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FTX’s Sam Bankman-Fried cashed out $300M during funding spree (wsj.com)
206 points by mfiguiere 70 days ago | hide | past | favorite | 204 comments

Just a general statement on people commenting on this saga: Sam wasn't doing effective altruism. He was lying about doing effective altruism.

It's weird to me that people talk about this as an indictment of EA...but this rings similar to me as claiming that this is an indictment of DeFi or cryptocurrency generally. Sam/Caroline weren't doing DeFi, and neither were they really doing anything related to cryptocurrency. This was just a pretty staightforward scam.

It's an indictment of EA because many prominent EA people were associated with FTX/Sam. That shows poor judgement and, on some level, EA is about smart people making judgements about long-term good. How can we trust them to make those judgements when they decide to hitch their wagon to FTX?

I will tell three stories:

A friend of mine is part of a Mensa (top 2% IQ people) local chapter. He did that mainly for fun and no pedantic reasons.

He always tells me story of the problems they have organizing basic activities and governance for the chapter... Even when all participants have a very high IQ.

Beyond the validity of IQ, people do crazy things when trusted people, or in power positions give recommendations. Also by FOMO.

The second story is from a friend who is a second generation finance professional, knows about the complexity of investments in general and in crypto, had crypto companies, and more but was scammed in a basic way investing in a crypto fund.

The third story is about a group of business people who created successful businesses, have a WhatsApp group for recommending crypto investments: one guy recommended a DeFi project, I immediately recommended to escape from that investment because it didn't have a security audit (my field and basic due diligence) and... well the project was easily hacked.

Not sure if its selection bias but I've almost only heard horror stories from Mensa. Sounds great on paper but I imagine it could also attract those looking to prove something while pushing away those that are smart but less competitive.

Well replace "intelligent" with "competent" and what do you get? Should we not expect the people telling us all to give them money because we couldn't hope to make more efficient use of it to be able to exercise the critical judgement necessary to not get scammed by a blatant scam?

(1) Any theory that encourages people to suspect working directly on important local causes that are meaningful to them, but instead, seek out the highest paying jobs in order to donate to EA causes is just hiding a special kind of ponzi scheme ("get more people in to fund the good work of the current people").

(2) EA creates an excuse to act outrageously evil "for the good of the longterm"

1. The underlying logic behind earning to give is sound. You flying over to Africa or whatever to do charitable activities (digging a well?) is obviously going to be less impactful than you working at some high paid white collar job and then donating the money to pay some local laborers to do the same job.

2. Contrary to what you think, there's nothing about effective altruism that requires/wants you to donate to effective altruism organizations. Yes, there are effective altruism funds that effectively collect money and donate them to the most impactful causes, but there are also sites like givewell that tells you which charities are doing the most impactful work. I don't see how the latter is ponzi-like in any way. Even the former isn't really ponzi-like unless there's high administrative overhead (ie. most of the money isn't getting disbursed to charities and is instead spent on admin expenses).

3. This whole comment feels like an attack on a strawman on effective altruism and/or earning to give. The EA people I know of definitely do not give me the impression that they're willing to commit crimes so they can divert more money to EA/charities. I'll admit that I'm not deep into EA, so it's possible that I didn't witness their secret meetings where they they do discuss this. What you're doing feels like attacking utilitarians (eg. Peter Singer or John Stuart Mill) by saying that the logical conclusion to their ideology "creates an excuse to act outrageously evil "for the good of the longterm""

> 1. The underlying logic behind earning to give is sound. You flying over to Africa or whatever to do charitable activities (digging a well?) is obviously going to be less impactful than you working at some high paid white collar job and then donating the money to pay some local laborers to do the same job.

It isn't obvious, and I'm skeptical both by cases like this and by the lack of domain expertise of a white-collar worker to be able to judge the veracity of charitable activities.

I mean, maybe if we had flush teams of water quality experts in every state with the time and expertise to judge whether water supplies are safe. But as it is, a team from Virginia Tech had to high tail it to Flint during their water crisis based on the reports they heard about lead levels there.

If there are too few domain experts or even too weak a web of trust to connect them to white collar donors, what you describe doesn't sound like an effective strategy. (Not to mention whatever it is that causes you to think that the approach is obviously superior to drilling down in some domain.)

>It isn't obvious, and I'm skeptical both by cases like this and by the lack of domain expertise of a white-collar worker to be able to judge the veracity of charitable activities.

I don't get what you're arguing here. The white collar worker lacks the expertise to "judge the veracity of charitable activities" therefore we should...

* fly over to africa so hey can dig a well and find out first hand whether it's actually doing good? Leaving aside the massive amounts of resources needed for this endeavor, there's no evidence that the same unqualified white collar worker would be qualified to judge what's happening on the ground

* not practice effective altruism, and donate to whichever feels the cutest and/or is in vogue?

* when we're 18, choose a random field and hope 18 year old self is qualified to figure out which field would do the most good?

>I mean, maybe if we had flush teams of water quality experts in every state with the time and expertise to judge whether water supplies are safe. But as it is, a team from Virginia Tech had to high tail it to Flint during their water crisis based on the reports they heard about lead levels there.

I'm baffled as to why you think sending a team from virginia tech was the best course of action here. Google maps says that such a trip would take over 8 hours. Assuming the "team" had at least 2 people, then that's at least 32 man-hours for such an excursion. At median college graduate wages that translates to $880 in travel time alone. They couldn't have crowdsourced water collection and had it delivered via courier (maybe $20/package) to their campus?

the lack of domain expertise of a white-collar worker to be able to judge the veracity of charitable activities

That's why the first thing EA did is evaluate which charities are most effective. In a few seconds you can find things like https://www.givingwhatwecan.org/donate/organizations

> 1. The underlying logic behind earning to give is sound. You flying over to Africa or whatever to do charitable activities (digging a well?) is obviously going to be less impactful than you working at some high paid white collar job and then donating the money to pay some local laborers to do the same job.

Bill Gates has been trying to do this ever since the year 2000. Transfering quality of life from Seattle or Pasadena to a slum in Lagos or Nairobi is the hardest thing you could possibly do.

Humans are selfish so the moment the decision is made to allocate an X amount of money Piranhas start to attack the loot, both at home and abroad.

The dynamics of negotiations, pricing power, elasticity of supply and demand don't go out of the window just because a sum of money is destined to Africa or has "philantropy" stamped across.

At the end of the day you need people who do it for their own satisfaction, not for the money

But is the underlying logic behind earning to give actually sound? Because it sounds to me like ideological cover for plain old earning. It also strikes me as deliberately blind to the ethical externalities of working certain high paying jobs.

>That shows poor judgement and, on some level, EA is about smart people making judgements about long-term good. How can we trust them to make those judgements when they decide to hitch their wagon to FTX?

Charities in general aren't exactly known for conducting thorough due diligence on their donors. Sure, it might make sense to make sure the person you're getting money from isn't some sort of ruthless dictator or embroiled in some scandal, but "runs crypto trading firm" is a pretty plausible story.

I wasn't talking about charities specifically, I was referring to stuff like this: https://forum.effectivealtruism.org/posts/xafpj3on76uRDoBja/...

At least one of the people involved (MacAskill) is a big name in EA circles.

What's the argument here? That The people involved should have seen it coming, and their failure to seen it coming reflects badly on them? I think the arguments from my previous comment still apply.

People in general don't do thorough due diligence on who they work with. As long as there isn't anything obviously bad about a person, it seems fairly reasonable to cooperate with someone who shares your goal and is willing to contribute resources. From what I can tell, SBF/FTX's public image was reasonably clean prior to the blow up. The wikipedia article[1] only lists some minor controversies (eg. FDIC cease and desist). This definitely isn't something like bitfinex/tether where there's a long controversy spanning years[2].

[1] https://en.wikipedia.org/wiki/FTX_(company)#History

[2] https://en.wikipedia.org/wiki/Tether_(cryptocurrency)

The argument is really simple. To restate:

Why should I trust my (or other people's) ability to act to maximize long term good when I (or other people) aren't smart enough to avoid landmines like FTX?

1. Why should you trust Newton's works (eg. theory of gravity or calculus) when he isn't smart enough to avoid landmines like the south sea bubble[1]?

2. My previous comment asserts that SBF/FTX was reasonably clean prior to the collapse. If someone seemed reasonably clean, but then it turned out that he was a Bad Person or whatever, should everyone associated with that person be chastised for not being "smart enough to avoid landmines"?

[1] https://en.wikipedia.org/wiki/Isaac_Newton#Knighthood

Simpler? A premise of EA is that people can make choices that maximize the good in the long run. Events like this should make us doubt that premise. The proponents of EA can't do it. Who can? I would say: no one, and serious moral philosophies should take that into account.

1. I don't think it's a premise of EA that you can predict outcomes 100% of the time. Thus the fact that SBF failed to predict something isn't some sort of fatal blow you think it is

2. Even if we accept your conclusion, what does that mean in practice? Wikipedia describes effective altruism as:

>a philosophical and social movement that advocates "using evidence and reason to figure out how to benefit others as much as possible, and taking action on that basis".

Should we not use evidence and reason to figure out how to benefit others as much as possible? Should we revert back to donating based on whatever makes us feel fuzzy? It's easy to dunk on something because it supposedly failed, but what's your proposed alternative?

I think reason and empiricism are useful tools. But so are intuition, deontological ethics (thou shalt/thou shalt not), and adherence to tradition. I don't think we can do without any of these things and EA seriously overrates reason and empiricism.

Prominent investors, politicians, athletes, etc were associated with FTX/Sam. Should we lose faith in Sequoia, etc, etc, etc?

> Should we lose faith in Sequoia, etc, etc, etc?

...yes? Or at the very least, qualify the brand. I've seen founders use XYZ-backed to great effect with investors, customers and even public officials. Making it clearer that Sequoia investing in a company isn't Sequoia saying it's done deep diligence is good for everyone.

It's a bit of a kalman update.

Many of them fully endorsed or implicitly endorsed SBF.

That SBF was revealed as a fraudster should update your belief on the quality of these people, but not outright scratch them out.

For example, I have severely downgraded my opinion of Sequoia.

Sequoia invests in portfolios of companies. Your judgment of them as something to invest in should be based on overall portfolio performance, not individual outliers. Your judgement of them as as willing to invest in you, does it really matter? If they give you the highest valuation, you're going to turn it down?

Yes, now you know they are just a bunch of lucky idiots with lots of money. The business is good because when you have enough money you can afford to be stupid few times a day. You just play a game of numbers. The start-ups that get funding are not necessary the best ones but with enough funding they may become the winners. Sort of what Softbank tried with VisionFund but worse.

There is a bright side on this. If you didn't get funding you don't need to feel guilty.

You should definitely have zero trust in any investment an athlete suggests. I mean, investigate it, it might be fine. But the athlete's endorsement should be worth zero.

Yes. Maybe with an exception for VC which is expected to make a lot of long shots bets of which few pay off.

See, in my book it's the opposite. I don't take financial advise from Tom Brady. I don't expect him - or even his money person - to do due diligence and provide me investment advice.

But if I were positioned in one of the funds that invested heavily into a company that even a surface-level check would have revealed to have the controls, governance, and risk management of a lemonade stand, I would be withdrawing all my money, post-haste. You literally had one job to do.

Yes. The most recent information indicates they have made a wrong judgement. Your faith in them should be updated accordingly.

> That shows poor judgement

How so? The fact that people make decisions based on only what they actually know is in no way a lapse of judgement. I mean what else are they supposed to do?

Kind of.

Sam was not doing what EAism says you should do.

But he was embedded in the EA movement, close to many of its other members, and abetted by people like Will.

So if you look at EA descriptively, Sam was very much doing EA.

He was lying about his business. But he wasn't lying about giving the money away. That was very real, and a big part of what "doing effective altruism" is.

Sam/Caroline were also doing crypto.

The two movements -- EA and crypto -- clearly want to excommunicate them. But both those movements were happy to work with them when they appeared to be successful, non-fraudulent billionaires.

Nobody knows you when you're down and out.

>But both those movements were happy to work with them when they appeared to be successful, non-fraudulent billionaires.

Yes? I don't understand the point of this statement.

"When Alice appeared to donating to her local charity, we liked her, but when it turned out she was lying to us, we didn't like her anymore.

We like charity/EA/crypto, and think those are all good things. So when people are doing them, that is good. If they use that goodwill to exploit other people, we don't like that.

That is a functioning system.

> But both those movements were happy to work with them when they appeared to be successful, non-fraudulent billionaires.

Are you claiming failure to do "due diligence" ? Because otherwise, that seems fairly normal.

I am claiming two things:

1) EA as a movement and as a principle has been at best equivocal on whether or not it's OK to deliberately harm a few people in order to benefit many people. There's a very strong argument that SBF was pursuing utilitarian goals as espoused by EA. Riches amplify our flaws. He committed EA on a grand scale, and it turns out that SBF's version of take-no-prisoners utilitarianism is a) illegal, b) harmful to millions of people, and b.1) that includes his own movement.

2) SBF and Caroline did crypto. They didn't do crypto and secretly scam people and therefore they are not really doing crypto. Scamming is at the heart of crypto. If you want scamming not to be at the heart of crypto, then accept that you will need a centralized authority with a mandate for violence to impose rules of behavior, much as we have with the rest of finance.

Someone lying about doing EA is not doing EA. They’re doing fraud.

There’s the EA movement proper, which I don’t know much about. And then there’s EA the principle, which just says that you should probably prioritize giving that is effective rather than giving that makes you feel good (since human ethical intuition isn’t tuned very well here). Not much to disagree on there. It’s unfortunate that SBF’s fall has diverted attention from this.

(Paraphrasing Sam Harris’s most recent podcast here, https://www.samharris.org/podcasts/making-sense-episodes)

When people use moral identifiers, like 'altruist' or 'philanthropist' , etc. they are trying to shortcut past the normal societal repetitional mechanisms to be viewed as a moral person.

The people who want to take these shortcuts tend to be the least moral people. Same force that leads the immoral to be more likely loudly publicly identify with a religion.

EA may be an interesting perspective, but I'm immediately wary of anyone who self-identifies as an "effective altruist".

>EA may be an interesting perspective, but I'm immediately wary of anyone who self-identifies as an "effective altruist".

The logic makes sense on the surface. For instance, if someone self-identifies himself as a philanthropist/altruist and makes an effort to make that known I'll be a bit suspicious. However, effective altruism is a movement/community, so it seems reasonable to be able to identify yourself as belonging to that community. For instance, if you're part of the YIMBY movement, and you're involved in a significant way (eg. are a leader, gives talks, and contributes financial resources), it seems reasonable for you to mention that at least occasionally. It just so happens that the community that SBF is involved with is called "effective altruism", so if you're a member of the community you get called an "effective altruist". Given what they do, I think the naming is entirely reasonable and nothing cynical is happening.

It's certainly true at all EAs aren't bad people. I'm just arguing that self identifying EAs are disproportionately bad people due to the attraction they have towards being labeled as such. Good EAs are less likely to be vocal about the label.

> I'm just arguing that self identifying EAs are disproportionately bad people

Is there evidence backing this assertion? Or are we just going with "SBF was an effective alturist, SBF was bad, therefore self identifying EAs are disproportionately bad people"?

How was he not doing EA? He was lying AND donating to causes. I'm very pro-EA but that's a weird claim.

Doesn't altruism literary mean selflessness-ism? Can you be selfless with stolen property?

Yeah, that was the theme of Robinhood. Of course sbf is no robinhood.

Agreed. I know several people that think capital gains are "unethical" and would have no qualms about stealing that. They would think they're doing good.

Prominent EAers like McAskill have said (before this scandal) that EA is only valid if the money is earned honestly. They say that they never intended EA to be "steal to give".

Sounds nice in theory, but when the outcome is people behaving like this and using it as a justification it rings hollow. The idea seems centered around making the most money possible as a core tenet. That alone is a pretty corrupting thing to build your whole ideology on judging from how we've seen humanity behave for thousands of years.

Yeah. I see a fork in the road here:

1. They can band together to save the EA brand by demonstrating an unusually high commitment to accountability. The simplest way I see to do this is to contribute 2x what they received from FTX (as a group, it's impractical for them to do this on the individual level) to making the financial fraud victims whole.

2. They could "declare bankruptcy", switching to less ambitious but epistemically safer approaches to philanthropy. I wouldn't blame them for doing this, (1) is a big ask.

What does it mean to earn money honestly? If I'm an investment banker, is that honest? Car salesman? International arms dealer?

Like it or not, the execution of EA is to make as much as possible without regard for the consequences of how you make it. The whole premise is that the ends justify the means.

What they really mean by "honestly" is in a manner that doesn't reflect poorly on EA, which is tangential to whether or not the money is earned morally.

Those concepts seem obviously separate to me.

“Geeks, MOPs, and sociopaths in subculture evolution” — https://meaningness.com/geeks-mops-sociopaths

SBF definitely seems like a sociopath in this model.

BTW: the best criticism I have read on Effective Altruism is: https://astralcodexten.substack.com/p/criticism-of-criticism...

Because EA is about overall impact. (At least that's one strand of thought in EA, for those that lean more towards utilitarianism.) He hurt so many people and caused so much distrust that his overall impact is negative. It is therefore against the principles of EA. That's not the No True Scotsman fallacy.

Or he was the lynchpin in killing crypto and thus brought a great good to the world in the end (at big expense to those caught in it).

I don’t believe that, but seems equally valid

That's convenient. So when EA has a positive impact, it's EA.

When it has a negative impact it's definitely NOT EA. Do I have that right?

Yeah, I guess. EA by definition is doing good.

Effective altruism is about taking a desire to do good. So I’m not sure how criminals can be doing EA.

Is el Mencho doing EA? He gave some toys and even suggested that they will stop killing priests.

Definition of altruism requires selflessness. He was anything but.

Just the capitalized term EA to me reads like a scam. It’s a new term created to explain some behavior that is simply injurious to the broader population, claiming that its for their benefit. I’m just not sure I buy it.

>some behavior that is simply injurious to the broader population, claiming that its for their benefit

what "behavior" are you talking about? The second paragraph of the wikipedia article on EA says:

>Common practices of effective altruists include choosing careers based on the amount of good that the career achieves, donating to charities based on maximising impact, and earning to give. Popular cause priorities within EA include global health and development, animal welfare, and risks to the survival of humanity over the long-term future.

I'm not sure how any of those causes can be considered "simply injurious to the broader population".

Especially when the definition of what is "effective" is totally subjective and up to the adherents belief system(s). Which sadly appears to have been funneling "donations" to bog standard NGO/political nonsense, not impactful things like making sure kids can eat or caring for veterans who've been disposed of.

That's not really an accurate characterization. The most promoted cause by EA has been the Against Malaria Foundation because it saves the most money per $ spent. If you donate to GiveWell (a basic recommended way to donate in EA) they mostly donate to Malaria and similar causes. Obviously, some members do a lot more but Political causes aren't the standard, that stuff is.

Most-promoted, but is it the most funded? For example, their landing page just links to the AMF's donors list page while claiming EA provided "significant support" with the only mentions of EA being people they've inspired to donate in relatively small amounts (relative to the billions moving through FTX). I'd imagine they're buried in there somewhere but if they're a major supporter I'd assume they'd be plastering that number all over the place.

Sorry, but this whole FTX thing isn't just an "oopsie." They knew exactly what they were doing and tried to justify it with a few targeted donations. The landing page alone only showcases 6 initiatives, 50% of which are exactly what I described above.

>Most-promoted, but is it the most funded? For example, their landing page just links to the AMF's donors list page while claiming EA provided "significant support" with the only mentions of EA being people they've inspired to donate in relatively small amounts

This seems totally expected if you think of effective altruism as a movement focused on figuring out where your money would be best spent, rather than as some sort of organization that wants your money. This is reflected in what SBF did. He didn't donate all his money to effective altruism like it's a cult or whatever, he set up a charity and hired various people to decide which worthy projects should be funded.

>(relative to the billions moving through FTX).

And why would you compare that to "the billions moving through FTX"? FTX isn't EA, nor does FTX operate as some sort of non-profit. FTX does have a charitable arm, but they only issued $160 million worth of grants, nowhere near "the billions" you speak of. You can see their grant list here: https://ftxfuturefund.org/our-grants/

> And why would you compare that to "the billions moving through FTX"?

Because they were parading SBF around as this bastion of EA. No doubt a lot of people anchored their ships to FTX because of this and used his affiliation as evidence of FTX being "the good guys." Is it a direct relationship? Not as far as I've seen, but I wouldn't be surprised to find a lot of the money they were taking in (as investment and deposits) as a low-key slush fund for people tied to EA.

Back during the Brazilian dictatorship, they used to say "we have to grow the cake to split it afterwards".

What actually surprises me is that EA was apparently taken seriously. It does explain a lot of the fake goodness Silicon Valley is well known for.

>What actually surprises me is that EA was apparently taken seriously. It does explain a lot of the fake goodness Silicon Valley is well known for.

What's the appropriate level of seriousness to take stuff like effective altruism or other charitable endeavors? Should we go full nihilist and assume that everyone is greedy and only donating for selfish reasons?

Filthy rich people looking for a framework in which they can get to enjoy being rich, not advocating for any real change in the system, and feel morally superior because they're donating some meaningless amount to charities? Yeah, some cynicism is very much warranted for.

And before you say it, it's meaningless to donate even 90% of your fortune to someone like them. Specially to those glorified PR operations that are the charities they tend to support.

Yeah, everything I've read about the corporate governance of Sam's enterprises seems like it should have been turned up pretty quickly under the most basic diligence.

I can see how "Main Street" investors got completely screwed over, but what I don't understand is how any sort of institutional money flowed into FTX and propped it to the massive scale it achieved. That deserves closer examination.

The justifications in EA's long-termism are very similar to SBF's 'expected-value-reasoning', and the idea of buying out politicians to promote your cause is straight out of the EA playbook, fully justified by the philosophy. Just saying 'don't break laws while getting rich' is a band-aid, the problems exposed here run deeper.

>the idea of buying out politicians to promote your cause is straight out of the EA playbook, fully justified by the philosophy

By "buying out", do you mean literal bribery, or just lobbying? If it's the latter, are you also against other organizations (eg. unions, environmental groups, activists) that try to fund raise/lobby for their preferred candidates?

EA sounds to me like Machiavelli. In summary: the end justifies the means.

I thought this was covered in any ethics class before highschool, I cannot see what is so interesting about it.

He said "I'm doing EA" - the EA community said "He is amazing he is doing the best EA"

What makes you think that he wasn't doing effective altruism

The part where it turned out that he was just robbing people.

According to him, he just made some mistakes labelling things and it got out of hand.

A modern day robinhood - stealing from the rich and giving to the poor

This type of scam likely couldn’t have happened for so long in today’s world with standard currencies and securities because those are tightly regulated and controlled. So yes, their scam does have something to do with cryptocurrencies, especially since they were minting their own in FTT.

First and foremost a huge number of people saw their savings and investment wiped out by sociopaths that defrauded them and continuously lied to everyone's face as the charade came crumbling down. SBF and his cadre seem likely to escape any form of justice. Indeed there is a chance they'll be able to keep a portion of their ill-gotten gains.

Those directly effected and their friends and family are hurt and angry. Those are the normal feelings to have. They will express them. Now is the time for listening and supporting, not correcting details.

There are other parties that have long standing disagreements with both the EA and crypto communities. Many of them are taking this moment to dogpile and dump on those movements to prove their point. I believe the right response is to reflect and self improve. The crypto community is drastically embracing self custody and defi. Moving transactions on chain will help prevent this type of fraud (and it's the core point of crypto to begin with). This is a reasonable path forward. I'm not plugged into EA but I hope there are similar efforts being made to learn and rebuild.

The best parts of both communities is focused on changing core primitives of human society at a scale never attempted before. If they're going to succeed they will have to overcome much bigger challenges than what this recent disaster caused. It will take time, openness and dedication.

I think both communities really need to realize and prepare for the fact that they're challenging areas that are extremely attractive to sociopaths and psychopaths - money, morality and ultimately power. The community must be able to identify, contain and limit the damage caused by bad actors.

be careful about portraying any time an EA practitioner shows up negatively as "well they weren't actually doing EA" / adopting that line of defense from the EA community. obviously that community now wants to distance themselves from bad press

Nobody has tried actual communism.

It wouldn't be an indictment of DeFi/cryptocurrencies if it weren't for... you know... this being basically the main pattern used in all of DeFi/cryptocurrencies.


You're conflating coin count with their relative size.

This is not the main pattern in either BTC or ETH.

I think it is fair to BTC and ETH, just by saying MtGox and DAO split.

The former was, what, 4% of all BTC that will ever be, and the latter was socialism for those close to the developers, capitalism for everyone else.

Those were really big deals. It's just that they happened when it was less mainstream. Doesn't make it not a pattern.

Nor does one data point for each make a pattern.

> the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals.

The most fascinating part of this whole story to me is just how few checks and balances there were in this company. Even without a board, did major investors not get his quarterly financials? If the leaked balance sheet was any indication of their level financial engineering capabilities, it's hard to imagine there weren't major red flags through most of 2021.

I think the reason is that he was seen as a financial genius boy wonder who just understood crypto better than anyone from the "old guard". So he got away with wildly inappropriate things.

More generally, we (as a society) seem to be worshiping those who make a fortune, and forget that they too are just as faulty as the rest of us. Initial innovative success gets projected to mythical proportions, and once the investment streams are open there is no limit to the wealth they accumulate. Looking at you Elon and Zuck.

In other words, the investors were stupid and deserved what they got.

Customers were owed better, but large scale investors who don't do due diligence and end up losing their shirts deserve every bit of it.

I have to agree with this. While I don't like to victim blame usually, the VCs are too much in a position of power to truly be victims here. They absolutely could have pushed for more transparency or a board and likely would have smelled smoke when there was none

> VCs are too much in a position of power to truly be victims here

Sam playing league of legends during his pitch meeting with squioa capital gets memed a lot but it truly is absolutely staggering that so little common sense was applied here.

VC's also have a high risk tolerance. Not every investment is even expected to pay off. So yes from their perspective, they took a risky bet and lost.

But they'd still have a case as victims if FTX signed contracts and then violated them. Or broke laws which cost them money.

Are you familiar with the term "accredited investor"? It's a formal term that the SEC uses to differentiate Joe Upper-Middle who has put 200K in a retirement program, from Josefina Nouveau, who has either:

earned income exceeding $200,000, or $300,000 when combined with a spouse, during each of the previous two full calendar years, and a reasonable expectation of the same for the current year


a net worth greater than $1 million (either by yourself or combined with a spouse), excluding your primary residence.

and is therefore expected, rightly or wrongly, to be able to judge the riskiness of a potential investment and absorb the loss without being crippled.

I think it's more likely that the more sophisticated investors knew there was a lot of handwaving going on and they thought they'd get through the exits with principal+profit before they became clogged. Sometimes people are known to just not ask if they think the details are odious and they want to maintain plausible deniability about knowledge of source of the profits.

There is a saying that you invest in the leadership not the company. So the whole personality hype probably was indeed big for getting investment as well as keeping investors from insisting on putting their own "guys' in charge (maybe they didn't even have any experienced crypto people yet).

Overall though, this isn't really surprising. I think generally no one really knows what's going on in a private company like this if the CEO is the founder and has all the power. It's exceeding possible and common for them to mix personal and company finances. Probably the norm.

Reading about SBF it seems like he was just doing arbitrage trading crypto between Asia and the US. When new players arrived that money fountain dried up and he turned to riskier ventures which blundered. None of that seems particularly brilliant, yet he was perceived as such. Plus he was a billionaire giving his money away. I think people just want heroes and ignore the red flags.

I find it hard to believe that tier 1 VC's would not have specialized top notch crypto talent on hand.

Elon and Zuck aren't comparable - other than earning billions from scalable enterprise.

Ha, I'm genuinely unsure which one you think is better/worse than the other.

It's like working out which return value from a comparison operator is the right one - +1 or -1?

I think capital gains are not really 'earning' something, in the standard English use of the word.

> capital gains are not really 'earning' something

I think it's fair to say earned when it comes to the literal founder.

I thought that was the whole point: unregulated (or at least extremely minimally regulated, preferably in a jurisdiction that has a looooong history of looking the other way and in a perfect world with no extradition treaties), decentralized, anonymous financial systems. It doesn't surprise me in the least that these clowns were running across the high wire without a net using other peoples money. The fascinating part to me is that anyone didn't think this was the inevitable outcome. But then I spent an hour this morning with some banking industry blockchain folks spinning this as "well obviously this debacle is great because it finally will shake out the bad actors and leave just us good-guys taking crusty old banking into the glorious crypto future". Just like they've said about every debacle since Mt Gox.

There was nothing decentralized about FTX. It was just a centralized exchange in the Bahamas that happened to trade crypto around.

The whole point of defi is to build systems where nobody can do what FTX did. Uniswap for example doesn't even have admin functions. Nobody can move your funds on Uniswap besides you.

The whole circus is a mass delusion. I would really like to see some academic studies on the phenomenon.

I give you the studies:

“In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.”

― Friedrich Nietzsche

Gustave Le Bon's The Crowd is pretty comic when things like this happen. Can find things straight out of the headlines but from 1895.

There's a weird split in the space in that regard. There's a lot of right-libertarian-esque "no gods or kings, only man" ethos in the cryptocurrency space but there's also been a lot of work trying to build the guard rails that are common to society into the systems.

People like to joke that cryptocurrency is just right-libertarians speedrunning financial legislation history but the reality is more that a lot of the tools that governments use to make finance "safe" don't have well established parallels that work on a decentralised platform. A lot of that "speedrunning" is the people who are actually building things trying to figure out how to still have reasonable safety and stability without relying on a single government or power to enforce policy.

Things like privacy preserving transactions/communication and decentralised consensus are useful and valuable features but it's taken years for game theorists and cryptographers to work out schemes that are even close to being sustainable at scale without compromising on priorities. Doubly so to build those tools for stability that are essential for a well functioning society such as the capacity for KYC, tax, and regulatory compliance without compromising on the above priorities.

So in a sense that argument that "this is good because it shakes out the bad actors before they can do too much more damage" is accurate but not in the sense that it allows the "good guys" to continue in their glorious libertarian fantasy. Rather it's a good thing because it minimizes the potential damage that can be done until researchers and engineers can develop the technology to a degree that the average person could actually use it.

It's a race against a regulatory clock and when it strikes midnight, unless there is a working example of a "good" and "safe" cryptocurrency, regulators will absolutely go for the throat. Unless the tech is sufficiently mature, they will divide the space into one that is illegal & only used by criminals and another which throws any semblance of decentralisation or privacy preservation out the window. This take is unfortunately fairly US- and Euro-centric but the reality is that those two sets of governments and regulatory bodies will be the ones to decide what form digital currency/digital assets take going forward.

I didn't say this was a right-libertarian thing, so I don't want anyone to think that was my bias here. I think it's clear that there are hucksters of all stripes jumping on this bandwagon.

That said, I think this is as insightful a summation of the situation I see in crypto as I've read recently.

It's a race against a regulatory clock and when it strikes midnight...

I may steal this gem. :-)

Zero interest rates make the rich desperate to find a new money printer.

This is the MOST underrated statement in all the threads on this whole fiasco.

Government and Wall St. (but _especially_ government bare at least some responsibility for letting the pot get too big.

These are the same group of people. Low interests are working out just fine for them.

Part of my wonders if it was intentional on Sequoia's part to not take a board seat or get too involved. If they had and Alfred Lin were a director of FTX, he would've been pulled into the bankruptcy and all of the lawsuits, as well as all of the bad press.

By being a passive investor, they can write off their investment and move on.

Given what we know now, those financials were probably completely wrong.

Yeah I’d venture a guess based on what we’re hearing that they just wrote up whatever they wanted it to look like.

When the hype train is rolling and the valuation is skyrocketing, nobody asks questions.

There was a board, but "FTX’s board, though, had only three directors as of earlier this year: Mr. Bankman-Fried, an FTX employee and an Antigua lawyer who specializes in gaming."

How would that help? Anyone can lie on a spreadsheet or deck.

It was fraud all the way down.

I think those investors got all the paperwork they wanted and it looked good.

> The amount raised contained numerical references to marijuana and oral sex: $420.69 million raised from 69 investors. An article published by one of FTX’s investors, Sequoia, called that fundraising a “meme round,” referring to the embedded jokes.

Is Sequoia going to need to rebrand itself after this? Sure does raise some questions about their judgement and professionalism. Hey Investors, we're raising a round of almost half a billion dollars and the theme is...

That freakin novel of a fawning profile of SBF on their website sure hasn't aged well.

Sequoia was also backing Musk's takeover of Twitter. Not sure if they ended up investing.

If they did then their record is looking pretty poor right now.

Twitter is at peak MAUs and according to previous financial statements should be cash flow positive after personnel changes. Seems like they invested in a business which was almost immediately switched into a profitable enterprise on an upward trajectory.

What am I missing? Or are you making a prediction that is the opposite of available evidence?

Peak MAU means nothing if they can’t keep investors or get those people to pay (to make up for the advertisers they may be losing).

It is likely at peak MAU because a lot of people want to be “in” during what they _think_ is the crash (think of crypto a year ago when it was a peak, but now it’s way down). Current MAU may or may not be reflective of MAU in a month or two since the reason is so weird.

The old financial statements are probably meaningless at this point given how much has changed and how many advertisers have reportedly pulled out.

Not saying that I think Twitter will “fail” or even that it won’t be profitable. Just saying your metric is likely meaningless and is just a snapshot of a weird time.

Isn't your metric of "some advertisers pulled out" meaningless? There's actually zero evidence revenue declined at all. Ads still seem to be running, and they have more eyeballs than ever. Someone's paying.

If salary expenses are halved, the company is cash flow positive next year.

I guess what I'm saying is, I'd rather trust financial statements than CNN articles about how Twitter is supposedly burning to the ground (CNN is a direct competitor and has a conflict of interest).

You’re right, it is. I am also just basing my “metrics” off rumors and company statements. Which is really all we have at this point.

Advertisers the "may" be losing? They're canceling their spending in droves if you google the subject...

“$10B in anonymized, aggregated business transaction volume each year by Ramp customers”

1. That’s basically nothing compared to the big names. 2. This tweet is intentionally using _rates_ but I don’t see absolute values. If I spend $2 vs $1, I’ve doubled my spending, but I also haven’t really spent anything. Last week my coffee spend was about 700% higher than usual! Because I bought a single coffee from a coffee shop instead of making it at home. 3. This sample seems to be just of a very small number of small companies (which are this tryramp’s customers). Again, this is pretty useless on its own. Especially when we have statements that large companies are pausing spending. 4. If big names are pulling out, the ad space may be cheaper (due to less demand) at which point they are giving more to Twitter but Twitter is still taking in less.

We don’t know either way, but that tweet gives no real information on its own.

That's from 10 days ago. The Eli Lily account which kicked off the ad exodus was 5 days ago.

They are pausing them. Advertisers have paused spending many times on various platforms and more often than not, return. Time will tell what happens here.

Some advertisers have pulled out, and running a break-even business sitting on a war chest is different than running a business that has lots of loans in a high interest rate environment.

I think this quarter might look good for twitter with 70-80% of their employees gone but next isn't going to look so great after there is no one to fix bugs and add features.

if Musk's personnel changes at Twitter work out, I'm betting other .com's are going to look at the same ideas. "Sign up for hard work or leave" is a pretty compelling way to cut payroll, especially as there is industry-wide antiwork grumbling (meaning, by both workers and management). Of course, if the gamble doesn't work out, it will have been a self inflicted wound.

> What am I missing?

The fact that a massive number of high-profile advertisers have announced they've stopped buying ads?

> > Audi of America, United Airlines, General Mills, General Motors, Volkswagen, Modelez International (which makes popular products like Oreos), and Omnicon (which manages advertising for brands like McDonalds and Apple)

So two of the world's largest automakers, the world's richest computer company, one of the largest food companies in the US, the largest fast food chain in the world....yeah, I'm sure they'll keep right on with that "upward trajectory" with revenue falling like a lead balloon.

...and not just because of a risk of hate speech and other not-brand-safe stuff happening, but because they rightly feel that the company losing half its staff (the half too stupid to leave) has serious implications for almost every aspect of Twitter's operations, including minor little things like cybersecurity. Who's going to be doing pentesting? Who's going to be patching exploits in the mobile clients and website? Who's monitoring for things like bot networks registering fake accounts (remember when Elon was concerned about that?) and pushing tweets full of political, economic, or social misinformation? Dollars to donuts twitter starts having problems with shit like tiktok's endlessly destructive "challenges."

Hell, advertisers are probably wondering whether they'll even get a bill or know where to send a check.


That it's not "personnel changes" but thousands of their best employees leaving? (It's not the worst people that leave.)

That it took barely 48 hours for Musk to cause a major outage, accidentally killing the services that handled 2FA because he thought "bah, all these silly microservices"

That Tesla stock was at ~$380 this year and is now at half that? In less than a month it's gone from $230 to $180.2

>That it's not "personnel changes" but thousands of their best employees leaving?

If you pick a random 50% of people from ANY company, only 10-20% of that group are actually high performers. As Musk pointed out, there were several developers laid off who wrote zero lines of code in three months. Sorry, but that's unacceptable and is not indicative of high performance.

Top performers may write 1,000 lines of quality code per quarter, but it's never zero. If you're writing docs all day, you're useless.

Also consider the leaked Project Veritas videos of a Twitter senior engineer admitting he worked only 4 hours a week.

The "top performers" laid off you defend literally work less than 1 day a week.

Omnicom is a much bigger deal than those two clients.

It's the second largest advertising holding company in the world.

That's the biggest deal of all the names quoted by a LARGE degree.

They have 5,000 different clients.

At the very least it calls into question their due diligence process.

I mean how did dozens of big investment firms put money into this thing without even seeing the balance sheet? Which would have immediately exposed them as fraudulent

> Three months earlier, in July 2021, Mr. Bankman-Fried bought out the roughly 15% stake owned by Binance, FTX’s first outside investor. Binance CEO Changpeng Zhao tweeted this month that the amount totaled $2.1 billion, paid in a combination of FTT, FTX’s in-house cryptocurrency, and BUSD, Binance’s stablecoin, whose value is pegged to the U.S. dollar.

Hmm. Binance triggered FTX's downfall by dumping FTT, causing the domino effect.

Does this mean that Sam was the one who sold Binance the FTT which Binance subsequently used to cause FTT to collapse? I just assumed Binance bought a bunch of tokens themselves for some reason.

That's quite the turn of events!

Does this mean that Sam was the one who sold Binance the FTT which Binance subsequently used to cause FTT to collapse?

Yes exactly.

Binance triggered FTX's downfall by dumping FTT

I don't know if they actually dumped; they just announced it. It doesn't matter now.

It matters! Because that'd be hilarious. Is that really true that an announcement of a pending large sale (but no actual sale) was enough delta to topple the house of cards?


CZ announced that he was going to sell a certain amount of FTT and people could see that there wasn't that much liquidity on all the markets combined which implied that the price was going to near zero eventually, so other people completely rationally started selling FTT before CZ.

Well, of course it's true. How could it be otherwise. If you see an 'announcement' and you wait for consummation, you've already missed any market move you could have taken advantage of.

AFAIK they weren't able to sell everything before FTX collapsed, leaving them at a loss.

CZ may have planned on dumping FTT, causing a run on the bank, and then acquiring everything for almost nothing. Had it not been a fraud, it could have been a brilliant (illegal??) move. Now that it is a fraud, CA is trying to prevent the contagion from trying to take down the whole crypto market.

Hilarious if CZ managed to sell 15% for the tools to get 100% though.

Dump your life savings into a crypto exchange based in the Bahamas, sure. But god forbid you invest $20k in a startup without being an “accredited investor”

I'm not sure what your point is. You can invest in whatever you want in the Bahamas without being accredited (as far as I know). If anything, the blowup of FTX seems to justify why investments in unregistered securities in US-based companies aren't allowed to be marketed to unaccredited investors.

Are you saying we should allow companies with the level of oversight FTX had more free reign to operate and market their equity in the US?

I am saying the whole “accredited investor” thing should be abolished

So, USA makes some effort to stop ripoffs of unwitting "unaccredited" investors within the USA.

Because this cannot stop ripoffs outside the USA, you propose ditching the within-borders effort?

> So, USA makes some effort to stop ripoffs of unwitting "unaccredited" investors within the USA.

The problem is that it's a dubious premise to begin with to assume that someone's knowledge or competence is tied to their salary or net worth. It's just baseless gatekeeping.

It's not baseless. Those who are least able to tolerate loss and have the least time to do due diligence are precisely those most attracted to get rich quick schemes and most susceptible to deceptive practices.

There is nothing in the premise correlated to the amount of the investment.

Suppose I have a net worth of $900k and want to invest $10k each into friends and family rounds of 5–10 startups. The Accredited Investor law in the U.S. makes that impossible today.

What if my net worth was $1M before the pandemic and is now ~30% below that threshold? Suddenly, I'm no longer accredited?! That makes no sense. The boundaries chosen are indeed arbitrary and baseless, designed to restrict access to opportunities for those in the case I describe.

Salary is also an arbitrary rule. One could make $200k/year, spend it all, and still qualify. But if someone makes $175k, lives minimally, and saves 50%+ of that, they are "unaccredited" and are blocked from accessing such opportunities. This also makes no sense.

Irrespective of my salary or net worth, I have enough experience in the tech industry to evaluate and do due diligence on small deals like that. But technicalities like this in the Accredited Investor rule block me from being able to access them.

Risk assessment is a personal choice. The Accredited Investor rule does more harm than good in this country today with its arbitrary pegs blocking access to good opportunities for those that are capable of vetting them.

Guardrails are for highways and bowling alleys. One can go blow their entire net worth on shitcoins and penny stocks and the Accredited Investor rule could care less. There are good and bad investment opportunities everywhere, but this rule is blatantly random and asymmetric.

Perfect is the enemy of good. Just because we can't block all ways to take advantage of people doesn't mean that we shouldn't block any.

Yes, it does. Instead of a startup getting its first investment (from a non-accredited investor) which might have gone on to do amazing things, that extra $$ is instead dumped into highly leveraged options, or penny stocks, or shitcoins, or collapsing crypto exchanges, etc. Money goes down the path of least resistance. I would be okay with it if you could also become accredited by taking an exam testing your knowledge of risk tolerance, money management, etc. Otherwise it is just gate keeping. I say this as an accredited investor with several startup investments, by the way.

It's also about their ability to withstand losses.

I disagree. It would be one thing if we could say that a person's decision to get into an ultrarisky investment only affected themselves, but that's not true. When investors get scammed or a high risk venture simply fails, there's a blast radius. People getting ruined strains families, social groups, and organizations. Then the government has to step in in all sorts of ways to help clean up the mess.

The most experienced firms in the world got sucked into FTX. That's going to happen from time to time, and they're built to absorb the losses with limited social fallout.

Now, I do think that the rules as they are right now aren't great. They should be focused more on containing risk (we do this with systematically important financial institutions) and evaluating preparedness from a knowledge perspective.

The other thing you could do is try to increase access to registered security status from the venture side, with frameworks for disclosure, reporting, and accountability that don't require hiring millions of dollars worth of professional banking, accounting, and legal services.

[1] https://en.wikipedia.org/wiki/Systemically_important_financi...

Rules like this exist only to maintain old wealth at the expense of the young.

Just like with Ponzi, you need new idiots to come along and dump their money into a pot so that the early investors can cash out.

The early investors need to be early! You can't have young idiots coming in at the beginning, they might cash out before you.

So a two-phase investment system is required: the old money that can invest early, and the new money that can be exploited by them.

Conveniently, the old money controls politics and gets to write the laws, which is why there is a law restricting only "accredited investors" as eligible for being in the first round.. the only profitable round.

A friend of mine sold a startup and spent months talking to the uber rich, people with net worths north of 500M. His eyes were opened when he realised that the entire system favours these people and the preservation and expansion of their wealth. It's not an accident. They buy these laws!

Any idiot over 21 can also put their life savings on black, but yes, the accredited investor thing is a bit weird. Maybe it's that a lot of those investments are risky, but not obviously risky in the same way as roulette or crypto.

I just got into an argument with someone else on here because they think a crypto scam "audited in Gibraltar" somehow doesn't make it any less legitimate. People didn't make sound financial decisions before this collapse and the cycle will likely repeat in some other form, if not the exact same with a different name, after.

Yeah, let the sophisticated retail investors that were buying growth and meme stocks at 100x sales go wild

If there's one thing that recent events have shown is that we need more regulation, not less.

FBM is a loon, and everyone knew it, but as long as they were making money they looked the other way.

The crypto bubble crash was directly driven by the COVID bailout. People had pockets full of money from day trading on robin hood, money flowing out of Blackrock like it was the big rock candy mountain. Nobody should be shocked, and the professional pension fund managers should be ashamed.



The amounts of money we’re talking about here are sort of staggering. I know they did a pretty good job of not keeping any records of depositors, but do we have any sense of depositor demographics, total number of depositors, or average account size? Any KYC at all? Like did retail “investors” really pump close to $16B into this? Could the scam here be crypto whales used this as an off ramp to turn their crypto into fiat, and then burn the ramp and all evidence of who used it behind them?

Clients had to log into FTX to witness their account balances and history, so it is impossible that the data was never captured or available.

How can i log in to see my history

Apparently some hedge funds had money at FTX, which is why there's talk about "contagion."

For people looking for prosecution like embezzlement or something else, these things usually rely on a violation of company policy then enabling a violation of a criminal law

FTX/Alameda had no company policies and in this case disclosed what they were going to do to investors. “Buyout binance’s stake”.

There is only so much the governments do to prevent you from wiring money to a sketchy opaque shadow bank in the Bahamas.

There are likely other charges that they could face. I don't think this rises to the level of embezzlement (although IANAL), but the missing customer deposits, lack of strict segregation between Alameda and FTX, and the use of company assets for personal loans and purchases will probably lead to indictments.

that I agree on, just commenting on this specific article

It goes much deeper. They clearly stole a lot of customer money and SBF is supposed to have had a "backdoor" he could use to move funds between the exchange and Alameda to avoid detection by auditors. It doesn't get much more criminal than that in finance.


Of course, with the way he and his family are connected, it wouldn't surprise me if he eventually walks free.

How common was it for founders to cash out on common shares in the Series C-E rounds the last decade?

Very. It's usually not this egregious though. Founders might want stable finances for their family or the ability to buy a reasonable home, but VCs want them to keep going, so VCs allow founders to cash out some of their equity so that founders don't go for an exit for the sake of their personal finances.

Agreed but it's never this significant. In the world of "real companies" investors, boards, teams, etc are not OK with providing a founder with "F U money" (which this certainly is) so that they can go on and do nothing, leave for another venture, etc.

For the others involved from investors to employees it's never good to be working with someone who could (theoretically) stand up from a meeting and walk out to go on and do whatever they want forever.

I'm reminded of the "Grouponzi" round from 2010. https://venturebeat.com/entrepreneur/groupon-fundraising/

Thanks for this. Love the end:

> And this stealth IPO has one more advantage: There’s nothing preventing Groupon from doing a real IPO in 2011. If anything, the reassuring cash pile makes it a more attractive investment.

Bingo. It could be argued the relative failure of Groupon was largely driven by key stakeholders/insiders cashing out way too big way too early.

Makes sense, thanks.

The article: "Mr. Bankman-Fried’s cashout was large by startup-world standards, where such sales historically were taboo because they allow founders to reap profits before investors."

if the investors are willing to buy your shares from you, then why not? I've done secondary sales as early as seed. Unless you hide it from the board somehow, or you are explicitly prohibited from doing this, it's just a business transaction.

Not an ethics question of why or why not, I'm just curious.

So execs don't bounce. I left a company because they didn't offer a secondary and i was 3/4 vested with no exit in sight. I had a job offer to another company that promised an IPO in a year. If i would have been paid, i would have stayed but its hard to turning down a "guaranteed" 7 figure pay out. It's a numbers game, 1 out 10 startups will have an exit that makes people money.

It was certainly much more common the last few years. However, those transactions are more of "hey investor, let me sell you some of my shares in this round" and not whatever complex behavior is described in this article.

Pretty common. With startups waiting ten years to IPO, many founders and employees would "take money off the table" along the way.

It’s common to sell secondary, but usually limited to something like 10% of vested shares per person.

He's gotta be eyeing that Elizabeth Holmes sentence nervously

Nha, he spent a good couple of billions on buying favor of politicians. He’ll end up with a slap on the wrist and a “boys will be boys” sentence compared to Holmes.

SBF sold a portion of his shares in the company for $300M instead of selling other outstanding shares. This meant he got to cash out before investors which is frowned upon because it signals that SBF believed that a $300M investment in another place was more valuable than keeping his $300M invested in FTX.

I wouldn't say it's frowned upon. I think that determination depends on the context.

hmm is this effective altruism, seems like they used it to cover massive fraud.

I don't know if it will happen, but a potentially good outcome here would be some regulation on the business practices of sufficiently large private companies in order to ensure they meet some basic level of corporate governance. Maybe they don't need the same level of scrutiny publicly traded companies have, but establishing minimum standards of conduct would help avert crises like this that can spread across entire sectors.

In Europe there are rules that work out to: if you have 50 employees or assets over EUR ~5 million, you must disclose audited financial statements publicly (this is not strictly true, but it is true to a first order approximation).

It wouldn't be crazy sounding to require that companies worth over $10 billion USD disclose financial statements audited by reputable firms.

Disclose to a government agency or to the public. Those are very different beasts.

Like, can I look up the statements of a particularly profitable McDonalds?

Some version of this would make sense to me.

Fraud ands theft are already illegal.

And it's becoming more and more apparent that the "investors" had no desire to look closely at their golden baby.

Yes, but the total lack of corporate governance that contributed to it is totally legal, and could have possibly prevented the fraud and theft.

Not investing into companies that are obviously either frauds or extremely incompetent is the investor's job. We don't need a lot of new regulation to make it harder for you to buy bridges from people you meet on the subway.

The idea behind the lack of regulation is that the impact is contained to the investors. It's obvious that in sufficiently large cases, that's not true. If these actors are able to do damage to entire sectors, they should have to do some minimum stuff: keep track of their money, have board meetings, submit to audits, etc.

And they will ... it's just that they'll provide false numbers to audits, their board will be them and their friends, and they'll keep track of their money as it makes its way into their pockets.

I guess we need more blockchain! But what business will have 100% of their relationships, contracts and transactions publicly visible?

Have you worked with a reputable outside auditor? You don't just provide numbers and illustrate your methodology for obtaining them, you have to essentially reconstruct your entire revenue and finance system with them, provide ongoing random samplings, demonstrate the consistency of any calculations, and many, many other steps that I don't have time to illustrate. Companies couldn't just provide a false number, they'd have to construct a parallel revenue and finance system with false data. Do some companies still cheat and get away with it even after audits? Of course. But it's a major deterrent to this kind of behavior and a reputable auditor would have caught many of FTX's illegal activities much earlier.

That depends on how much effort it is to fool the auditors. Will it cost you 5bn a year or 5mn? It worked for Wirecard, and as far as I understand, it wasn't super sophisticated either.

Prosecution for factually lying (e.g. "providing false numbers to audits") is much easier than prosecution for intentionally lying (i.e. fraud).

Do you believe they'll have trouble building a case against SBF & friends?

I took the comments to mean they wanted something to stop this from occurring, and I don't think that works well, criminals are going to do what criminals do. You can prosecute afterwards, but you can't easily stop them before they do it, see Theranos, WireCard, Nikola etc etc.

What's really nuts about this fiasco is the amount of (US taxpayer) money from Ukraine that got funneled back into FTX.

How much exactly?

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