It's interesting to see this play out because much of it was predictable. Personally, I was amused at the people complaining that the SBF case was taking too long. If however you know something about how Federal prosecutions work, you'd know (and I made many comments about this) that the case was moving incredibly quickly.
As soon as SBF was indicted, it confirmed that the Feds had 1 or more cooperating witnesses and many correctly theorized Caroline Ellison was one of them. The other is less well-known but this basically maps out the prosecution's case. Ellison will testify to SBF's knowledge of the scheme. The other will testify to SBF instructing him to build the backdoor. Case closed.
This is an open and shut case. SBF getting out on bail was a surprise and it shows the double standard to how the US uses its civil asset forfeiture power. Specifically, that doesn't seem to be used against SBF, his parents and his associates in a way that it has with far less wealthy people. I want people to realize that. For the record, I consider civil asset forfeiture to be unconstitutional and a travesty of justice but it is the law of the land.
I'm going to be really interested to see what kind of deal the Feds cut for two witnesses. Could it be as light as no jail time? I have doubts but it's not impossible. It'll probably be a much lighter sentence, probably less than 10 years, maybe less than 5.
Importantly, clawbacks went way back in time. If you put $5 million in in 2000 and pulled $10 million out in 2002 then you had FBI agents at your door in 2010.
There’s going to be a lot of Lamborghinis on the used market, and plenty of vacancies in Miami condo towers soon.
Conveniently the entire part where SBF had an ex-CFTC commissioner lobby the SEC and CFTC to get pro-FTX bill passed in the US is not looked at: who cares about regulatory capture through corrupted officials right? (I mean: a few senator say this should be looked upon but so far it's not the case)
And the whole "FTX's top lawyer happens to be an ex-colleague of Bitfinex's top lawyer: they both worked in an online poker scam that defrauded players" is not looked at either.
Instead we go for: "SBF ordered Wang to put a backdoor in FTX so that Alameda's losses could be hidden" and case closed.
Strange (re: The Guardian, not HN). By today's 24-hour news cycle standard, this is arguably "old news". These documents have been available for at least 24h. I know because I submitted them to HN yesterday.
EDIT: Also, I submitted the SBF Appearance Bond and Bail Disposition since there have been a number of stories I have seen today struggling to understand SBF's $250M bond. As the documents show, the parents are paying the bond with the equity in their Palo Alto home next to Stanford valued as "$4M". Payment is not due until Jan 12, 2023. Meawhile SBF is released to home detention. There are also two other unnamed individuals who are listed as FRP besides SBF's parents. As one can see on the form, one is a family member and the other is not. Who is this other person helping to bail out SBF.
Not particularly strange. There are whole web pages devoted to the "right time of day" to submit something to this site to catch the most early up votes.
I heard rumours that the current time of day is a very important input feature for various content recommendation engines (things like those deciding which videos to show on youtube's front page).
She’s the queen of wallstreetbets. I think she’ll hold the yolo record for a long time.
I wish we knew what the fateful market play was that sunk her ship. She mentioned she’s not a fan of stop losses, so I wonder if she went to bed with an open market position and woke up to negative three billion. Also I wonder if the entity on the other side of that trade realized they were making someone insolvent.
It’ll be interesting to see how long she’s sentenced for.
EDIT: Actually, is it possible to see who profited from her trading activity? FTX is in the hands of authorities now, and all the trading took place on it. I wonder if they could claw back some of those lost billions.
I think you are assuming way too much here. She's not the queen of anything, she's a fraudster that will spend a long time in jail and that has probably much less understanding of the mechanisms involved than you give her credit for. If she did she wouldn't be in the position she's in. The last thing we really need is for people to start lionizing her.
She certainly earned her sentence, and I have no sympathy for her. But isn’t it hard not to be at least a little impressed with the sheer scale of her losses? Getting in the record books for “most money lost by a single individual” is a hard thing to do in general.
I think Elon threw his hat in the ring for "most wealth lost by and individual in a single year." And I agree, it is a really tough game to play. And now the table stakes are basically unreachable by most.
If “Money lost” means stock valuation decline or overpaying for another company, that he may be able to salvage. And not yolo on meme stonks and realize all the losses.
Only when someone figures out what the fair price actually is. Which depends of course on who is doing the accounting and when/if mark to market actually happens (which doesn’t necessarily need to, for most entities).
Well to be fair the Alameda fiasco had them over valuing FTT tokens (which is kind of like over paying for a stock right?) I mean she didn't "lose" money, the assets that she collateralized her loans with became worthless so she couldn't repay them. But I think that gets way into accounting arcana which Matt Levine does a much better job of explaining than I ever could!
Actually I was wrong, it was 70 billion, and it was 22 years ago:
As of December 2022, Son ranks 67th on the Forbes list of The World's Billionaires 2022,[10] despite having the distinction of losing the most money in history (approximately $70bn during the dot com crash of 2000).[11]
In general I have a lot of sympathy for scam victims. But not for anybody in cryptocurrencies, not lately. The slightest of due diligence would have turned up the enormous set of concerns. They had every opportunity to know that there were risks; they just chose to ignore them. I would feel worse for somebody who bought magic beans than a person who "invested" in cryptocurrency in the last few years.
Crypto is difficult to use, so if you used it to lose all that money, it's not that you didn't have the ability to know better, it's that you didn't want to know better (because of your greed.)
if you go investing in new unregulated chaotic markets without doing due diligence to at least research what your investing in you are at least somewhat culpable for your own losses. Don't invest in thing you don't understand.
This is a weak argument. I believe most knew of the potential downside, they just chose to ignore it. And if they have that little understanding of finance, that's what a savings account is for.
They were going to lose their money either way. The funny bit isn't people who were taken advantage of, but that the one taking the advantage actually sees some negative consequences of it.
I can agree with that, the unfortunate bit is that a couple of others (even the one I was replying to before you replied) have responded to my post actually laughing at the victims.
Which victims, the account holders or investors? I think we can all agree that idiot investors like SoftBank and Sequoia Capital deserve a little laughter.
Well, if you're going to roll the dice with an unregulated securities market because you want massive profits, it helps to have a sense of humour about it.
The issue is that culture has developed into idolizing people just for getting rich. So naturally everyone aspires to this. Moreover lots of these people talk about it like its easy with just a little "financial knowledge" while in fact many just got lucky on some high risk bets (and often enough were already well off enough so they did not need to worry about the losses). Therefore people fall for Nigerian Prince schemes or FTX or many other schemes, they are essentially greedy and want to be one of the ones who make it rich without any real contribution. I'm not sure if one needs to feel sorry for the people loosing something, however I definitely think the current culture of idolizing money is toxic.
I've been trying to find an account of anyone who had a large portion of their wealth in FTX and not just some highly speculative investment they could afford to lose. Was anyone actually trusting these people with their life savings?
There are plenty of people who treated FTX as a high savings yield account and just kept it there.
Most don't want to talk about it now since it's embarrassing but look at the trading firms with writes down of 50% or more.
For small timers, they are just under reported like with Luna, there are probably a fair amount of suicides, but govts don't reveal details to avoid emotional group contagion
You’re reading this wrong. They love her because she didn’t have the credentials to do what she was doing and seemingly didn't le care. Honestly, all power to her for taking billions of dollars from investors that didn’t do basic due diligence because they were too greedy. You tell me where the deception/idiocy is happening: The most prestigious VCs going around talking about ‘vision’ in flip-flops sipping on kambuchas giving her the money and losing it, or the 20 year old with 1 year of experience taking that money and trading without stop orders because it’s so yesterday?
“Queen of wallstreetbets” is (presumably) not a compliment, it’s a reference to the idiots on the subreddit of that name, notorious for their irrational support of companies like Gamestop, and completely disconnected from any actual understanding of market behavior.
disconnected from any actual understanding of market behavior
Kind of assumes markets yield truth when left alone. It's equally true that a small but well-coordinated swarm can shape market behavior when directed at the right target, even if the swarm's activity is not correlated with anything like underlying asset value or earnings.
I am not a fan of WallStreetBets but I don't think of them as idiots; more that they're making the argument (by demonstration) that their open and shameless manipulations are just a less polite version of what already happens behind the respectable facade of financial institutions staffed by well-credentialed traders in nice suits. Having spent a lot of time around trading desks (from tiny funds to private banks) I don't think they're wholly wrong. Although they epitomize the greatest weaknesses of crowd/swarm behavior as well its strengths, they are typically playing with their own money rather than collecting 2% to do the same thing with client funds.
Queen of WSB and yolo record are not a good thing... that is a subreddit that mocks bad risk management by ironically celebrating it. They know exactly what she is over there.
That ship has long sailed. She's coming out of this with a slap on the wrist because she ratted on SBF. She's a hero of the alt right because her Tumblr is full of creepy eugenics shit. She has a pervo following for being a poly sex fiend (allegedly). She's going to write a book, sell her movie rights, etc. and live a life of luxury as the woman that took down SBF and FTX (who will be remembered as the real fraudster).
She hasn't been sentenced yet. We don't know what the terms of her deal are but they almost certainly involve leniency in the sentencing. Her lawyer likely tried to make a case that the big bad evil SBF sexually manipulated her into committing fraud and actually she's the real victim here.
Leniency is a relative term. It's relative to the size of the harm, number of victims, her centrality to it, etc. If there's a for sure bet to be made here, it's that she will be spending many years in prison for this. Just not her whole life. That's what leniency here means.
Also the thing to consider as well is that any management level trust position in a white collar setting is off limits to her for many years after that as well. On account of people being slow to entrust ex-cons with responsibility.
She'll make way, way, way more money selling her tv/movie rights to Apple or whoever makes the definitive documentary-drama on the matter. Like 'F you, never work again' money.
Mostly articles like https://lawprofessors.typepad.com/whitecollarcrime_blog/2015... (this case is also being prosecuted by SDNY) and a general expectation that she won't go scot free (so not just 21 days) but also that SBF is the one they really want to put away.
Not to mention that during events like the flash crash of 2010, even small volume traders with stop losses got screwed.
A stop-limit order in some cases works better than a stop loss order, but if there's a rapid crash that's not going to bounce back, a stop-limit order will be worse. There's really no substitute for robust alerting for abnormal market conditions and getting eyeballs on the problem quickly.
(I was writing execution algos for a Fortune 500 broker dealer during the 2010 flash crash.)
(This is not trading advice. Don't mistake it for trading advice.)
I've never understood how stop losses are supposed to help. Traders read heaps of news, do God knows what technical analysis yet simple "moves bit too much in wrong direction" is supposed to be an acceptable exit strategy.
Professionals always have an exit strategy before they even enter a trade. That exit strategy contains conditions under which you assume the trade is no longer good, and needs to be exited at a loss.
Stop-losses are one mechanism for implementing that, but they are crude, and big players don't actually use them. In that regard, she was correct. For one thing, if you trade size, you don't want to dump everything with a marketable order at once, you have to scale out even if you are wrong. Secondly, some strategies will always perform worse if you add stop loss levels, notably mean reversion. But they can make sense, for instance, for trend following, because there are clear levels at which you can say that a trend has ended. Lastly, high-frequency traders like market-making firms, which Alameda was supposed to be, don't use stop loss orders, because they are not trying to take directional bets, they are just trying to capture the spread while keeping their book balanced.
If you trade highly leveraged stuff, you need stop losses; otherwise there is a considerable chance you will go bankrupt. Especially when you take bets on interest rate decisions, take the sweeps at market open and other stuff (you can gain a few hundred points on NQ1! per contract easily during such times).
Also, it's a psychological thing: traders think in risk. If they were mistaken with a trade idea, they close the position with a small loss. Easy, just move on to the next!
But when a position is already deep in the reds, it becomes increasingly harder to press the "close"-button and realize the loss.
I know somebody who lost a few hundred grand just a few weeks ago because he was unable to close the position. He didn't set an initial stop loss, and then started believing in his trade (or the company) too much, although the market was telling him otherwise. He started doing dollar cost averaging and other stupid stuff. Actually, this guy is incredibly smart, but became too attached. I feel genuinely sorry for him. But that's what happens, when you don't have the discipline.
Stop loss orders can work reasonably well for retail investors trading small positions in liquid securities, but they aren't completely reliable. Sometimes prices make a sudden discontinuous drop on bad news and blow past the limit order before it can be executed. Or if trading is halted they become useless. And for institutional investors trading large positions in less liquid markets, stop loss orders barely work at all. They usually employ more sophisticated hedges.
Sure, and a helmet and bulletproof vest with trauma plates doesn’t stop you from getting killed by shot in the face.
But the lack of complete protection is a pretty bad argument against using the available protection.
(There's some things a stop-limit is better for than a regular stop loss, but I'm not convinced that they are generally superior except in the technical sense that any stop loss can be issued as a stop-limit with a $0 limit.)
Minor nit pick: some products, such as exchange-traded calendar spreads, have prices that can go negative and in fact don't have a lower limit on price.
When I was writing trading systems, it was a big headache to modify a system original designed only for equities to handle other asset types, especially those that could have negative prices.
Fun fun, that must have been quite the project! Price is so cross-cutting to such systems. When I added futures to my first system (>15 years ago), I had no idea about negative prices and had tons of sanity checks, including positive price checks.
Even in 2020, some popular trading platforms failed to handle when oil futures went negative! Opportunity for the prepared, I suppose.
EDIT: Oh and saw your follow-up -- we used 0 to represent "market" which is clearly broken in this scenario. Works fine for positive-only prices though :)
There are all kinds of problems with optionality not being properly represented in the data. At a C level, you really want a tagged union, and preferably you're using a higher level language that has first-class algebraic data types (which end up looking just like tagged unions, tagged pointers, or NaN-boxed values at the hardware level).
We had one bespoke protocol for communicating between the order management system (conceptually a high-reliability database that holds order state and communicates with components connected to exchanges) and the trading engines (higher code churn rate, and can recover order state from the order management systems if they need to be restarted, so less critical). When we created a second version of the order management system, we created a wholly new bespoke messaging protocol where every field was optional with a default value, and had an unfortunate feature that if one side set a field in a message to the default for that data type, the messaging layer would size-optimize the messages by removing that field. Combined with encoding order amendments as messages where all of the unchanged fields were removed, it meant that if an order ever had a field amended to a default value, the other side of the communication would interpret it as no change, and would acknowledge the message but not amend the value.
It wasn't a big deal for a lot of the order paremeters that got thrown into a single customization string, since it probably wasn't actually possible to amend on order to become completely vanilla (upstream systems tacked on some customizations between receiving the order from the customer and presenting the order to the OMS).
However, amending a price to zero would result in this space-saving optimization, and the trading engine would interpret it as no change in price. The API did have separate calls for getting a field value (which would transparently return the default value for missing fields) and for checking if a value was actually specified. Though, due to the "optimization" in the messaging layer, checking of a value was specified was really just a check if the returned value was equal to the default value.
Side note: if you're using IEEE-754 doubles (not a great choice for decimalized prices), use NaN to indicate no price, missing price, etc. instead of using an "impossible" value like -1.0. It's always possible the system will be expanded to some domain where -1.0 is valid, requiring lots of on-the-fly rewriting of live systems literally handling multiple billions of dollars per day.
> If you trade highly leveraged stuff, you need stop losses; otherwise there is a considerable chance you will go bankrupt.
This is false. In the context of high volume trading (which we are discussing here), a naive stop loss will obliterate any profits you might accrue with your strategy. Execution of your stop loss will simply eat through the whole order book and give you the worst possible price for your exit.
A loss of 10 percent necessitates an 11 percent gain to recover. Increase that loss to 25 percent and it takes a 33 percent gain to get back to break-even. A 50 percent loss requires a 100 percent gain to recover and an 80 percent loss necessitates 500 percent in gains to get back to where the investment value started.
You're missing the bit that "moves bit too much in wrong direction" is a strong signal that your analysis is fundamentally flawed. Maybe catastrophic news came out since you bought in.
Even if you decide you need to exit, why do you think you will get the best possible price for your exit with a market order? (which is what a stop loss essentially is)
But the phrase “cutting your losses” has application does not?
A stop loss could be set at a threshold that isn’t so tight to lose money on normal variations, low enough if it’s acceptable to take the loss and and capture and deploy the capital elsewhere, and not too low to never be triggered.
> But the phrase “cutting your losses” has application does not?
A "stop loss" does not mean the same thing as "exiting a position to cut your losses". There are other ways to exit a position. If you have a large position, then exiting via market order (which is what a stop loss does) is going to give the worst possible price for your exit.
Indeed, stop-loss orders are extremely dangerous and shouldn't be offered.
A stop-loss-limit is better in that it makes the potential consequence of a stop-loss more clear: You could set a stop loss limit order with a limit of $0 to create a standard stop loss-- making it explicit that you're willing to potentially sell the asset for $0/share: which is what a stop loss is willing to do. (+/- market circuit breakers, which generally don't exist in cryptocurrency markets.)
If it's not immediately apparent why stop losses are a hazard: When markets are volitile the supply of standing orders near the spread tends to thin out-- for some assets, like the worthless magic beans FTX and friends specialized in owning, the markets are never particularly thick. What a stop loss order will do is once the market ticks below your threshold it will dump into a market order. Market prices are not continuous. If someone sold at $100 that doesn't mean you can sell at $100-- a market sale might be at $80-- locking in a substantial loss that otherwise would have been a momentary blip and never impacted you. These orders essentially automate one of the worst practices of inexperienced investors that result in loss: panicking at every dip and selling at a loss when nothing fundamental has changed.
What joe-sixpack thinks a stop loss will do is guarantee him a floor price. It will not. Joe could buy put contracts to create a guaranteed floor price but they cost money-- that cost is a direct sign of how much stop loss orders do not work.
A stop-loss-limit at $100/$100 would do what was expected if it executes but it usually won't execute except when the price dips and then recovers-- the case where you would have preferred to have your stop loss not exist at all. Seldom do people want a "Sell my stuff at $100/share if the price gets under $100 but only when it recovers"-- that would probably only be justifiable to the extent that the drop showed your thesis about the investment was wrong. Fundamentally the guarantee people want here can only be had at a price, and paying that price is a reasonable part of risk management.
If you're trading very small amounts of very liquid items on highly surveilled and regulated markets then perhaps you can get away with using them without getting too greatly burned. But at the same time puts for the same assets are usually fairly inexpensive. In the cryptocurrency sphere it's just not that unlikely that 'exchanges' (particularly bucket shops like FTX where the exchange is substantially the counterparty in the activity) has some script that counts up all the users stop loss orders and figures out how much profit they could make causing a momentary blip in the trading price just to trigger them. There are plenty of people in the industry that don't believe it would be unlawful to do so, seeing as how the traded assets aren't securities.
(and IIRC long before FTX's collapse there was a lawsuit alleging that they engaged in that kind of manipulation)
So mocking the stop loss comment seems a bit misplaced, but it's worth noting that the question was really about risk management and she didn't give a useful answer to the intended question either-- especially since the rubbish they owned was hard to impossible to risk manage and for good reason.
Same! When it's $100 I want to buy, but if the price falls to $80 i want to sell.
Presumably i bought because I thought it was worth more than $100, it would only make sense for me to sell at $80 for a reason other than the price: fundamentals change, some bad event happening. If the only thing that changed is the price, I want to buy more at $80!
Sure, stop losses are a retail-investor tool that subsitutes for not having a 24/7 active (human or algorithmic) dedicated decision-maker deciding when to try to unwind a position, for situations where your position is negligible relative to the market.
It's kind of a weird thing to talk down even of you aren't in the segment that uses them (though, I guess not if you are trying to sell people on hands-off investment in an actively managed fund rather than directly trading more fundamental securities themselves.)
Much of the money Bernie Madoff stole in his ponzi scheme was recovered, however the difference is that his assets were "real" things vs derivatives on made up things (like FTT) so in this case, I'm thinking the losses are lost.
That said, there are participants in the crypto-coin market who have alternative resources for recovering losses so if any of them had exposure here it might go poorly for her in prison.
I think you’re anchoring too much on the stop-loss thing. It’s pretty reasonable for a trading firm to not rely on such mechanisms. One would hope they would have a more sophisticated way to manage risks. I’ve no idea what happened in this case though.
Her comment on stop losses are right on the money. Anyone who trades large amounts of money never enters actual stop losses into the system, they have mental stop losses. Stop losses are actively hunted by algorithms and a quick way to make money by blowing through stop losses and then buying back at the bottom.
Having mental stop losses is the real way to trade, as well as the discipline to sell when your mental stop losses are hit. I don’t know if she had the second part, but the first part about not having hard stop losses is correct if you’re a large trader.
Tangent: How did people hear about FTX? I've been interested in/holding crypto for a few years, and the big player was (and I assumed still is until recently) Coinbase, or Coinbase pro if you wanted better rates. There was bitcoin, Etherium, and some smaller coins like Bitcoin Cash, XRP, and Litecoin. I had a mix of coins, then rebased in ~2019 to a 50/50 Eth/Bitcoin split. As an alternative to Coinbase, you could use a hardware or paper wallet. How many people used FTX over Coinbase and wallets? What was the appeal?
No, Coinbase is not the big player for actual crypto to crypto trading pairs. That’s Binance. FTX was #2 on that list. Coinbase is the USA’s #1 fiat on-ramp. Fiat on-ramps are a different category.
You are an investor. The people using Binance and FTX are traders. Traders are looking for exotic pairs, more leverage, more derivatives, and lower fees. Whether or not Coinbase is even a tenable business long-term is actually a legitimate question given that there’s no big profits to be made as a fiat on-ramp —- everyone assumes they’ll profit like a major trading platform but they are hindered by being legal.
They have a CEO with a lifetime worth of experience clawing back ill-gotten gains. I read that on Enron he was able to recover 52% of the money for creditors.
Having seen a much smaller trading failure up close, my guess is that it wasn't just one thing that sunk them. Instead, a bet or two went bad and then they tried to make up the losses through a series of ever-more-extreme plays.
I don't get it. How can anyone not like stop losses? Limited downside, unlimited upside. I only wish there was a way to set them client side in order to hide information from the exchanges.
She's not going to get sentenced to any time whatsoever. She cut a deal (full co-operation, forfeiture of assets and some fines) and is voluntarily pleading guilty to honor the deal.
Is it surprising that besides Ellison and Wang none of the other inner circle of FTX/Alameda has cut deals yet? There's at least 8 people that were likely aware of what was going on no? See:
>In the absence of a comprehensive regulatory framework over digital assets, the CFTC will use all of its existing power and authority to protect all market participants, while ensuring the integrity of commodity markets
Honestly it's good to see that the responsible American institutions still seem to be reasonably quick and effective when it comes to prosecuting the relevant people here, but can we finally get that comprehensive regulatory framework in question?
Legislators need to stop being asleep at the wheel. Be it the US or the EU or someone else finally needs to take the air out of this entire ecosystem that enables these fraudulent schemes in the first place.
Let's not get a legal framework. I don't want to make crypto more respectable. There is a reason no one is talking about FTX getting bailed out or triggering a recession. Unlike in 2008, they are isolated from the rest of the economic system.
I wonder if something similar will eventually happen to the Tether people? To my understanding they're printing money (USDT) which they claim is backed 1:1 by USD but really isn't. These USDTs can then be spent to pump up various other crypto assets. Seems a very shady business.
My conspiracy theory is that USDT is actually well backed, but the Tether people intentionally make it look shady so they can buy the dip and arbitrage against panic selling. Some volatility would actually increase their ability to profit.
My current theory is that they are not fully backed, but they are backed enough for it to not really matter (ex: if they are 95% backed with highly liquid assets, it's very unlikely that they'll ever breach that).
And given the current interest rates, they could just be parking it all in short term US treasuries, and slowly fixing the issue. If they play their cards right, they can migrate to something that is both fully backed, and highly profitable.
Agreed, I wouldn't be surprised if that were the case. In order to find yourself insolvent, you not only need to have losses in the principle greater than your gains, but you also need to have people trying to pull out enough money that you can't cover it.
IE, if 50% of the principal was spent on crypto gambling and Tether lost ~80% of it (so they lost 40% of the total principal), and the other 50% was put in safe assets and they got 20% of that (10% of the principal), they'd be down to 70% of the principal. But they're only going to be insolvent if people try to cash out 70% of the Tether in circulation at once. And like you said, just putting that into fairly safe investments is going to undo a lot of the damage. Heck, even just getting the returns an online savings account is giving now would have them make back the principal in about a decade.
Which isn't to say they won't fall apart. But I think a lot of people go to far assuming that their collapse is inevitable.
There are rumors that a significant fraction of Tether assets are in Chinese commercial paper. Fine for now, but a serious recession or political turmoil in China would impair the value of those assets.
Their general council, Stuart Hoegner, was head of compliance at Excapsa. Excapsa was the parent company of Ultimate Bet, an online poker site where they created a backdoor so that some favored parties could see their opponents cards.
We need a razor that says, "if you think someone is playing chess with additional dimensions, they're probably just making a series of blunders and the consequences haven't yet manifested."
A lesson I've taken from the last few years is that consequences can take a very, very long time, but that doesn't mean their strategy is working even if the tactics seem to be succeeding in the short term.
To answer that question you first have to figure out who they are. Tether mostly moves around, people don't hold it.
That is to say, exchanges like Binance are heavily dependent on USDT. Those are the only venues you as an individual have to exchange tethers for USD (of course this is not the same as a redemption which is solely at Tether's discretion). Why would the exchanges ever come to Tether for the cash knowing they weren't good for it when revealing the pantslessness of the emperor would take them down too?
It is my opinion that Tether succeeded in doing what the Luna Foundation Guard was trying to do - they made all the 'industry' players so dependent on their continued existence that anyone blowing the whistle would take out the whole space. This in turn makes sure nobody gets within a few hundred yards of a whistle.
> HN has been talking about how Tether is a scam and how it will blow up AnyMomentNow(TM) for two years
Tether managed to come back from the brink of death (user loss of confidence) by co-mingling funds with Bitfinex and getting a third-party to provide an 'attestation' based on money they didn't actually have. This was only discovered years after the fact, and were it not for this deception they would have collapsed ages ago, much like FTX.
Two years is nothing. It took the government 20 years to end the Madoff scam and for many of those years Markopolos was screaming about it at the top of his lungs. It wasn't until his family turned him in that the government acted in earnest - and only because he was about to close up shop and give whatever was left to his family a few days later.
These things go on for a long time, often in plain sight, so if that's what is making you feel better about it, stop.
On the other hand the Tether folks signed off on the NYAG settlement where they admitted among other things that basically their entire bankroll was in Hoegner's personal Bank of Montreal account for a while, and that for many years the numbers didn't add up in the slightest. Here, give 'er a skim. [1] And when you're done with that there's always the CTFC settlement. [2]
To quote the CFTC settlement:
> In fact Tether reserves were not “fully-backed” the majority of the time. [2]
If this is a witch hunt we found ourselves a coven.
> Meanwhile, there was no talk on HN about Luna or FTX being a scam before they imploded.
Maybe not on HN but among the crypto skeptics, they called it outright far in advance. Everyone here was too busy 'making money' to listen.
> In finance, when everybody "knows" something, it's 99% likely to be false. Because there is a lot of money to be made knowing actual facts in finance.
I mean basically all the things that were alleged for years were admitted in [1] and [2]. You're confused, crypto isn't finance. Crypto is a mob casino.
There is no money to be made in a mob casino by knowing 'actual facts.' Not any more than there was at Ultimate Bet by knowing that people could see your cards while Hoegner was director of compliance at their parent entity. Unless you're the one looking at the cards that knowledge is purely entertainment value.
So why doesn't the NYAG charge them with the most obvious scam in history according to HN? If it's so clear from outside that Tether is not backed by actual dollars, how come the NYAG which has subpoena power and so one doesn't latch on such an easy and infamous case?
I'll give you a few minutes to read [1] and [2] before I reply earnestly. I know it takes more than 10 minutes to read them because, and this is true, I have read them. The answer to your questions is there. They did.
Why did they stop at a fine? I don't know. Maybe there were jurisdictional issues, maybe the Feds were/are looking at it. Heck maybe they thought it would be better if the thing fell in on itself so they weren't viewed as the entity that took down crypto. I dont work at DoJ so I can't tell you. Doesn't change anything though.
On the other hand I've given you plenty of night-time reading where you can find the answers to basically every question you've asked me.
They normally make hundreds of millions to 1+ billion a year in profit. But if tether depegs and they buy a billion worth for 98 cents and redeem the backing from themselves they make an extra 20 million USD. OTOH this would result in outflows and they’d likely lose more than 20 million in interest on AUM over the following period. I like the theory but idk. Likewise they could redeem them at spot value in order to gradually plug their hole —- but again the interest on the AUM should gradually plug the hole anyway.
Now, a big depeg is indeed an opportunity for them to make billions within minutes.
I mean if they're going to act (or rather, seem) malicious then they might as steal the backed assets they have right now rather than hope to pump-and-dump enough to make more money. It's not like either is more legal than the other.
Just arbitraging ensures this scheme never blows up in their faces and they can never get charged with a crime. Acting shady (but not actually stealing anything) isn't illegal.
If your ability to make money off something is based on a pump-and-dump (or more fittingly, dump-and-pump) scheme, then you are either committing securities fraud or ending up in a lengthy legal battle over securities fraud.
Didn't Tether get ordered the other day to disclaim all of its reserves? What happened to that? I find it incredible they keep surviving attempts to reveal exactly how the sausage is made in their reserves.
It seems like they were ordered to give the plaintiffs the documents, but they weren’t ordered to publicly release them. NYAG also looked into them last year. They were fined but it doesn’t seem like anything else came of it.
> The New York Attorney General’s probe into Tether’s reserves concluded in February 2021 with an $18.5 million settlement.
I don’t hold any tether, and I wouldn’t recommend it to others. But the common opinion that Tether is insolvent might be wrong. Tether, as a stable business, is a money printing machine. I’m not sure it’d be worth risking the business and jail time to pump shitcoins.
> I don’t hold any tether, and I wouldn’t recommend it to others. But the common opinion that Tether is insolvent might be wrong. Tether, as a stable business, is a money printing machine. I’m not sure it’d be worth risking the business and jail time to pump shitcoins
I encourage you to watch Coffeezilla's video about Tether. There's lots of shady stuff going on behind the scenes, like them borrowing $383M from Bitfinex and showing that to an auditor to prove they were solvent (~20:00).
Coffeezilla says that Tether doesn't need to honor your redemption by point to the TOS. The TOS that he shows in the video says that Tether reserves the right to delay the redemption and pay it in-kind securities held by Tether. So if Tether is holding a bond, they reserve the right to give you that bond instead of selling the bond and giving you the proceeds. That's very different than his claim that Tether doesn't need to honor the redemption.
His discussion about whether or not it was transparent that Bitfinex and Tether were owned by the same people. He plays sound clips that sound a little misleading: Phil Potter is prompted with "Tether is Bitfinex, right?" To which Phil Potter responds: "No, it's not." Is that really misleading. If someone asked Elon Musk, Twitter is SpaceX, right? Wouldn't the answer be no, even though they're owned by the same people? All the sound clips are less than 10 seconds longs, so it's really hard to understand everything in context.
The leadership team of Tether does seem a little sketch.
The part about Tether lending Bitfinex money to stay solvent while Bitfinex's money was held by the state pending investigation of their bank was sketchy, but technically the currency would still be backed by the loan, assuming Bitfinex can get their money back, which seems likely given that they weren't a party in the investigation holding up the money.
I think the bottom line is that you have to trust the Tether team to handle the money wisely. Usually, you can't trust people to do that so using Tether is extremely risky. As for the video, I won't say it's wrong, but it certainly picked the least charitable interpretation of events and also cherry-picked sound-bites, which is kind of a misleading tactic to use that helps suit a narrative.
Well, FTX, as a stable business, should be a money printing machine - but that definitely wasn't an obstacle for its leaders to risk the business and jail time to speculate with customers' funds.
If Tether put all its money into low-yield short term US treasuries, the founders could pay every employee $10MM USD a year and still be paying themselves $1 billion USD a year.
That is a phenomenal amount of risk free income. That's putting the founders somewhere high, probably first 50 names high, on the Forbes 400 list.
That's even better. Let's say it was a scam for the first 5 years. Total scam, they spent all the money on drugs. It would only take a year for the short-term low-yield US treasury interest on the rest of the assets to completely pay Tether back. That's only possible because Tether has been growing. It would take more than a decade of interest if it had merely doubled in size.
The strong and risky assumption here is that tether actually received money and put it in some paper.
But what many believe is that tether received crypto from the big exchanges and put it in crypto stuff that yields more crypto, so the billions of circulating tether is not backed by billions of Treasury bills or Chinese real estate: they are for a significant part backed by various tokens which have probably gone to zero since.
FTX might have been a money-printing machine, but the situation with Alameda is a lot less clear. Being a market maker is hard. If you make a mistake, you can lose a lot of money. It's probably easier to be a crook.
If Tether is solvent and above board then it's being run utterly incompetently. absolutely everything they do regarding their reserves makes them look shady as hell (the most likely situation where they are solvent is that they are solvent with dirty money, which would explain why they are so unwilling to demonstrate exactly where the money is and where it came from).
The founder posted publicly about printing tether to pump Bitcoin I'm the earlier days of Tether (after previously being convicted of fraud) - and then tried to delete the posts - but couldn't because of Internet Archive...
I mostly agree and I'm actually amazed at how FTX was doing crazy shit instead of just making exchange money the legal way, but... isn't it super-expensive to truly back up tether with cash? I mean, it's kind of an extraordinary claim that they have a few bil of cash stashed in a mattress just sitting there backing things up 1:1 ready to get withdrawn any second.
It wouldn’t need to be cash per say, just cash or very liquid and low risk assets like USTs. The yield on treasuries isn’t high, but given the volumes at play it’d generate a lot of cashflow.
> These USDTs can then be spent to pump up various other crypto assets
So why don't they do that now? Why are the crypto prices at two years low?
This is the age old ZeroHedge conspiracy recycled - if the stock market goes up, it's because of WOPRs (their name for HFT algos) and the Fed plunge-protection-team, but if it goes down it's because of healthy market forces which are calling the Feds bluff.
They were also investigated and found guilty by the New York Attorney General, and were subsequently banned from activity in New York and fined 18.5M.
> Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines,” said Attorney General James. “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie.
Now they do (previously they claimed 1:1 with actual dollars in a bank account, but failed to demonstrate that). But that 80% "Commercial paper" is suspicious as hell, considering it would make up more than half the total market for said paper (so 'liquid' is already questionable), and no-one else in the market has heard of them.
If anything, the pressure on Sam might result in him turning on Tether/Binance/other-frauds with key insider evidence for reduced sentencing. The guy's a pvp gamer at heart so probably min-maxing with his lawyers what he can do as a criminal informant.
I think by "pvp gamer", the GP means someone who preferentially targets other players in open world games rather than grinding the quests. I think they're saying he has a sadist streak, or at least a strong streak of narcissism.
He's a PVP gamer who can't even get out of the bottom-most tier of League of Legends. [1] I very much doubt he's trying to game plan anything of this kind of sophistication.
Two counts of wire fraud, two counts of conspiracy to commit wire fraud, conspiracy to commit commodities fraud, conspiracy to commit securities fraud and conspiracy to commit money laundering.
This outcome came about so quickly because she turned state's evidence, in return for what is likely to be an extreme reduction from that maximum (not that it was really a possibility, as a first offender)
I don’t believe so, but the judge sentenced him so harshly because the amount involved was astronomical, exceeding the maximum amount specified by federal sentencing guidelines for fraud ($400 million at the time)[0]. Also, many people lost their life savings and the fraud lasted for nearly 30 years and the judge didn’t feel that Madoff did everything he could to mitigate the harm caused by his actions.
The elements are different. Typically “conspiracy to commit X” requires some number of people agreeing to do X and then someone from the group doing at least one overt act in furtherance of that agreement. So you can be guilty of “conspiracy to commit X” without ever getting even remotely close to doing X.
So for example if two mates talk about that they are going to kill person Y, that is the agreement. And then one of them buys a gun, that is an overt act. And even if person Y has very good security, and the two dudes have no chance in hell of murdering Y ever, that is still a “conspiracy to muder” charge.
> So you can be guilty of “conspiracy to commit X” without ever getting even remotely close to doing X.
Probably most legal systems have something like that.
The interesting thing about US law - at least compared to German law (a Civil law country) - is the fact that even if you succeed with X, you can still be charged with conspiracy to commit X on top.
If I remember correctly, it has its roots in the RICO statutes which arose from FBI attempts to break up the mafia. The idea was to make it easier to prosecute people who did not actually pull the trigger but who were involved in planning and ordering of such crimes.
Now, a wiretap of a boss ordering a hit could result in the same sentence as the gunman.
Unfortunately it has been abused greatly, including drivers who never got out of the car sentenced to death for a 7/11 robbery gone bad, etc.
Further, as you can imagine, it gives the prosecution massive (many would say unfair) leverage over associates to a crime, given that they could face the same, full sentence if they don't cooperate. It's a major reason behind the enormous percentage of criminal charges not going to trial.
Is it a coincidence that CE and SBF were both raised by professors at elite institutions (MIT/Stanford)? Or are these just two people who were academically successful and parlayed that success into what looks to be a massive fraud?
People used the association with the elite institutions as a substitution for any sort of analysis about their strategy or actual credentials. It's not that the association caused the issue, but it allowed these people access to people and money they normally would never have. You aren't more likely to be a crook if you have parents who are professors at MIT, but your scams are more likely to be successful and people are less likely to use common sense because they are more likely to accept things they don't understand if they perceive someone as smarter than them. Something similar happened with LTCM, which brought together multiple Nobel laureates in economics only to go bankrupt 3 years after its founding.
I wonder if it’s some combination of access + exposure + hubris. When you are raised by well-off professors who also happen to be players in the political sphere, phrases like “well, that’s just not for us kiddo” or “happiness is when you learn to accept your place in life” are probably not heard at the dinner table. And if you hit a special kind of streak of never encountering real failure, hubris gain can be massive.
I was referring to the hubris that is presumably required to even attempt a fraud on this scale. Were the uniquely able to get away with this because of their bona fides, or were they uniquely predisposed to attempt this, due to the circumstances of their upbringing?
Just a wild guess, but my guess is that they intended to run everything legitimately, but bought into their own hype, and then got trapped by their egos into not admitting defeat. Once honestly admitting defeat was off the table, I'm not sure there were any non-fraudulent options left.
I'm not saying the fraud is excusable, but it's entirely understandable how they may have been trapped by their own egos.
Is this just a big deal because crypto or purely because of the amount of money defrauded?
This whole thing is sort of bizarre to me. It just seems to me a lot of people are blaming crypto as part of this problem when it was basically a couple of people who let the popularity/success of what they created get to their head and began to cover up mistakes of mismanagement and poor decision making. Now they face the full brunt of the law for that as they well should.
Crypto is like snake oil. The seller makes all kinds of claims about what it can do, and the layman has no idea whether it's true or not, they just want it because it has the promise of solving their problems.
I mean rather than just piling on crypto, it doesn't really seem to be the cause of any of what has happened here. How is it any different than what happened with Theranos.
That seems to only allow for prison being purely a punishment, and that some level of deprivation must be included in order for the sentence to be considered complete.
Truly beneficial scale would simply be: "You can return to regular society with restrictions after you have been rehabilitated, and you can return to regular life after your victims have been compensated."
The other thing that's bothersome about these showy sentencing standards is that it provides good cover to the regulators and legislators who should be auditing their past actions with respect to this enterprise and should be holding honest hearings on how the legislation failed to protect consumers.
I don't see an implication that this person is personally fucked by FTX/Alameda, just mad that fraudsters are rolling in dough (til they get caught anyway, as they say, high risk high reward)
Yes. Exactly. Every day I wake up and I have to hear about some next cunt I've never heard of before. "Richest before 30!". Some other trillionaire. Some other little kid son of ivy's who ran away with another billion. It's always some fucking scam. Every fucking day. What is the point anymore? I'm a regular cunt who wants to do regular cunt things but I have to wake up to news that Google is planning a 30B "tech park" local to me.
While watching these people use their privilege to steal so much money is frustrating, I don't see how some Ivey League twenty-something's wrongdoing prevents you from doing regular things.
in aggregate, the spending power of the world’s fraudsters does inflate the cost of many of life’s luxuries to be outside the reach of more and more people.
That one word doesn't translate well across countries. And in the US will come across as misogyny, which will affect how people interpret everything else you said.
How could he not trust them in the first place? C-level executives are on the record, before Congress, with the biggest and brightest politicians around, saying everything should be regulated, including themselves. They're actively projecting that they acknowledge the general sleaze surrounding the crypto industry and they are not a part of it.
Hindsight is 20/20, but can you look at Binance, crypto.com, and other 'trusted' crypto exchanges now and say "how can you trust them"?
SBF was hanging out with people who lent him their credibility and actively asking to be regulated - it doesn't get much better than that for the average person.
Well, when this particular exchange is operating legally in the US and its CEO is respected enough to have a sit at the table with Maxine Waters, the hardest-ass congressperson when it comes to the financial sector, it's much harder than some guy yelling about his exchange on TikTok or Instagram?
Considering the fact that we now know that Maxine Waters got bamboozled by a 20something crypto bro, has your opinion of her being a competent regulator of the finance industry changed at all?
It’s fascinating when people think of politicians like sports teams and not public employees with a mandate of competence.
I think you misunderstood what my point was. Maxine Waters now looks foolish of course but at the time the OP was investing with FTX one would be perfectly excused for believing SBF’s stories, given the lent credibility.
She is the opposite of "hardest-ass" as she is sitting down with these robbers and they're all greasing each others palms. This shit doesn't magically happen.
I never trusted any of these cunts. I didn't give them my money because I'm not a fucking idiot. How dare you try to assume I wrote my post out of personal anger. How dare you victim blame me in the face of a robber barons. You are an awful person.
>I never trusted any of these cunts. I didn't give them my money because I'm not a fucking idiot. How dare you try to assume I wrote my post out of personal anger. How dare you victim blame me in the face of a robber barons. You are an awful person.
What a Queen. Massively connected and after destroying the life of thousands of working class chumps she gets to walk free after getting her wrist slap.
Anyone who looks at a slide or printout with "high returns" and "no risk" on the same page and who doesn't immediately come to the conclusion that they're being scammed deserves every penny of loss they suffer.
Here I sit with "enough" (more than billions of others on Earth, really) watching a clawing mass of rabid others, each possessing way more than "enough" already, frantically scrambling for their spot at the trough so they can go to the moon and get a yacht or some stupid shit like that-- laughing.
you could have been just holding usdc on FTX, and got fucked. Of course, not your keys, not your crypto always applies, but it's easier to feel sorry for folks like this.
This is not money, not on a bank with FDIC, and not on a brokerage with SIPC. If you don't think so, I've got some usdb on realmoneyexchange.com to sell you.
All these cases are hard to prosecute (or so prosecutors think) because it is often hard to prove intent. So prosecutors have to be aggressive in getting people to flip (and in the media, and building patterns of prosecutions for a novel offence) which often leads to wildly inconsistent sentencing.
I don't think I have seen a group of offences in this area where the sentencing seemed right across the board. It often makes no sense at all (even the decision of who to prosecute seems wrong, there was a case in the UK where a witness to an insider trading case was literally in court, giving evidence and admitted to crimes...nothing happened...he also walked from any prosecution in that case despite him netting tens of millions from insider trading).
SBF’s plea deal can’t be far behind. He is uniquely positioned to help FTX’s receivers recover the maximum amount of money, and will use that leverage to strike the best deal possible. The whole FTX crew will likely pay their debt to society and be free before they’re 40 with the potential to do something useful with their skills and knowledge (think Mitnick).
As soon as SBF was indicted, it confirmed that the Feds had 1 or more cooperating witnesses and many correctly theorized Caroline Ellison was one of them. The other is less well-known but this basically maps out the prosecution's case. Ellison will testify to SBF's knowledge of the scheme. The other will testify to SBF instructing him to build the backdoor. Case closed.
This is an open and shut case. SBF getting out on bail was a surprise and it shows the double standard to how the US uses its civil asset forfeiture power. Specifically, that doesn't seem to be used against SBF, his parents and his associates in a way that it has with far less wealthy people. I want people to realize that. For the record, I consider civil asset forfeiture to be unconstitutional and a travesty of justice but it is the law of the land.
I'm going to be really interested to see what kind of deal the Feds cut for two witnesses. Could it be as light as no jail time? I have doubts but it's not impossible. It'll probably be a much lighter sentence, probably less than 10 years, maybe less than 5.