Sam Bankman-Fried (SBF) debacle with FTX (1 Viewer)

[bigbottom]

S&C charges that rate for all their first years? That is patently absurd. No first year lawyer is worth that rate, but if you want to hire the biggest of the big guns, I guess you have to be willing to get fleeced.

 

[The Z Machine]

Looking at the FTX BK fee applications for the month of December and see FTX lead bankruptcy counsel - Sullivan & Cromwell - billed $15,407,509.50 in fees and $134,311.31 in expenses for December alone. 2022 law grads (admission "in process") at Sullivan & Cromwell are billed at $775/hr. Associates admitted in 2017 are at $1,440/hr. It looks like partners top out at $2,165.00/hr. One partner billed 342.20 hours in December, earning $740,863.00 in fees for one month by himself. At least a dozen more lawyers at the firm billed in the $300k-$600k range for December alone. They bill at 50% for "non-working travel" so for example one guy bills $1,083.00/hr while he's on a plane or a train ride but not working. Non-lawyer paralegals are billed at $595/hr.

S&C are just one of a dozen or so law firms billing the estate for legal services, in addition to the dozens of other professional firms billing the estate - investment banks, turnaround consultants, accounting firms, auditors, forensic firms, and other professionals.

I'll do it for half that.

 

[Sand]

One partner billed 342.20 hours in December

Good work-life balance there.

Strike while the iron is hot.

 

[CletiusMaximus]

One partner billed 342.20 hours in December

Good work-life balance there.

Well if I could generate $740,863.00 in one month I could take the next six months off and still be working on a great year. But something tells me this guy probably doesn’t take many vacations.

 

[thecatch]

One partner billed 342.20 hours in December

Good work-life balance there.

Strike while the iron is hot.

A discussion for another thread perhaps, but I think that kind of billing is per se unethical or close to it. No way that partner is giving legal services worth $2500/hr past the 250 hour mark or so.

 

[fatness]

SBF was bribing China to unfreeze his accounts.
https://lawandcrime.com/live-trials...-40m-in-crypto-to-unfreeze-his-accounts-feds/

 

[fruity pebbles]

So it’ll essentially be the people who had money tied up in FTX who will end up paying those lawyers fees correct?

 

[Todem]

This keeps getting better and better.

 

[John123]

So how many years until this guy goes on trial?

 

[massraider]

SBF was bribing China to unfreeze his accounts.
https://lawandcrime.com/live-trials...-40m-in-crypto-to-unfreeze-his-accounts-feds/

I assumed this was related to the current mess, but no, this happened in 2021.

With the details in there, this sounds like his FTX cronies are squealing as loud as possible. BIg ups to the Chinese official who made 40 mill in one bribe.

 

[CletiusMaximus]

Michael Lewis' book to be released Oct. 3

Going Infinite - The Rise and Fall of a New Tycoon

 

[Encyclopedia Brown]

Bail revoked for witness tampering: https://news.yahoo.com/ftx-founder-sam-bankman-fried-040730213.html

 

[General Malaise]

Bail revoked for witness tampering: https://news.yahoo.com/ftx-founder-sam-bankman-fried-040730213.html

This guy cannot get out of his own way.

 

[Encyclopedia Brown]

This guy cannot get out of his own way

He leaked the private letters of his ex-girlfriend in an attempt to portray her as Glenn Close in Fatal Attraction, but what the letters showed was a heartbroken young girl trying to salvage a relationship with an arrogant, aloof, selfish, entitled jackass.

 

[John123]

Good. Should never have been granted bail in the first place.

 

[Desert_Power]

I'd be fine putting this guy under the jail

 

[Dinsy Ejotuz]

Bail revoked for witness tampering

Seems relevant.

 

[New Binky the Doormat]

glad to see it - this guy clearly believes he's above the law

very familiar to another court situation we have been reading a lot about.

 

[thecatch]

Wasn't someone in here defending the parents at some point? Oof.

 

[massraider]

Wasn't someone in here defending the parents at some point? Oof.

How Involved Were SBF's Parents?

Head to https://brilliant.org/patrick/ to start your free 30-day trial, and the first 200 people get 20% off an annual premium subscription.FTX has sued Jose...

www.youtube.com

30 minute video breaking down the parents' role.

Crazy.

 

[CletiusMaximus]

This trial starts tomorrow and is expected to last about a month. There's a podcast from Jacob Weisberg called "Judging Sam" that will be covering the trial. They'll have someone in the courtroom every day throughout the trial. The first episode was released yesterday and had Michael Lewis on talking about what he learned researching his book. Lewis probably knows SBF better than just about anyone out there from the sounds of things so its worthwhile. His book is to be released tomorrow. I'm not very confident I'll enjoy Weisberg's coverage so would appreciate any other recommendations if anyone else is trying to follow this thing.

For me, its unbelievable he did not work a plea, but this first podcast episode with Lewis shines some light on that. Basically, SBF trusts no one (especially not lawyers), listens to no one, always thinks he knows better than the experts on any topic (which has served him well for the most part), and most importantly, he absolutely believes he is innocent and will win.

 

[Desert_Power]

This trial starts tomorrow and is expected to last about a month. There's a podcast from Jacob Weisberg called "Judging Sam" that will be covering the trial. They'll have someone in the courtroom every day throughout the trial. The first episode was released yesterday and had Michael Lewis on talking about what he learned researching his book. Lewis probably knows SBF better than just about anyone out there from the sounds of things so its worthwhile. His book is to be released tomorrow. I'm not very confident I'll enjoy Weisberg's coverage so would appreciate any other recommendations if anyone else is trying to follow this thing.

For me, its unbelievable he did not work a plea, but this first podcast episode with Lewis shines some light on that. Basically, SBF trusts no one (especially not lawyers), listens to no one, always thinks he knows better than the experts on any topic (which has served him well for the most part), and most importantly, he absolutely believes he is innocent and will win.

Lewis comes across pretty smitten with SBF. Surprising given his background covering fraudsters

 

[Sand]

This trial starts tomorrow and is expected to last about a month. There's a podcast from Jacob Weisberg called "Judging Sam" that will be covering the trial. They'll have someone in the courtroom every day throughout the trial. The first episode was released yesterday and had Michael Lewis on talking about what he learned researching his book. Lewis probably knows SBF better than just about anyone out there from the sounds of things so its worthwhile. His book is to be released tomorrow. I'm not very confident I'll enjoy Weisberg's coverage so would appreciate any other recommendations if anyone else is trying to follow this thing.

For me, its unbelievable he did not work a plea, but this first podcast episode with Lewis shines some light on that. Basically, SBF trusts no one (especially not lawyers), listens to no one, always thinks he knows better than the experts on any topic (which has served him well for the most part), and most importantly, he absolutely believes he is innocent and will win.

Lewis comes across pretty smitten with SBF. Surprising given his background covering fraudsters

He's kinda like Lassie, but with curly black hair. Everyone loved him.

 

[CletiusMaximus]

This trial starts tomorrow and is expected to last about a month. There's a podcast from Jacob Weisberg called "Judging Sam" that will be covering the trial. They'll have someone in the courtroom every day throughout the trial. The first episode was released yesterday and had Michael Lewis on talking about what he learned researching his book. Lewis probably knows SBF better than just about anyone out there from the sounds of things so its worthwhile. His book is to be released tomorrow. I'm not very confident I'll enjoy Weisberg's coverage so would appreciate any other recommendations if anyone else is trying to follow this thing.

For me, its unbelievable he did not work a plea, but this first podcast episode with Lewis shines some light on that. Basically, SBF trusts no one (especially not lawyers), listens to no one, always thinks he knows better than the experts on any topic (which has served him well for the most part), and most importantly, he absolutely believes he is innocent and will win.

Lewis comes across pretty smitten with SBF. Surprising given his background covering fraudsters

I'm not sure whether I'll read the book. I've read several of his books and loved them all, but there's no doubt he had movie rights in mind when he wrote this book and I have to assume it affects his writing. Just hearing him describe the events you can tell he's got Oscars dancing in his head as he tells the story. There's no doubt he had about 2 years of direct inside access to SBF and his family and his company so has an extremely unique perspective. He just got incredibly lucky to be there for over a year leading up to the crash. On the pod, he claims he doesn't know whether readers will love or hate SBF after reading the book and is curious what the reaction will be. That rings a bit disingenuous to me. He echos alot of what we already know - that this guy was extremely smart in some sense but had no business running a company. He does seem to kind of buy into the "altruism" motivation thing, but his main story is how an obsessive power trip played out in a bizarre unreal way. He expects a conviction, but that's just playing the near-insurmountable odds. He says with the current line paying 90-1, he would bet on acquittal. The pod host cited statistics that said of 70,000+ federal criminal cases, less than one-half of one percent resulted in acquittal after trial.

 

[thecatch]

I haven’t listened to that podcast yet, but I regularly listen to Lewis’ podcast called Against the Rules. He’s had a series of guests talking about SBF over the last couple of months. Lewis has generally abstained from offering his own opinions on either the bankruptcy or criminal case but I have gotten the vibe that he’s more sympathetic to SBF than I would have expected.

 

[Major]

This trial starts tomorrow and is expected to last about a month. There's a podcast from Jacob Weisberg called "Judging Sam" that will be covering the trial. They'll have someone in the courtroom every day throughout the trial. The first episode was released yesterday and had Michael Lewis on talking about what he learned researching his book. Lewis probably knows SBF better than just about anyone out there from the sounds of things so its worthwhile. His book is to be released tomorrow. I'm not very confident I'll enjoy Weisberg's coverage so would appreciate any other recommendations if anyone else is trying to follow this thing.

For me, its unbelievable he did not work a plea, but this first podcast episode with Lewis shines some light on that. Basically, SBF trusts no one (especially not lawyers), listens to no one, always thinks he knows better than the experts on any topic (which has served him well for the most part), and most importantly, he absolutely believes he is innocent and will win.

Lewis comes across pretty smitten with SBF. Surprising given his background covering fraudsters

Yeah, Lewis was on 60 Minutes this week discussing SBF. I was surprised how much he liked the guy and almost defended him. Felt very Stockholmish for a reputable journalist but he knows more than me. Will be interesting to see how this case plays out.

 

[FairWarning]

This trial starts tomorrow and is expected to last about a month. There's a podcast from Jacob Weisberg called "Judging Sam" that will be covering the trial. They'll have someone in the courtroom every day throughout the trial. The first episode was released yesterday and had Michael Lewis on talking about what he learned researching his book. Lewis probably knows SBF better than just about anyone out there from the sounds of things so its worthwhile. His book is to be released tomorrow. I'm not very confident I'll enjoy Weisberg's coverage so would appreciate any other recommendations if anyone else is trying to follow this thing.

For me, its unbelievable he did not work a plea, but this first podcast episode with Lewis shines some light on that. Basically, SBF trusts no one (especially not lawyers), listens to no one, always thinks he knows better than the experts on any topic (which has served him well for the most part), and most importantly, he absolutely believes he is innocent and will win.

Will this be on Court TV?

 

[CletiusMaximus]

This trial starts tomorrow and is expected to last about a month. There's a podcast from Jacob Weisberg called "Judging Sam" that will be covering the trial. They'll have someone in the courtroom every day throughout the trial. The first episode was released yesterday and had Michael Lewis on talking about what he learned researching his book. Lewis probably knows SBF better than just about anyone out there from the sounds of things so its worthwhile. His book is to be released tomorrow. I'm not very confident I'll enjoy Weisberg's coverage so would appreciate any other recommendations if anyone else is trying to follow this thing.

For me, its unbelievable he did not work a plea, but this first podcast episode with Lewis shines some light on that. Basically, SBF trusts no one (especially not lawyers), listens to no one, always thinks he knows better than the experts on any topic (which has served him well for the most part), and most importantly, he absolutely believes he is innocent and will win.

Will this be on Court TV?

Can't say. I will probably just read some re-caps and rely on Youtube excerpts as time allows. In the pod I mentioned, Lewis noted that several FTX folks who were close to SBF (as close as anyone could be, which is another story) pretty much immediately turned on him when the #### hit the fan. There were something like 70 company cars taken to the airport and abandoned there with the keys in them as people fled the Bahamas. I'm fascinated to see some of that testimony. There's a guy Gary Wang who was an FTX founder and executive who, according to Lewis, never speaks. He said Wang would just sit in meetings and even when directly addressed would just stare straight ahead. He's another odd duck among some very odd ducks at FTX. There are very few reliable pictures of him. So it might be worth watching when that guy takes the stand.

 

[FairWarning]

This trial starts tomorrow and is expected to last about a month. There's a podcast from Jacob Weisberg called "Judging Sam" that will be covering the trial. They'll have someone in the courtroom every day throughout the trial. The first episode was released yesterday and had Michael Lewis on talking about what he learned researching his book. Lewis probably knows SBF better than just about anyone out there from the sounds of things so its worthwhile. His book is to be released tomorrow. I'm not very confident I'll enjoy Weisberg's coverage so would appreciate any other recommendations if anyone else is trying to follow this thing.

For me, its unbelievable he did not work a plea, but this first podcast episode with Lewis shines some light on that. Basically, SBF trusts no one (especially not lawyers), listens to no one, always thinks he knows better than the experts on any topic (which has served him well for the most part), and most importantly, he absolutely believes he is innocent and will win.

Will this be on Court TV?

Can't say. I will probably just read some re-caps and rely on Youtube excerpts as time allows. In the pod I mentioned, Lewis noted that several FTX folks who were close to SBF (as close as anyone could be, which is another story) pretty much immediately turned on him when the #### hit the fan. There were something like 70 company cars taken to the airport and abandoned there with the keys in them as people fled the Bahamas. I'm fascinated to see some of that testimony. There's a guy Gary Wang who was an FTX founder and executive who, according to Lewis, never speaks. He said Wang would just sit in meetings and even when directly addressed would just stare straight ahead. He's another odd duck among some very odd ducks at FTX. There are very few reliable pictures of him. So it might be worth watching when that guy takes the stand.

How do you think this plays out?

 

[massraider]

Yeah, Lewis was on 60 Minutes this week discussing SBF. I was surprised how much he liked the guy and almost defended him. Felt very Stockholmish for a reputable journalist but he knows more than me.

I'm not surprised.

The media in general has been fondling this guy since day 1. Even in the face of absurd evidence, and the billions of dollars in investors' money stolen, there's still all this jibber jabber about what wonderful plans he had for the money, aka effective altruism.

The guy donated to both political parties, and put his company name on a basketball arena. Sounds like every other CEO DBag I ever heard of, except they didn't steal billions from their customers.

 

[CletiusMaximus]

This trial starts tomorrow and is expected to last about a month. There's a podcast from Jacob Weisberg called "Judging Sam" that will be covering the trial. They'll have someone in the courtroom every day throughout the trial. The first episode was released yesterday and had Michael Lewis on talking about what he learned researching his book. Lewis probably knows SBF better than just about anyone out there from the sounds of things so its worthwhile. His book is to be released tomorrow. I'm not very confident I'll enjoy Weisberg's coverage so would appreciate any other recommendations if anyone else is trying to follow this thing.

For me, its unbelievable he did not work a plea, but this first podcast episode with Lewis shines some light on that. Basically, SBF trusts no one (especially not lawyers), listens to no one, always thinks he knows better than the experts on any topic (which has served him well for the most part), and most importantly, he absolutely believes he is innocent and will win.

Will this be on Court TV?

Can't say. I will probably just read some re-caps and rely on Youtube excerpts as time allows. In the pod I mentioned, Lewis noted that several FTX folks who were close to SBF (as close as anyone could be, which is another story) pretty much immediately turned on him when the #### hit the fan. There were something like 70 company cars taken to the airport and abandoned there with the keys in them as people fled the Bahamas. I'm fascinated to see some of that testimony. There's a guy Gary Wang who was an FTX founder and executive who, according to Lewis, never speaks. He said Wang would just sit in meetings and even when directly addressed would just stare straight ahead. He's another odd duck among some very odd ducks at FTX. There are very few reliable pictures of him. So it might be worth watching when that guy takes the stand.

How do you think this plays out?

I can't say much about it as I've hardly followed the case and don't fully understand the charges. I expect conviction on something only because of the extremely low acquittal rate for federal criminal defendants who go to trial, and the fact that most of his co-executives have plea deals in exchange for their testimony. My guess is that the best chance he has is based on the extremely complex nature of these exchanges. Its not something that will be easy to explain to a jury, and the prosecution has to meet the famously high "beyond a reasonable doubt" standard of proof for conviction. Its possible a good defense lawyer can confuse things and then argue the burden wasn't met.

 

[IvanKaramazov]

I can't say much about it as I've hardly followed the case and don't fully understand the charges. I expect conviction on something only because of the extremely low acquittal rate for federal criminal defendants who go to trial, and the fact that most of his co-executives have plea deals in exchange for their testimony. My guess is that the best chance he has is based on the extremely complex nature of these exchanges. Its not something that will be easy to explain to a jury, and the prosecution has to meet the famously high "beyond a reasonable doubt" standard of proof for conviction. Its possible a good defense lawyer can confuse things and then argue the burden wasn't met.

Everything thing about this case just screams "scam," but I don't understand the legal issues well enough to even explain them beyond "smells like fraud." I am very strongly inclined to see SBF as a psychopath who intentionally took advantage of his station in life to rip off the unwary, but if I'm being honest with myself I have to admit that I am highly predisposed to see it that way because of his social circle, his parents, his connections to the media and our two political parties, and so on. This is very unlikely to happen, but I could see him getting acquitted and learning afterward that these charges never had any real validity to start with.

Looking forward to the resolution if nothing else.

 

[The Z Machine]

Man, I would love to be on that jury.

 

[IvanKaramazov]

Man, I would love to be on that jury.

Yeah you'd be set for life.

 

[JAA]

This trial starts tomorrow and is expected to last about a month. There's a podcast from Jacob Weisberg called "Judging Sam" that will be covering the trial. They'll have someone in the courtroom every day throughout the trial. The first episode was released yesterday and had Michael Lewis on talking about what he learned researching his book. Lewis probably knows SBF better than just about anyone out there from the sounds of things so its worthwhile. His book is to be released tomorrow. I'm not very confident I'll enjoy Weisberg's coverage so would appreciate any other recommendations if anyone else is trying to follow this thing.

For me, its unbelievable he did not work a plea, but this first podcast episode with Lewis shines some light on that. Basically, SBF trusts no one (especially not lawyers), listens to no one, always thinks he knows better than the experts on any topic (which has served him well for the most part), and most importantly, he absolutely believes he is innocent and will win.

Lewis comes across pretty smitten with SBF. Surprising given his background covering fraudsters

Yeah, Lewis was on 60 Minutes this week discussing SBF. I was surprised how much he liked the guy and almost defended him. Felt very Stockholmish for a reputable journalist but he knows more than me. Will be interesting to see how this case plays out.

Folks like SBF and Trump only like people if they are on "their side". I would say Lewis is working to stay on his good side until the movie rights are done.

 

[Major]

This trial starts tomorrow and is expected to last about a month. There's a podcast from Jacob Weisberg called "Judging Sam" that will be covering the trial. They'll have someone in the courtroom every day throughout the trial. The first episode was released yesterday and had Michael Lewis on talking about what he learned researching his book. Lewis probably knows SBF better than just about anyone out there from the sounds of things so its worthwhile. His book is to be released tomorrow. I'm not very confident I'll enjoy Weisberg's coverage so would appreciate any other recommendations if anyone else is trying to follow this thing.

For me, its unbelievable he did not work a plea, but this first podcast episode with Lewis shines some light on that. Basically, SBF trusts no one (especially not lawyers), listens to no one, always thinks he knows better than the experts on any topic (which has served him well for the most part), and most importantly, he absolutely believes he is innocent and will win.

Lewis comes across pretty smitten with SBF. Surprising given his background covering fraudsters

Yeah, Lewis was on 60 Minutes this week discussing SBF. I was surprised how much he liked the guy and almost defended him. Felt very Stockholmish for a reputable journalist but he knows more than me. Will be interesting to see how this case plays out.

Folks like SBF and Trump only like people if they are on "their side". I would say Lewis is working to stay on his good side until the movie rights are done.

Good point. Didn't think about the movie motivation.

 

[massraider]

I can't say much about it as I've hardly followed the case and don't fully understand the charges.

A real important thing to remember: No one is even denying the charges. His defense is going to hinge on what he was aware of.

Their internal code, which allows people to only leverage a certain amount, based on their deposits, was TURNED OFF for Alameda Research, the trading firm that he owned as well.

 

[massraider]

This is from Matt Levine with Bloomberg.

The essential charges against Sam Bankman-Fried are:

• Customers deposited billions of dollars at his crypto exchange, FTX, to buy crypto.
• Bankman-Fried’s trading firm, Alameda Research, secretly took that money to gamble on crypto tokens and make weird illiquid venture investments.
• Also a lot of the money seems to have been siphoned off to make political donations, buy celebrity endorsements, pay for Bahamas real estate for Bankman-Fried and his family, etc.
• When customers started asking for their money back last November, it wasn’t there.

This is bad! The basic combination of “the customers’ money is gone” and “you lived in a $30 million penthouse” is really killer. That’s the most basic outline of a financial fraud: The customers don’t have the money anymore, and you do.

But Bankman-Fried is going to trial tomorrow, and here’s Michael Lewis on 60 Minutes being asked “do you think he knowingly stole customers’ money” and answering “put that way, no.” So I suppose there will be a defense.

What is the defense? I think the defense is roughly: “The crypto market crashed, there was a run on the bank, and the run on the bank is what evaporated the customers’ money. It was an accident, perhaps a careless accident, but not theft.”[1] This is a very hard defense to pull off!

The first thing that is hard about it is that it is not at all intuitive that a “run on the bank” should be possible at a crypto exchange like FTX. The intuitive way for a crypto exchange to work is:

1. I deposit $100.
2. I buy $100 of Bitcoin on the exchange.
3. The exchange has $100 of Bitcoin earmarked for me.
4. When I go to withdraw my $100 of Bitcoin, if it’s not there, that means someone stole it.

FTX mostly did not work this way. It was a futures exchange. The way it worked was more like:

1. I deposit $100.
2. I use that to make a bet on $1,000 of Bitcoin.
3. The exchange has my $100 of collateral, but the $1,000 of Bitcoin isn’t there; there’s just a bet between me and another customer.
4. If Bitcoin goes up 20%, that $1,000 of Bitcoin is now worth $1,200, and my $100 bet is now worth $300.
5. Similarly the other guy, the person who bet against me, put up $100 of collateral to bet against $1,000 of Bitcoin; now Bitcoin has gone up and his $100 bet is worth negative $100.
6. When I go to withdraw the $300, if it’s not there, that means that the person on the losing side of the bet didn’t pay up — or that the people on the losing side of some other bet on the exchange didn’t pay up, leaving the exchange without enough money to pay me.

The exchange sits between winners and losers of bets, and it can’t pay out what it owes to customers unless the customers who owe it money pay up. Ordinarily the customers post collateral, the exchange risk-manages the positions, etc., so there’s no problem, but in a sudden dramatic market move it is possible for the exchange not to have enough money. This really does happen in legitimate regulated exchanges; it kind of almost happened on the London Metal Exchange last year.

But nobody believes this; this is already vastly more complicated than a jury is going to want to hear. Intuitively, if you take customer cash, you ought to have the cash, and if you don’t that looks fishy. (It does not help that FTX customers with only cash accounts, including those on FTX.US that were really supposed to be all-cash and segregated, are also trapped in bankruptcy.)

 

[massraider]

Even once you have convinced a jury that a run on the bank is possible, this defense runs into lots of problems. I want to mention three, though it should not be hard to think of more.

One: It is just not the case that some moves in crypto prices wiped out a bunch of FTX customers, leaving them owing FTX and leaving FTX unable to pay off its other customers. Some moves in crypto prices wiped out one FTX customer: Alameda. It turned out that Alameda had massive amounts of under- or uncollateralized debt to FTX: When the customer money wasn’t there, it was pretty much entirely because Alameda had lost it.

That right there is suspicious: If the basic economic structure of the exchange was that it owed all of its customers money, except that its biggest customer, a trading firm owned by the exchange’s chief executive officer, owed it money, then that’s bad. Structurally that is just “we take money from customers and use it for our own gambling.”

But also every detail of how that worked is really bad. Alameda owed FTX a bunch of money, but nobody else did — nobody else got wiped out by huge price moves leaving it in an uncollateralized negative position to FTX — because FTX did have reasonable risk management systems. If you ran some unaffiliated hedge fund and you wanted to put up $20 of your own money and borrow $1 billion from FTX to buy some illiquid volatile speculative crypto token, FTX’s computers would say “absolutely not.” This was a point of pride at FTX, a thing that they advertised, a thing that they touted to regulators and Congress and that Bankman-Fried tweeted about.

But Alameda was allowed to do that: There were settings in FTX’s code that allowed Alameda to have an infinite negative balance, to borrow freely with no collateral. And Alameda drew on this during last year’s crypto market crash, as it was having a hard time borrowing elsewhere. A key part of the trial will be about whether Bankman-Fried authorized this. “Bankman-Fried was adamant,” in talking to Sheelah Kolhatkar at the New Yorker, “that prosecutors would not be able to produce any documents showing him authorizing the unlimited borrowing, because, he says, there are none.” But basically everyone else who worked at FTX will probably testify that he did. This is very self-interested testimony: The deal prosecutors offered them is implicitly something close to “if you say Bankman-Fried did it, you can probably avoid prison, and if you don’t we will probably send you to prison forever.” Still it doesn’t help him, and the prosecutors seem to have recordings of his colleagues saying that before the government stepped in.

Two: It is not just that Alameda made a bunch of bets on cryptocurrency trades that all happened to move against it at once. Alameda did not get blown up by, like, a cross-border Bitcoin arbitrage gone wrong, or even really by the Terra/Luna collapse that brought down so many other crypto firms.[2] Alameda’s troubles, at the end, were really that it owed billions of dollars to FTX (and its customers), and its assets consisted largely of weird illiquid FTX-affiliated stuff. FTT tokens, and SRM tokens, and MAPS and the rest: “Samcoins” that Bankman-Fried had invented, that were mostly owned by Alameda, and that represented mostly bets on his own ventures. Customers came to FTX to bet on Bitcoin and Ethereum and all sorts of other unaffiliated cryptocurrencies, and then Alameda took their money and chucked it all into bets on FTX’s own in-house cryptocurrencies.

There is something disturbingly Ponzi-ish about taking real customer money — dollars that customers gave you to bet on, sure, crypto, but at least crypto that you don’t control — and using it to prop up the prices of crypto tokens that you do control. It is the box. It is the idea — which Bankman-Fried once expressed to me on a podcast — that you can just make up a cryptocurrency, ascribe to it some arbitrary market value, and then borrow millions of dollars against its fake market value.

Three: The facts are still unclear, and my assumption is that the vast majority of the $8 billion-ish of missing customer money went to Alameda, which lost it on dumb crypto bets.[3] But not all of it! Lewis says on 60 Minutes that Tom Brady got paid $55 million for endorsing FTX, and he was one of many highly paid celebrity endorsers. There were many millions of dollars spent on political donations and effective altruism stuff and Bahamas real estate and the profligate operations of FTX.

 

[massraider]

You could imagine some sort of accounting in which all of those expenses were rigorously paid for out of FTX’s operating income (from fees it legitimately charged customers for trading, and that they paid in cash), while the $8 billion was lost entirely due to unfortunate mistakes in Alameda’s leverage. But there’s no suggestion that any accounting like that exists, and everyone agrees that FTX’s actual accounting was cartoonishly bad. (“For example, employees of the FTX Group submitted payment requests through an on-line ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis,” complained its post-bankruptcy CEO.) This makes it impossible to argue that all of these expenses were paid for out of operating income rather than customer money.

Instead what it looks like is that FTX and Alameda had a sort of undifferentiated pot of money, awarded themselves enormous accounting income, and then were untroubled about spending tens of millions of dollars on random stuff because they figured there was so much more where that came from. Bankman-Fried’s defense has to be something like “when I looked at our financial position as I understood it, I figured we had gajillions of dollars more money than we owed to customers, so I figured there was nothing wrong with spending a few hundred million dollars on marketing and employee perks.”

And, you know, maybe. FTX does seem to have made a lot of money in actual fees.[4] For a while Alameda had, on paper, a giant balance sheet with a lot of equity. Schematically, at the peak, FTX/Alameda might have had a pile of tokens with a market value — the last sale price of one token, times the number of tokens FTX/Alameda held — of $100 billion, while it owed customers $30 billion of real or real-ish money (dollars, Bitcoins, Ether, etc.).[5] Bankman-Fried could have looked at those numbers and thought “meh, $100 billion is way more than $30 billion, we’re rich, we can afford Tom Brady.”

But that $100 billion was fake, in the sense that FTX/Alameda could not have gotten (and did not get) anything like $100 billion for those tokens, while the $30 billion was real, in the sense that the US government is trying to put Bankman-Fried in prison because the customers did not get their money back in full.

One problem with this defense, and with the “run on the bank” defense generally, is that it requires a lot of optimism about crypto. It requires you to believe that Bankman-Fried looked at Alameda’s huge stash of crypto — a huge stash made up in part of crypto tokens that Bankman-Fried had invented, whose trading he and Alameda largely controlled, whose market values were based largely on confidence in him — and said “ah yes, this is real money, I can go ahead and spend this and still have plenty of real money to pay back my customers’ dollars and Bitcoin and stuff.”

I mean, here's a math problem:

• You have $100 billion of weird crypto tokens.
• You owe people $30 billion of real money.
• How much money do you have available to spend?

My answer would be “eep, nothing, I gotta pay back that $30 billion as soon as possible before it all collapses and I go to prison.” But that’s me! There are plenty of people in crypto who would say — or, at least, who would have said in 2022 — “ah great I have $70 billion, crypto is the future, $100 billion of random crypto is worth at least as much as $100 billion of debased fiat currency.”

It’s just that Bankman-Fried never seemed to be one of them. I wrote once about my impression of him after the “box” podcast:

My view was, and is, that if you talk to a crypto exchange operator and he is like “crypto is changing the world, your old-fashioned economics are just FUD, HODL,” then that’s bad. A wild-eyed crypto true believer is not the person to operate an exchange. The person you want operating an exchange is a clear-eyed trader. You want someone whose basic attitude to financial assets is, like, “if someone wants to buy and someone wants to sell, I will put them together and collect a fee.” You want someone whose perspective is driven by markets, not ideology, who cares about risk, not futurism. A certain cynicism about the products he is trading is probably healthy.

Well. It would have been! If you were skeptical about the value of your giant stash of crypto, you wouldn’t borrow customer money against it, and you wouldn’t keep spending real money on endorsements and donations. You’d only do that if (1) you were naively optimistic about the value of your crypto or (2) you were extremely cynical, and stealing it.

The defense is that Bankman-Fried was incredibly naive. It not only requires you to believe that his lieutenants were stealing all the customer money without him noticing, that he made a series of innocent risk management mistakes while everyone else was building nefarious backdoors. It also requires you to believe that he believed in his stash of crypto, that he thought his vast imaginary wealth was real and his to spend. Obviously it turned out not to be.

 

[CletiusMaximus]

This trial starts tomorrow and is expected to last about a month. There's a podcast from Jacob Weisberg called "Judging Sam" that will be covering the trial. They'll have someone in the courtroom every day throughout the trial. The first episode was released yesterday and had Michael Lewis on talking about what he learned researching his book. Lewis probably knows SBF better than just about anyone out there from the sounds of things so its worthwhile. His book is to be released tomorrow. I'm not very confident I'll enjoy Weisberg's coverage so would appreciate any other recommendations if anyone else is trying to follow this thing.

For me, its unbelievable he did not work a plea, but this first podcast episode with Lewis shines some light on that. Basically, SBF trusts no one (especially not lawyers), listens to no one, always thinks he knows better than the experts on any topic (which has served him well for the most part), and most importantly, he absolutely believes he is innocent and will win.

Lewis comes across pretty smitten with SBF. Surprising given his background covering fraudsters

Yeah, Lewis was on 60 Minutes this week discussing SBF. I was surprised how much he liked the guy and almost defended him. Felt very Stockholmish for a reputable journalist but he knows more than me. Will be interesting to see how this case plays out.

Folks like SBF and Trump only like people if they are on "their side". I would say Lewis is working to stay on his good side until the movie rights are done.

The book is already published though - it comes out tomorrow. I'm not sure about this of course, but I doubt anyone reading the book is going to come away thinking he's innocent. One thing though is that Lewis emphasized that this guy had no friends at all in the world. He couldn't find anyone who could speak to his childhood - birth to eighteen. He grew up completely isolated and there was no one - not a teacher, neighbor, sibling, or friend Lewis found who had any insight into what kind of person he was growing up. He's an extremely weird dude, which might work in his favor.

 

[CletiusMaximus]

I can't say much about it as I've hardly followed the case and don't fully understand the charges. I expect conviction on something only because of the extremely low acquittal rate for federal criminal defendants who go to trial, and the fact that most of his co-executives have plea deals in exchange for their testimony. My guess is that the best chance he has is based on the extremely complex nature of these exchanges. Its not something that will be easy to explain to a jury, and the prosecution has to meet the famously high "beyond a reasonable doubt" standard of proof for conviction. Its possible a good defense lawyer can confuse things and then argue the burden wasn't met.

Everything thing about this case just screams "scam," but I don't understand the legal issues well enough to even explain them beyond "smells like fraud." I am very strongly inclined to see SBF as a psychopath who intentionally took advantage of his station in life to rip off the unwary, but if I'm being honest with myself I have to admit that I am highly predisposed to see it that way because of his social circle, his parents, his connections to the media and our two political parties, and so on. This is very unlikely to happen, but I could see him getting acquitted and learning afterward that these charges never had any real validity to start with.

Looking forward to the resolution if nothing else.

For most or all of us, all we need to know is that people who gave him their money lost billions while he and his friends were driving Lambos around the Bahamas. Based on that alone, we all say "guilty as charged, case closed." But a prosecutor has to tell a better story than that. Maybe it gives him a sliver of hope at trial.

 

[CletiusMaximus]

Man, I would love to be on that jury.

It could be a fun month for court watchers in Manhattan, and that's all I'm going to say about that.

 

[FairWarning]

I can't say much about it as I've hardly followed the case and don't fully understand the charges. I expect conviction on something only because of the extremely low acquittal rate for federal criminal defendants who go to trial, and the fact that most of his co-executives have plea deals in exchange for their testimony. My guess is that the best chance he has is based on the extremely complex nature of these exchanges. Its not something that will be easy to explain to a jury, and the prosecution has to meet the famously high "beyond a reasonable doubt" standard of proof for conviction. Its possible a good defense lawyer can confuse things and then argue the burden wasn't met.

Everything thing about this case just screams "scam," but I don't understand the legal issues well enough to even explain them beyond "smells like fraud." I am very strongly inclined to see SBF as a psychopath who intentionally took advantage of his station in life to rip off the unwary, but if I'm being honest with myself I have to admit that I am highly predisposed to see it that way because of his social circle, his parents, his connections to the media and our two political parties, and so on. This is very unlikely to happen, but I could see him getting acquitted and learning afterward that these charges never had any real validity to start with.

Looking forward to the resolution if nothing else.

For most or all of us, all we need to know is that people who gave him their money lost billions while he and his friends were driving Lambos around the Bahamas. Based on that alone, we all say "guilty as charged, case closed." But a prosecutor has to tell a better story than that. Maybe it gives him a sliver of hope at trial.

the people who turned on him, that should be some interesting testimony.

 

[The Z Machine]

Being weird and believing your own ******** is not a defense against massively defrauding your clients and spending their money on your own personal rich and famous lifestyle.

He was a confidence man. He sold confidence in his made up "money" and then thought his creation could only grow in value so he kept betting on it. He was wrong and that is illegal.

 

[Dezbelief]

Man, I would love to be on that jury.

It could be a fun month for court watchers in Manhattan, and that's all I'm going to say about that.

Judge to Foreman
You are still deadlocked in the punishment phase?

Yes your honor, two jurors are holding out for the death penalty.

They are aware the death penalty is NOT on the table?

Yes your honor.

 

[massraider]

Being weird and believing your own ******** is not a defense against massively defrauding your clients and spending their money on your own personal rich and famous lifestyle.

He was a confidence man. He sold confidence in his made up "money" and then thought his creation could only grow in value so he kept betting on it. He was wrong and that is illegal.

Yeah.
They presented themselves as an exchange for crypto, but they just took all the money, and either spent it or wagered it away.

That simple

 

[Encyclopedia Brown]

Sounds like every other CEO DBag I ever heard of, except they didn't steal billions from their customers

Can his behavior since the indictment be used against him?

He is incarcerated because he could not follow basic restrictions: no internet except for communication with lawyers and research. And no contact with witnesses.

He immediately and egregiously violated both edicts. I have read that it is preferred for high-profile non-violent defendants to remain free because it causes such logistical and impractical problems for the prison facility to get them in and out every day--a tremendous amount of manpower and security precautions that blow a huge hole in the budget that is already straining.

Bankman-Fried left the judge no choice but to haul him back in.

If the prosecution can use that, I would hammer it home as much as possible.

 

[Encyclopedia Brown]

Yeah, Lewis was on 60 Minutes this week discussing SBF. I was surprised how much he liked the guy and almost defended him. Felt very Stockholmish for a reputable journalist but he knows more than me

The NYT gives a bad review to the book: https://www.nytimes.com/2023/10/02/...-michael-lewis.html?smid=tw-nytimes&smtyp=cur

“Lewis, who traveled back and forth from the Bahamas, where Bankman-Fried was based, had, in the months leading up to the disaster, a front-row seat — from which he could apparently see nothing."

 

[FreeBaGeL]

This is from Matt Levine with Bloomberg.

The essential charges against Sam Bankman-Fried are:

• Customers deposited billions of dollars at his crypto exchange, FTX, to buy crypto.
• Bankman-Fried’s trading firm, Alameda Research, secretly took that money to gamble on crypto tokens and make weird illiquid venture investments.
• Also a lot of the money seems to have been siphoned off to make political donations, buy celebrity endorsements, pay for Bahamas real estate for Bankman-Fried and his family, etc.
• When customers started asking for their money back last November, it wasn’t there.

This is bad! The basic combination of “the customers’ money is gone” and “you lived in a $30 million penthouse” is really killer. That’s the most basic outline of a financial fraud: The customers don’t have the money anymore, and you do.

But Bankman-Fried is going to trial tomorrow, and here’s Michael Lewis on 60 Minutes being asked “do you think he knowingly stole customers’ money” and answering “put that way, no.” So I suppose there will be a defense.

What is the defense? I think the defense is roughly: “The crypto market crashed, there was a run on the bank, and the run on the bank is what evaporated the customers’ money. It was an accident, perhaps a careless accident, but not theft.”[1] This is a very hard defense to pull off!

The first thing that is hard about it is that it is not at all intuitive that a “run on the bank” should be possible at a crypto exchange like FTX. The intuitive way for a crypto exchange to work is:

1. I deposit $100.
2. I buy $100 of Bitcoin on the exchange.
3. The exchange has $100 of Bitcoin earmarked for me.
4. When I go to withdraw my $100 of Bitcoin, if it’s not there, that means someone stole it.

FTX mostly did not work this way. It was a futures exchange. The way it worked was more like:

1. I deposit $100.
2. I use that to make a bet on $1,000 of Bitcoin.
3. The exchange has my $100 of collateral, but the $1,000 of Bitcoin isn’t there; there’s just a bet between me and another customer.
4. If Bitcoin goes up 20%, that $1,000 of Bitcoin is now worth $1,200, and my $100 bet is now worth $300.
5. Similarly the other guy, the person who bet against me, put up $100 of collateral to bet against $1,000 of Bitcoin; now Bitcoin has gone up and his $100 bet is worth negative $100.
6. When I go to withdraw the $300, if it’s not there, that means that the person on the losing side of the bet didn’t pay up — or that the people on the losing side of some other bet on the exchange didn’t pay up, leaving the exchange without enough money to pay me.

The exchange sits between winners and losers of bets, and it can’t pay out what it owes to customers unless the customers who owe it money pay up. Ordinarily the customers post collateral, the exchange risk-manages the positions, etc., so there’s no problem, but in a sudden dramatic market move it is possible for the exchange not to have enough money. This really does happen in legitimate regulated exchanges; it kind of almost happened on the London Metal Exchange last year.

But nobody believes this; this is already vastly more complicated than a jury is going to want to hear. Intuitively, if you take customer cash, you ought to have the cash, and if you don’t that looks fishy. (It does not help that FTX customers with only cash accounts, including those on FTX.US that were really supposed to be all-cash and segregated, are also trapped in bankruptcy.)

Not sure I follow how this part of it is necessarily illegal. Obviously there was some serious fraud going on here with Alameda and personal use of the funds and whanot, but in terms of having $100 on hand if you deposit $100, wasn't FTX essentially operating as a crypto bank?

If I give $100 to Chase, they take that $100 and invest it in something that they think will earn them more yield than they pay back to me in interest. If that investment turns south or becomes illiquid, they wouldn't necessarily have my $100 to pay back to me if I was their only customer and wanted to withdraw it. That's why FDIC insurance exists. Because they don't necessarily have enough cash on hand to cover all withdrawals if everyone suddenly decided they wanted to withdraw their money at once.

And isn't that essentially what happened with SVB? A lot of their money was locked up in treasuries that they couldn't liquidate without taking a loss, so when everyone got spooked and started withdrawing, they didn't actually have enough cash readily available to pay everyone out.

Or was the issue just that FTX wasn't forthright that they were doing this? I think I do recall that they mentioned (lied) that they had enough of each crypto to cover all withdrawals. But I'm not sure how people thought that was possible. They were paying 8% yield on Bitcoin. It seems obvious they could only offer that if they thought they would make more on that Bitcoin than the 8% they're paying back.