Alameda Research Borrowed FTX Customer Funds Without Limits (watcher.guru) 26
The testimony of the new FTX CEO, John Ray III, is now public (PDF), and it includes some shocking revelations about the nature of the cryptocurrency firm. The court documents show that Alameda Research borrowed FTX customer funds for trading and investment purposes without any limits. Watcher Guru reports: In the court documents, Ray relayed a detailed account of how Alameda Research would utilize FTX customer assets. Subsequently, the firm utilized them for the purposes of trading and investment. The document noted, "The ability of Alameda, the crypto hedge fund within the FTX Group, to borrow funds held at FTX.com to be utilized for its own trading or investments without any effective limits." As the shocking statement was reported under inappropriate business practices that Ray has uncovered amidst his disappointment.
Ray revealed that access to those funds was not at all protected from management. The statement noted, "The use of computer infrastructure that gave individuals in senior management access to systems that stored customer assets," according to the documents. Furthermore, Ray revealed that "Private keys to access hundreds of millions of dollars in crypto assets," lacked property security or description. Conversely, Ray notes that assets were commingled, and the platform lacked proper documentation of nearly 500 investments made by the FTX group. UPDATE 12/12/22 00:13 UTC: FTX Founder Sam Bankman-Fried Arrested
Ray revealed that access to those funds was not at all protected from management. The statement noted, "The use of computer infrastructure that gave individuals in senior management access to systems that stored customer assets," according to the documents. Furthermore, Ray revealed that "Private keys to access hundreds of millions of dollars in crypto assets," lacked property security or description. Conversely, Ray notes that assets were commingled, and the platform lacked proper documentation of nearly 500 investments made by the FTX group. UPDATE 12/12/22 00:13 UTC: FTX Founder Sam Bankman-Fried Arrested
Just so you guys know... (Score:2, Insightful)
... none of these losing investments were made in good faith, either. They dumped the funds into investments they knew were bad because they were mafia fronts for money laundering.
What limits were applicable? (Score:4, Insightful)
So the key question for these crypto companies is - what did the people who gave them their private keys actually agree to? Or, what over-arching consumer protection laws might apply whether or not the company and depositors / customers / investors agreed to, or were even aware of them?
Re:What limits were applicable? (Score:5, Informative)
My point is, the customers didn't buy stock in FTX, nor did they expect it to be FDIC insured like a bank. FTX operated more like a brokerage.
When stock brokers go bankrupt, your stocks are generally in tact, and will by honored by other brokerages. If your broker loaned out your shares, you will be compensated by the broker's insurance from the Securities Investor Protection Corporation. [sipc.org]
Cryptocurrency doesn't work like that though.
Re: What limits were applicable? (Score:2)
What reasonably applies here is their TOS. Reportedly there was two types of accounts, deposit where they promised they wouldn't touch your holdings and margin accounts where it's murkier.
Re: What limits were applicable? (Score:2)
If anything the money is legally an unsecured loan. The funds are not insured or guaranteed by any entity. Depositors might as well throw cash into a barrel and burn it.
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Yeah but at this point it's pretty clear they were completely unconcerned with whether or not they were playing with customer assets that they were not supposed to be doing anything but hanging onto.
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Yes but for margin account holders there's the possibility that they have no legal recourse.If the "borrowing" of customer funds was allowed by the TOS and at the time secured by FTX FTT coin, they might just have to accept those. For normal account holders there's at least the possibility of a claw back from Zhao (Binance) who was bought out of FTX for $2B.
Re: What limits were applicable? (Score:2)
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And let us not forget, FTX was not headquartered in the Bahamas because it trusted the Bahamanian financial regulators more than the American ones.
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Crypto is NOT a scam /s (Score:3)
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Cash is not a scam. Come on guys. Give me all of your paper bills and I'll hold onto them for you.
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Cash is not a scam. Come on guys. Give me all of your paper bills
Are you retarded? Cash refers to paper bills (and coins).
Cash is a term used to differentiate between physical money, and electronic money.
If I give you my physical money, I won't have any cash.
Banks, who I DO place my money with, does NOT do anything of the sort with my money. They are not legally allowed to do that with my money, and there has been enough regulation and enforcement experience for them to understand that. They are not equivalent. If you cannot see the difference, you are a fucking
Re: Crypto is NOT a scam /s (Score:1)
but Blockchain lockbox
lockbox lockbox lockbox
Why is no one in jail??? (Score:2)
At last check, SBF is chilling at his Bahamas mansion/party house giving interviews, talking about his next business venture.
Wtf?!
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Omg, about fucking time, thank you for the update.
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The podcast Behind the bastards [behindthebastards.com] had an episode [iheart.com] about him recently. An inportant factor to his downfall was that he pissed of a wealthy neighbour.
And the FTX "organisation" was run with so little control and oversight that one of the guys working in the business of finacial damage control, having worked on the Enron case among other cases earlier, said he had never seen anything as bad as this before. I highly recommend listening to the episode (and the whole podcast).
Shocking or obvious? (Score:2)
I saw this as the main purpose for creating a sister company that held large amounts of FTT: assets could be moved back and forth between the two, while shifting funny around to hide the "check kiting".
Borrowed funds (Score:2)
"Alameda Research Borrowed FTX Customer Funds Without Limits"
I don't get it..... Didn't we pretty much all suspect this? Due to FTX's shady accounting practices?
A bit more to add (Score:5, Interesting)
Here are five things [marketwatch.com] the new FTX CEO had to say about what he found:
FTX customer assets were commingled with assets from the Alameda trading platform. That allowed Alameda to use FTX client funds to engage in margin trading without limits, exposing customers to massive losses.
FTX went on a spending binge from late 2021 through 2022, plunking down approximately $5 billion to buy “a myriad of businesses and investments, many of which may be worth only a fraction of what was paid for them.”
The crypto exchange issued loans and other payments of over $1 billion to company insiders.
Alameda’s business model as a market maker required it to place funds on unstable third-party exchanges, “which were inherently unsafe, and further exacerbated by the limited protections offered in certain foreign jurisdictions.”
FTX’s new management team has only been able to secure $1 billion in assets, saying that unreliable and incomplete accounting by Bankman-Fried has complicated efforts to recover missing customer money.
And also, Sam Bankman-Fried’s management of FTX was an “utter failure” that lacked any level of financial control and allowed his family-office trading vehicle, Alameda Research, to raid the crypto exchange’s coffers to make unlimited risky bets, which then blew the company up.
So yeah, this had scam written all over it.
$64b question: Management at other exchanges? (Score:2)
We know that crypto exchanges are new and law and regulation has not caught up to them. But what assurance do we have from --any-- crypto exchange that it's not run the same way as FTX was run? (if "run" can be used to describe this clusterfuck.)