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> Singh will definitely get prison time as well Remember Alamada wasn’t a normal customer. It was acting as a market maker/counterparty of last resort to many

> Singh will definitely get prison time as well Remember Alamada wasn’t a normal customer. It was acting as a market maker/counterparty of last resort to many other FTX customers. In that case there could be situations where ‘normal customer liquidation rules’ shouldn’t apply - it can go in the red temporarily to enable others to trade (and FTX to make commission). From the facts in the article (which are obviously not complete) if I was Singh my defence would be I assumed/was told the changes were to support Alamadas role as market maker and their actual long term exposure was being monitored elsewhere.

lumost 4y ago
This seems flaky at best. Either becoming an extreme lapse of judgment - or intentional ignorance. His position as a higher up makes claiming the former difficult.
edouard-harris 4y ago
> Remember Alamada wasn’t a normal customer. It was acting as a market maker/counterparty of last resort to many other FTX customers. In that case there could be situations where ‘normal customer liquidation rules’ shouldn’t apply This might be a reasonable argument in a vacuum, except that: > [SBF] told investors and prospective investors that FTX had top-notch, sophisticated automated risk measures in place to protect customer assets, that those assets were safe and secure, and that Alameda was just another platform customer with no special privileges. [emphasis added] And also: > Bankman-Fried also told investors, and directed other FTX and Alameda employees to tell investors, that Alameda received no preferential treatment from FTX. For example, Bankman-Fried told the Wall Street Journal in or around July 2022: “There are no parties that have privileged access.” Likewise, in a Bloomberg article published in or about September 2022, Bankman-Fried claimed that “Alameda is a wholly separate entity” than FTX. In the same article, Ellison is quoted as stating about Alameda: “We’re at arm’s length and don’t get any different treatment from other market makers.” Bankman-Fried made similar statements directly to investors. [emphasis added] (The above are direct quotes from the SEC complaint [1] against SBF.) Singh might argue that he wasn't aware of the private statements to investors. But the WSJ and Bloomberg stories show the "arm's length" claim was something they consistently messaged to the public at the highest levels. To argue that Alameda's role as market maker of last resort justified a privileged status would be inconsistent with all their prior public claims to the contrary. "We lied to the public repeatedly about our risk management" isn't a defense; it's a confession. [1] https://www.sec.gov/litigation/complaints/2022/comp-pr2022-219.pdf https://www.sec.gov/litigation/complaints/2022/comp-pr2022-2...
- db48x 4y ago
  It’s potentially a defense for the engineer though, if he had nothing to do with the advertising. Of course it’s all just idle speculation; the real interesting stuff will come out in the trial, years upon years from now.
  - RF_Savage 4y ago
    The engineer would have a hard time claiming ignorance with multiple widely reported public statements about how Alameda had no special priviledges.
    - db48x 4y ago
      Possibly. On the other hand, I’m not sure I’ve ever read any of my own company’s press releases. Was this guy an officer of the company?
    - rxhernandez 4y ago
      Should an engineer be tracking what their company is telling media outlets? No one else is tasked with looking at my code except other engineers; why should engineers spend their precious time making sure that other business units are performing their duties ethically?
      - TheNorthman 4y ago
        Probably because the whole Topf & Söhne debacle doesn't need repeating? Engineers are of course partly responsible for the things they implement.
        t0suj4 4y ago
        Why should be someone responsible for how the product of their labor is being used?
        ithinkso 4y ago
adrr 4y ago
I never understood why Alameda took risky bets when it could just make a bunch of cash off buy/ask spreads assuming trading volume was decent. Running the exchange they can front run any large trades and move the market.
- jack_pp 4y ago
  Arrogance, they thought they were smarter than the market. There are people who make a living playing poker that are not intellectually gifted. Their secret? Do as you say, play boring, safe strategies that will guarantee you will make money in the long run. They might not run up 1000$ to 10000$ very often but they sure do win. However, remove discipline, add intellectual ability and an abundance of overconfidence and you get FTX and Alameda Research.
  - rjzzleep 4y ago
    Judging from some of the videos that circulated from the Alameda CEO I'd say it's also a significant portion of incompetence. I'm not going to guess which one was more though.
- bboygravity 4y ago
  You mean kind of like how the US market works now with PFOF? And the fact that by far the largest market maker in the US is also a hedge fund (two different companies with the same owner(s), where have we seen that before?).
- megablast 4y ago
  There was huge amounts of money to be made. They got too greedy, made a play for it, then the market dropped. If things kept going, it would have made them all a lot of money.
- papito 4y ago
  SBF, through his industry connections, was able to figure out how to take the difference while trading Bitcoin between different countries, as the premiums are different. It's basically a legal money printer. I am baffled by why fraud was necessary. I guess it's just means to an end for "effective altruism".
meltedcapacitor 4y ago
Not an excuse. They had a programme for external liquidators giving some slack for trades taking the other side of liquidating positions, so Alameda should have used that. This looks worse. In any case it's not needed: liquidators get the 3% initial margin so are usually in profit. For the cases when the market moves faster than that, they should have done what the better-run exchanges do and close the most leveraged positions from the opposite side: if lots of longs get liquidated in aggregate the shorts get their profit trimmed by the losses of the longs beyond maintenance margin, in order of leverage, which is fair enough when duly documented in the terms.
- anonymoushn 4y ago
  BLP fills were quite toxic, many trading firms turned this stuff on, found out that it was hugely money-losing, and turned it back off.
3327 4y ago
3327 4y ago
fredgrott 4y ago
That does not fly with the restrictions of US based customers, which is both SDNY and SEC's point
courgette 4y ago
I did saw similar setup in real life. Not as blatant but the market maker argument was the reasoning of going red for a while. Reconciliation was still happening every 24h tho.
darkerside 4y ago
Singh was the chief engineer for a major exchange. It's his job to know better than this. If the chief engineer for NASDAQ put in a backdoor to allow a market maker unlimited margin, would you assume they just figured it was legit because someone said so? He knows how markets work too well for a defense like that.
anonymoushn 4y ago
FTX and Alameda publicly represented that Alameda's relationship with the exchange was the same as any other market maker's, and any other market maker could sign contracts to become a counterparty of last resort by joining the Backstop Liquidity Provider program.

lumost 4y ago

This seems flaky at best. Either becoming an extreme lapse of judgment - or intentional ignorance. His position as a higher up makes claiming the former difficult.

edouard-harris 4y ago

> Remember Alamada wasn’t a normal customer. It was acting as a market maker/counterparty of last resort to many other FTX customers. In that case there could be situations where ‘normal customer liquidation rules’ shouldn’t apply This might be a reasonable argument in a vacuum, except that: > [SBF] told investors and prospective investors that FTX had top-notch, sophisticated automated risk measures in place to protect customer assets, that those assets were safe and secure, and that Alameda was just another platform customer with no special privileges. [emphasis added] And also: > Bankman-Fried also told investors, and directed other FTX and Alameda employees to tell investors, that Alameda received no preferential treatment from FTX. For example, Bankman-Fried told the Wall Street Journal in or around July 2022: “There are no parties that have privileged access.” Likewise, in a Bloomberg article published in or about September 2022, Bankman-Fried claimed that “Alameda is a wholly separate entity” than FTX. In the same article, Ellison is quoted as stating about Alameda: “We’re at arm’s length and don’t get any different treatment from other market makers.” Bankman-Fried made similar statements directly to investors. [emphasis added] (The above are direct quotes from the SEC complaint [1] against SBF.) Singh might argue that he wasn't aware of the private statements to investors. But the WSJ and Bloomberg stories show the "arm's length" claim was something they consistently messaged to the public at the highest levels. To argue that Alameda's role as market maker of last resort justified a privileged status would be inconsistent with all their prior public claims to the contrary. "We lied to the public repeatedly about our risk management" isn't a defense; it's a confession. [1] https://www.sec.gov/litigation/complaints/2022/comp-pr2022-219.pdf https://www.sec.gov/litigation/complaints/2022/comp-pr2022-2...

db48x 4y ago
It’s potentially a defense for the engineer though, if he had nothing to do with the advertising. Of course it’s all just idle speculation; the real interesting stuff will come out in the trial, years upon years from now.
- RF_Savage 4y ago
  The engineer would have a hard time claiming ignorance with multiple widely reported public statements about how Alameda had no special priviledges.
  - db48x 4y ago
    Possibly. On the other hand, I’m not sure I’ve ever read any of my own company’s press releases. Was this guy an officer of the company?
  - rxhernandez 4y ago
    Should an engineer be tracking what their company is telling media outlets? No one else is tasked with looking at my code except other engineers; why should engineers spend their precious time making sure that other business units are performing their duties ethically?
    - TheNorthman 4y ago
      Probably because the whole Topf & Söhne debacle doesn't need repeating? Engineers are of course partly responsible for the things they implement.
      - t0suj4 4y ago
        Why should be someone responsible for how the product of their labor is being used?
        ithinkso 4y ago

adrr 4y ago

I never understood why Alameda took risky bets when it could just make a bunch of cash off buy/ask spreads assuming trading volume was decent. Running the exchange they can front run any large trades and move the market.

jack_pp 4y ago
Arrogance, they thought they were smarter than the market. There are people who make a living playing poker that are not intellectually gifted. Their secret? Do as you say, play boring, safe strategies that will guarantee you will make money in the long run. They might not run up 1000$ to 10000$ very often but they sure do win. However, remove discipline, add intellectual ability and an abundance of overconfidence and you get FTX and Alameda Research.
- rjzzleep 4y ago
  Judging from some of the videos that circulated from the Alameda CEO I'd say it's also a significant portion of incompetence. I'm not going to guess which one was more though.
bboygravity 4y ago
You mean kind of like how the US market works now with PFOF? And the fact that by far the largest market maker in the US is also a hedge fund (two different companies with the same owner(s), where have we seen that before?).
megablast 4y ago
There was huge amounts of money to be made. They got too greedy, made a play for it, then the market dropped. If things kept going, it would have made them all a lot of money.
papito 4y ago
SBF, through his industry connections, was able to figure out how to take the difference while trading Bitcoin between different countries, as the premiums are different. It's basically a legal money printer. I am baffled by why fraud was necessary. I guess it's just means to an end for "effective altruism".

meltedcapacitor 4y ago

Not an excuse. They had a programme for external liquidators giving some slack for trades taking the other side of liquidating positions, so Alameda should have used that. This looks worse. In any case it's not needed: liquidators get the 3% initial margin so are usually in profit. For the cases when the market moves faster than that, they should have done what the better-run exchanges do and close the most leveraged positions from the opposite side: if lots of longs get liquidated in aggregate the shorts get their profit trimmed by the losses of the longs beyond maintenance margin, in order of leverage, which is fair enough when duly documented in the terms.

anonymoushn 4y ago
BLP fills were quite toxic, many trading firms turned this stuff on, found out that it was hugely money-losing, and turned it back off.

3327 4y ago

fredgrott 4y ago

That does not fly with the restrictions of US based customers, which is both SDNY and SEC's point

courgette 4y ago

I did saw similar setup in real life. Not as blatant but the market maker argument was the reasoning of going red for a while. Reconciliation was still happening every 24h tho.

darkerside 4y ago

Singh was the chief engineer for a major exchange. It's his job to know better than this. If the chief engineer for NASDAQ put in a backdoor to allow a market maker unlimited margin, would you assume they just figured it was legit because someone said so? He knows how markets work too well for a defense like that.

anonymoushn 4y ago

FTX and Alameda publicly represented that Alameda's relationship with the exchange was the same as any other market maker's, and any other market maker could sign contracts to become a counterparty of last resort by joining the Backstop Liquidity Provider program.