I’ve been trying to push against the tendency for everyone to talk about FTX drama lately, but I have some generalizable points on the topic which I haven’t seen anybody else make, so here they are. (Be warned that I may just ignore responses, I don’t really want to dump energy into FTC drama.)
Summary: based on having worked in startups a fair bit, Sam Bankman-Fried’s description of what happened sounds probably accurate; I think he mostly wasn’t lying. I think other people do not really get the extent to which fast-growing companies are hectic and chaotic and full of sketchy quick-and-dirty workarounds and nobody has a comprehensive view of what’s going on.
Long version: at this point, the assumption/consensus among most people I hear from seems to be that FTX committed intentional, outright fraud. And my current best guess is that that’s mostly false. (Maybe in the very last couple weeks before the collapse they toed the line into outright lies as a desperation measure, but even then I think they were in pretty grey territory.)
Key pieces of the story as I currently understand it:
Moving money into/out of crypto exchanges is a pain. At some point a quick-and-dirty solution was for customers to send money to Alameda (Sam Bankman-Fried’s crypto hedge fund), and then Alameda would credit them somehow on FTX.
Customers did rather a lot of that. Like, $8B worth.
The FTX/Alameda team weren’t paying attention to those particular liabilities; they got lost in the shuffle.
At some point in the weeks before the collapse, when FTX was already under moderate financial strain, somebody noticed the $8B liability sitting around. And that took them from “moderate strain” to “implode”.
How this contrasts with what seems-to-me to be the “standard story”: most people seem to assume that it is just totally implausible to accidentally lose track of an $8B liability. Especially when the liability was already generated via the decidedly questionable practice of routing customer funds for the exchange through a hedge fund owned by the same people. And therefore it must have been intentional—in particular, most people seem to think the liability was intentionally hidden.
I think the main reason I disagree with others on this is that I’ve worked at a startup. About 5 startups, in fact, over the course of about 5 years.
The story where there was a quick-and-dirty solution (which was definitely sketchy but not ill-intentioned), and then stuff got lost in the shuffle, and then one day it turns out that there’s a giant unanticipated liability on the balance sheet… that’s exactly how things go, all the time. I personally was at a startup which had to undergo a firesale because the accounting overlooked something. And I’ve certainly done plenty of sketchy-but-not-ill-intentioned things at startups, as quick-and-dirty solutions. The story that SBF told about what happened sounds like exactly the sort of things I’ve seen happen at startups many times before.
I think this is likely wrong. I agree that there is a plausible story here, but given the case that Sam seems to have lied multiple times in confirmed contexts (for example when saying that FTX has never touched customer deposits), and people’s experiences at early Alameda, I think it is pretty likely that Sam was lying quite frequently, and had done various smaller instances of fraud.
I don’t think the whole FTX thing was a ponzi scheme, and as far as I can tell FTX the platform itself (if it hadn’t burned all of its trust in the last 3 weeks), would have been worth $1-3B in an honest evaluation of what was going on.
But I also expect that when Sam used customer deposits he was well-aware that he was committing fraud, and others in the company were too. And he was also aware that there was a chance that things could blow up in the way it did. I do believe that they had fucked up their accounting in a way that caused Sam to fail to orient to the situation effectively, but all of this was many months after they had already committed major crimes and trust violations after touching customer funds as a custodian.
The problem with this explanation is that there is a very clear delineation here between not-fraud and fraud. It is the difference between not touching customer deposits and touching them. Your explanation doesn’t dispute that they were knowingly and intentionally touching customer deposits. In that case, it is indisputably intentional, outright fraud. The only thing left to discuss is whether they knew the extent of the fraud or how risky it was.
I don’t think it was ill-intentioned based on SBF’s moral compass. He just had the belief, “I will pass a small amount of risk onto our customers, tell some small lies, and this will allow us to make more money for charity. This is net positive for the world.” Then the risks mounted, the web of lies became more complicated to navigate, and it just snowballed from there.
I’ve been trying to push against the tendency for everyone to talk about FTX drama lately, but I have some generalizable points on the topic which I haven’t seen anybody else make, so here they are. (Be warned that I may just ignore responses, I don’t really want to dump energy into FTC drama.)
Summary: based on having worked in startups a fair bit, Sam Bankman-Fried’s description of what happened sounds probably accurate; I think he mostly wasn’t lying. I think other people do not really get the extent to which fast-growing companies are hectic and chaotic and full of sketchy quick-and-dirty workarounds and nobody has a comprehensive view of what’s going on.
Long version: at this point, the assumption/consensus among most people I hear from seems to be that FTX committed intentional, outright fraud. And my current best guess is that that’s mostly false. (Maybe in the very last couple weeks before the collapse they toed the line into outright lies as a desperation measure, but even then I think they were in pretty grey territory.)
Key pieces of the story as I currently understand it:
Moving money into/out of crypto exchanges is a pain. At some point a quick-and-dirty solution was for customers to send money to Alameda (Sam Bankman-Fried’s crypto hedge fund), and then Alameda would credit them somehow on FTX.
Customers did rather a lot of that. Like, $8B worth.
The FTX/Alameda team weren’t paying attention to those particular liabilities; they got lost in the shuffle.
At some point in the weeks before the collapse, when FTX was already under moderate financial strain, somebody noticed the $8B liability sitting around. And that took them from “moderate strain” to “implode”.
How this contrasts with what seems-to-me to be the “standard story”: most people seem to assume that it is just totally implausible to accidentally lose track of an $8B liability. Especially when the liability was already generated via the decidedly questionable practice of routing customer funds for the exchange through a hedge fund owned by the same people. And therefore it must have been intentional—in particular, most people seem to think the liability was intentionally hidden.
I think the main reason I disagree with others on this is that I’ve worked at a startup. About 5 startups, in fact, over the course of about 5 years.
The story where there was a quick-and-dirty solution (which was definitely sketchy but not ill-intentioned), and then stuff got lost in the shuffle, and then one day it turns out that there’s a giant unanticipated liability on the balance sheet… that’s exactly how things go, all the time. I personally was at a startup which had to undergo a firesale because the accounting overlooked something. And I’ve certainly done plenty of sketchy-but-not-ill-intentioned things at startups, as quick-and-dirty solutions. The story that SBF told about what happened sounds like exactly the sort of things I’ve seen happen at startups many times before.
I think this is likely wrong. I agree that there is a plausible story here, but given the case that Sam seems to have lied multiple times in confirmed contexts (for example when saying that FTX has never touched customer deposits), and people’s experiences at early Alameda, I think it is pretty likely that Sam was lying quite frequently, and had done various smaller instances of fraud.
I don’t think the whole FTX thing was a ponzi scheme, and as far as I can tell FTX the platform itself (if it hadn’t burned all of its trust in the last 3 weeks), would have been worth $1-3B in an honest evaluation of what was going on.
But I also expect that when Sam used customer deposits he was well-aware that he was committing fraud, and others in the company were too. And he was also aware that there was a chance that things could blow up in the way it did. I do believe that they had fucked up their accounting in a way that caused Sam to fail to orient to the situation effectively, but all of this was many months after they had already committed major crimes and trust violations after touching customer funds as a custodian.
The problem with this explanation is that there is a very clear delineation here between not-fraud and fraud. It is the difference between not touching customer deposits and touching them. Your explanation doesn’t dispute that they were knowingly and intentionally touching customer deposits. In that case, it is indisputably intentional, outright fraud. The only thing left to discuss is whether they knew the extent of the fraud or how risky it was.
I don’t think it was ill-intentioned based on SBF’s moral compass. He just had the belief, “I will pass a small amount of risk onto our customers, tell some small lies, and this will allow us to make more money for charity. This is net positive for the world.” Then the risks mounted, the web of lies became more complicated to navigate, and it just snowballed from there.