
- tiahura 4y ago
  Here’s Harvey Pitt - the former SEC Chairman explaining this morning why the SEC doesn’t have jurisdiction. https://www.cnbc.com/video/2022/12/13/regulating-cryptocurrencies-is-a-national-concern-not-a-political-issue-says-former-sec-chair.html https://www.cnbc.com/video/2022/12/13/regulating-cryptocurre...

warinukraine 4y ago

> It's sort of curious that this SEC action is to protect the venture capital investors like Sequoia who invested in FTX shares directly. This action is to protect investors. No need to make it into a conspiracy.

empathy_m 4y ago

It's possible that we will hear from individual investors at trial or sentencing. Even though the Theranos trial was about defrauding investors, there was still testimony from an actual customer. ("The first patient to take the stand in trial of former Theranos CEO Elizabeth Holmes said that the company’s blood test inaccurately showed she was suffering a miscarriage when in fact she had a healthy pregnancy.")

pcl 4y ago

I would expect that the bankruptcy proceedings and any future civil lawsuits are the main avenues for individuals to seek individual redress. If I were an individual, I wouldn’t really care about how the criminal charges were structured, since it’s not like I would get any individual benefit out of his jail time, one way or the other.

krisoft 4y ago
> If I were an individual, I wouldn’t really care about how the criminal charges were structured Yes. But! As an individual I care if the laws protect me. Have they been clever enough to only scam people like me, would they still go to prison? As long as the answer to that is yes, I don’t mind if something else they have done is easier to prosecute.

dwighttk 4y ago

DoJ also filed charges (I think the indictment is sealed)

blanketlamp 4y ago

> This seems to be the reason why the SEC doesn't have a clear-cut case to protect FTX customers, but does have a case to protect rich VC crypto-bro partners. I mean, given that FTX.us was supposedly completely isolated from FTX.com isn't that true? Assuming (and I understand this is a big assumption) that SBF is correct that FTX.us deposits were completely isolated and US customers can be reimbursed in full, the only US citizens harmed by this would be Sequoia et al. Even if it turns out US customers are actually left holding the bag as well, does the SEC even have clear jurisdiction over FTX on that? Maybe? Wouldn't the DOJ criminal charges be much better wrt nailing him for that though? Seems much easier for the SEC to charge him with defrauding investors, as that's pretty much a slam dunk case at this point and also clearly the jurisdiction of the SEC. You can draw analogies here to Capone and tax fraud etc. etc.

dom96 4y ago

I'm no lawyer, but to be fair it seems the SEC charges document[1] does allege that Sam Bankman-Fried defrauded FTX's customers too. 1 - https://www.sec.gov/litigation/complaints/2022/comp-pr2022-219.pdf https://www.sec.gov/litigation/complaints/2022/comp-pr2022-2...

jack_pp 4y ago

Maybe financial companies not founded in the US shouldn't be allowed to advertise to US companies at all.

jacquesm 4y ago
I don't see how that would work in practice, nor would the US want it that way because it would almost certainly be mirrored in the other direction.
- jack_pp 4y ago
  Then ban companies in jurisdictions that protect criminals

duxup 4y ago

It should be noted Samuel is a really rich guy too, and he is being charged.

deleted 4y ago
[deleted]

boplicity 4y ago

Frankly, it seems to me that VCs should be liable for money FTX owes its customers. These are professional investors who didn't insist on very basic things, such as proper financial sheets from a finance company. Frankly, that's gross negligence. Professional investors should have legal responsibility to do at least some due diligence. In addition, they're becoming owners of a company. As owners, why shouldn't they be exposed to liability that could have been prevented with some basic due diligence?

pavlov 4y ago
I agree! For VCs, crypto has been a “Heads we win, tails you lose” proposition. Normally it takes 3-10 years for a VC investment to reach an exit. In crypto, they get tokens that they’ve been able to dump to retail almost immediately. A16Z has a particularly suspicious shitcoin pipeline via their Coinbase board seat. I hope SEC also ends up prosecuting investors who participated in these token offerings, and ideally also employees who got paid in tokens [1]. But I have no idea if there’s a legal basis because American securities law is designed to protect investors and doesn’t necessarily seem to account for the A16Z-style case where they’re essentially co-conspirators in the fraud: supplying crypto founders with money for marketing which pulled in retail dollars which ended up straight back to the VC’s and founders’ pockets. [1] What difference does it really make if you’re a founder selling unlicensed securities, or an employee who signed a contract where you get paid in those unlicensed securities and then you dump them on retail investors? The SEC should look at these schemes which were popular with companies that hire on HN too.
- LarryMullins 4y ago
  > I hope SEC also ends up prosecuting [...] employees who got paid in tokens Prosecuting those rubes for being among the victims? If there is evidence they pumped and dumped those tokens or didn't report their income correctly, then sure. But otherwise, why prosecute people for being stupid enough to accept payment crypto?
phphphphp 4y ago
Setting aside the arguments to be made for/against the idea, and focusing on the implementation instead: most investments are handled through some sort of limited liability vehicle and so even if the “investor” was held responsible it would not necessarily impact the human(s) that stood to gain.

jstx1 4y ago

> If I were a retail investor who lost my savings in FTX, I might be feeling upset that the government is rushing to action in defense of billion-dollar funds whose own due diligence failed massively, while seemingly nothing is being done to help those who invested in crypto based on FTX's Super Bowl ads and celebrity endorsements... It's not one or the other, he can be charged for both. It's up to the DOJ to file a criminal case, and they didn't arrest him for no reason.

winstonprivacy 4y ago

It's not that curious at all really. The SEC is authorized to pursue criminal cases for securities fraud (among many other things). Furthermore, they can refer criminal cases to the Dept of Justice, which has almost certainly happened. To the extent that FTX defrauded consumers, these will be reflected in civil and criminal cases. To my knowledge, the SEC does not protect deposits in the event of bankruptcy. Most individuals with assets on deposit at FTX are unsecured creditors.

nova22033 4y ago

a case to protect rich VC crypto-bro partners This may seem unfair but this is their best shot at securing a conviction. Elizbeth Holmes was convicted for defrauding investors, not users of Theranos devices. Either way, the money is likely gone. Nobody is being protected.

adrr 4y ago

Pension funds are a large investor in VCs. Calpers has hundreds of millions of investment in sequoia and tiger global both invested in FTX.

323 4y ago

> If I were a retail investor who lost my savings in FTX, I might be feeling upset that the government is rushing to action in defense The customers will be paid before investors with whatever money is there. This is well established by previous case precedents, including in places like unregulated poker betting sites. Anybody can have a claim, including the SEC, but the courts decide allocation order.

robocat 4y ago
> The customers will be paid before investors with whatever money is there. That really depends whether the investment is structured as a secured loan (senior debt) or not. Secured loans get paid out in full, before the unsecured creditors such as customers. > but the courts decide allocation order Mostly that is defined by the laws of the jurisdiction, not the individual court. In the Bahamas, the ranking of creditors and shareholders are as follows[1]: Creditors with a mortgage or fixed charge: assets secured in this way are outside the scope of the insolvency. Costs of insolvency proceedings: all costs and expenses properly incurred in the company's winding-up (including liquidator's fees). Employees' debts: sums due to employees under the terms of their employment contract. Preferential payments, such as unpaid taxes, contributions to occupational pension schemes and liability for compensation for injury or occupational disease. Creditors with a floating charge. Unsecured creditors. Shareholder loans. Shareholders' equity. In the US[2]: Under the Bankruptcy Code, the priority of allowed claims and interests is, in descending order: Secured claims. Administrative expenses and priority claims. General unsecured claims. Subordinated claims. Equity interests. Outside of bankruptcy, creditor ranking is determined by state law and in certain circumstances, the agreement of the parties, such as in an intercreditor agreement. In bankruptcy, the priority of creditors' claims and interests in a debtor's estate is set out in the Bankruptcy Code. VC early investments may be a convertible note, often senior debt that can be converted to equity in the next investment round[3]. The costs of insolvency proceedings, or administrative costs, may be determined by the liquidator. The liquidator will generally milk the system (within their legal limitations) as much as possible (extremely high charge-out costs per hour, etcetera), so customers will often get didly squat. A senior liquidator might be charged out at say USD800 per hour, down to the secretary who might be charged out at USD120 per hour. The liquidator’s goal is to charge as many hours as possible, without being so extreme that the court pulls them up on it, or to finish up quickly if there is no more money left to suck. [1] https://uk.practicallaw.thomsonreuters.com/9-518-5211 https://uk.practicallaw.thomsonreuters.com/9-518-5211 [2] https://uk.practicallaw.thomsonreuters.com/7-501-6870 https://uk.practicallaw.thomsonreuters.com/7-501-6870 [3] https://www.investopedia.com/terms/s/senior-convertible-note.asp https://www.investopedia.com/terms/s/senior-convertible-note...

hnmullany 4y ago

The "S" in SEC stands for "Securities" -> they are chartered to protect investors. There are other bodies who are chartered to protect consumers.

pavlov 4y ago
People who bought the FTT token on the FTX exchange most likely thought of themselves as investors, since the token promised rewards tied to the exchange’s cash flows. I’m not sure it’s fair that the big boys get investor treatment and the retail suckers who were led to believe they’re investing get… nothing so far.

blitzar 4y ago

Theranos and holmes ... convicted ONLY of defrauding VC investors. Not guilty of defrauding customers by faking medical tests etc.

chewz 4y ago

Well, for start investors put in dollars while customers put in some funny coins... It is hard to defraud someone out of some made up money...