News BITCOIN, Heists, Thefts, Hacks, Scams, and Losses

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The discussion highlights significant security issues surrounding Bitcoin exchanges, particularly focusing on the infamous Mt. Gox, which suffered a major theft leading to its bankruptcy. The exchange's management ignored critical warnings about its software's security flaws, resulting in millions lost and a tarnished reputation for Bitcoin. Other exchanges like Flexcoin and Canadian Bitcoins also reported substantial losses due to hacks and social engineering attacks. The conversation underscores the ongoing risks associated with Bitcoin transactions and the need for improved security measures in the cryptocurrency space. Overall, these incidents illustrate the vulnerabilities within the Bitcoin ecosystem that can lead to significant financial losses for users.
  • #451
morrobay said:
The explanation from some link that I do not have now: sbf/ftx would produce a cryptocurrency and only release a small quantity on the market, this resulted in a high valuation. While simultaneously producing a very large quantity of this same cryptocurrency and holding it away from the market. Now he assigns the same artificial high valuation from the limited open market to the massive quantities that he is holding.
Did SBF/FTX disclose they were doing this and people STILL bought...b/c they genuinely valued those tokens that high? Or, did he hide it and that's why people bought what they thought was a much more limited item?
 
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  • #452
I believe the latter. A restricted market supply that they manipulated to produce high artificial value. Then they assigned this valuation to a massive quantity that they just produced and held in their accounts to show $ Billions. The link was from some reply on r/cryptocurrency. reddit
 
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  • #453
And then Binance sold all their FTX FTT all in once and that pushed the value of it down and now Sam had to pay out those who also wanted to sell but he couldn't because his total assets in terms of actual dollars were not in the billions but rather millions and that in turn was because he had taken the billions invested in his FTX and transferred some of that money to his personal firm Alameda and done who knows what with that money.

So much for his pledge to give most of his money away to philanthropy during his life, instead he plundered other people's money away against their will and lied in the process.

I guess the facade of driving a cheap toyota and eating vegan is not going to help much in court.

This is much like Theranos all over again, only Elizabeth Holmes actually probably believed she would do good eventually but her huge arrogance and personal mental problems fooled her and eventually she fooled everyone else ... for a while, but Sam simply tried to make money out of money with fraudulent practices and eventually failed doing so and now lost.
 
  • #454
Office_Shredder said:
Defi exchanges and dao's in theory are open code, but people still find exploits. The point is all of this requires more trust than holding a dollar bill in your hand, or even a credit card, for which you aren't liable for unapproved charges. Instead you have to hope an open source app doesn't have a sneaky backdoor, or else someone can steal all your money.
The enormous difference between a qr code source code and a defi one is that one can be understood by noobs in programming (high level language) whereas the other is horrendously obscure, decompiled version of a program, usually on par with assembly and requieres a mastery in defi programming itself. There is a huge diff.
 
  • #455
morrobay said:
The explanation from some link that I do not have now: sbf/ftx would produce a cryptocurrency and only release a small quantity on the market, this resulted in a high valuation. While simultaneously producing a very large quantity of this same cryptocurrency and holding it away from the market. Now he assigns the same artificial high valuation from the limited open market to the massive quantities that he is holding.
I found an example of 'serum', one of their (FTX) tokens.

Bankman-Fried helped incubate the creation of serum, which was released in 2020. Serum has a low circulating supply of coins–initially, only 10% of it was freely tradeable, while the other 90% was locked up for years. But technically, he could extrapolate and assume that, if the circulating supply of serum was worth $1 billion, then the market value of all the coins in existence was $10 billion. Then he could get loans based on that higher valuation. Bankman-Fried ran this playbook with other digital assets too, which became known as “Sam coins” to industry insiders, crypto investor Jason Choi has written.

Choi concluded recently in a tweet, “This is likely how Alameda/FTX incurred the multi-billion-dollar hole: Alameda pledging illiquid collateral to borrow money to finance bets, which got margin called as markets went down this year.”

Investing Borrowed Money in Other Crypto Players

Another capital drain was venture investments. According to PitchBook, Alameda made more than 150 investments across the crypto industry, including in bitcoin miner Genesis Digital Mining and now-bankrupt crypto broker Voyager Digital. Alameda apparently took out loans to fund those bets. As the crypto market crashed, lenders reportedly attempted to recall those funds that were tied up in these illiquid investments. FTX’s and Alameda’s executives then took the questionable step of trying to pay back some of those Alameda loans using FTX customer funds, the Wall Street Journal has reported.
https://www.msn.com/en-us/money/per...ameda-research-lose-so-much-money/ar-AA14iAot

Borrowing for Other Big Spending

The finances of Bankman-Fried’s cluster of companies are so complex and entangled that huge chunks of it remain a mystery–even to the lawyers, financial investigators and bankruptcy veterans who have taken charge. But according to bankruptcy court filings, FTX executives also took out billions of dollars in loans from Alameda to fund everything from political contributions to Bankman-Fried’s purchase for $650 million of a 7.6% stake in Robinhood. It’s unclear how these loans may have also added to Alameda’s losses on top of everything else. Alameda itself has outstanding liabilities of $5.1 billion according to a filing Thursday in the Chapter 11 bankruptcy case in Delaware.

And then there was sloppy accounting, or incomplete accounting, and given the long period of time (going back to the creation Alameda) that this practice continued, it would appear to be intentional.

FTX customer deposits were not tracked, according to a bankruptcy filing, leaving it unclear in the bankruptcy proceedings what’s owed to customers. An example of this confusion: the leaked FTX balance sheet shows $8.8 billion in liabilities, while the Thursday filing in the Delaware bankruptcy case shows only $6.4 billion.

I guess it would be up to customers to produce records of their accounts at FTX. I'm sure some customers did not realize until their accounts were frozen that they were so vulnerable. The coup de grâce for FTX came when rival Changpeng "CZ" Zhao (Binance) publicly announced that Binance would dump FTX's FTT token. The story broke on Nov. 6.
https://www.coindesk.com/business/2...lameda-ceo-defends-firms-financial-condition/ (see video)
https://www.coindesk.com/markets/2022/11/07/first-mover-americas-binance-dumps-ftt-tokens/

Even on Nov 6. (before the revelations about FTX's and Alameda's precarious situations were known, some seem to minimize the situation. An online reporter, Wendy O, makes comments about not leaving one's cryptocurrency on an exchange, i.e., maintain custody. Adam B. Levine and Wendy O make some prescient comments.

Another commentary from Nov 7.
https://cryptopotato.com/ftt-drops-10-after-binance-dumps-its-entire-stash-of-23-million-ftx-tokens/
 
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  • #456
Nov 14 - Fortune - Binance’s CZ says he never shorted FTX’s crypto token—and the decision to stop selling it was ‘very expensive’
https://fortune.com/crypto/2022/11/14/binance-cz-says-did-not-short-ftx-crypto-token-ftt/

Last week, CZ recounted how he had issued a letter of intent to buy FTX in a bid to protect users after SBF explained the situation to him. But Binance quickly walked back the offer on Nov. 9 after it said it took a look at FTX’s books. On Nov. 11, the Wall Street Journal reported that SBF had mishandled customer funds to invest in Alameda Research, a trading firm he also helmed.

Last week, CZ warned that FTX’s collapse could lead to bigger consequences for the larger crypto sector, saying it could have “cascading effects” and comparing it to the 2008 global financial crisis.

Until CZ (Binance) and CoinDesk released information about FTX and Alameda financing (balance sheets), no one knew. Not even those who loaned $100s millions, or deposited cryptocurrency on the exchange.
 
  • #457
Astronuc said:
Until CZ (Binance) and CoinDesk released information about FTX and Alameda financing (balance sheets), no one knew.
Well, they DID know it was crypto and for some of us that's really all we NEED to know.
 
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  • #458
CNBC - ‘There is no such thing as a free lunch.’ 4 lessons for crypto investors from the FTX collapse
https://www.cnbc.com/2022/11/20/4-lessons-for-cryptocurrency-investors-from-the-ftx-collapse.html

“The FTX collapse provides harsh reminders that ‘there is no such thing as a free lunch’ when trying to make a quick buck in a still fairly new, unregulated financial industry,” said certified financial planner Jon Ulin, CEO of Ulin & Co. Wealth Management in Boca Raton, Florida.

Earlier this month, Fidelity Investments announced plans to launch a commission-free crypto product, allowing investors to buy and sell bitcoin and ether.

The FTX collapse has also renewed interest in cold storage, or taking digital currency offline, making it less susceptible to hacks. However, the move makes assets less liquid and harder to trade quickly.
If based in US, that would be regulated somewhat, but there appears to be need for further regulation, e.g., a legal requirement that companies use certain basic/fundamental accounting practices. It has to be a requirement/mandate, otherwise, it's just optional and the consumer/customer is left to figure it out.

As with any asset class(es), diversification is critical, but there can be times when all asset classes deteriorate/devalue.
Since topping an all-time high of $68,000 in November 2021, the price of bitcoin has plummeted by more than three-quarters, dropping below $17,000 as of Nov. 17.

“The [FTX] collapse should be a lesson that any individual company — be it a crypto exchange or more traditional business — can go bankrupt in times of distress,” said Kevin Brady, a CFP and vice president of Wealthspire Advisors in New York.

Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., in June introduced a bill to create a regulatory structure for digital currency, defining the majority of assets as commodities, such as gold or oil, which are overseen by the Commodity Futures Trading Commission.
and
House Financial Services Committee Chairwoman Maxine Waters, D-Calif., and the ranking Republican, Rep. Patrick McHenry, of North Carolina, on Wednesday announced plans for a bipartisan hearing in December to investigate FTX’s collapse.

Keep detailed records. Possibly daily, or monthly. I get monthly or quarterly statements on various accounts, which is fine for some accounts where they accumulate interest reported monthly or quarterly, but I check daily an account based on equities.
Regardless of where you’re holding digital currency, experts suggest downloading your transaction history periodically.

Gathering reporting documents is one of the most difficult parts of crypto taxes, said Andrew Gordon, tax attorney, CPA and president of Gordon Law Group. And if an exchange closes down, you’ll still need records to file your return, he said.

“Two weeks ago, very few people suspected FTX would be facing this,” Gordon said.

I though cryptocurrency was supposed to eliminate the middle-men, but then exchanges are middle-men, where customers pay a fee. Someone has to maintain a server on which to move digital assets. Otherwise, one has to open one's computer to the internet, which would likely attract hackers.

Certainly there needs to be some regulation of cross-border transactions. I can see though some like offshore accounts to avoid income or capital gains taxes.
 
  • #459
Astronuc said:
but there appears to be need for further regulation
Why?

Seriously. Why have any regulation at all? Willing buyer, willing seller and all that. Sure, these are dodgy, and sure people will try and make a quick buck "investing" in something they don't understand, and sure, the whole enterprise looks more like a casino than a bank. So what?

Do we let grown-ups make bad decisions?
 
  • #460
Vanadium 50 said:
Why?

Seriously. Why have any regulation at all?
Minimize harm to the individuals and general welfare. Otherwise, it's a Darwinian free-for-all for nefarious actors.

The Commerce Clause refers to Article 1, Section 8, Clause 3 of the U.S. Constitution, which gives Congress the power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.”
https://www.law.cornell.edu/wex/commerce_clause

Should there be truth in advertising? Should shady/dodgy entities be allow to take advantage of ill-informed or unsuspecting individuals. Some traders/investors are certainly gamblers looking to make a quick buck, while others are attracted by high rates of return.

But I'm thinking more in terms of requirements (without loopholes) to maintain a certain standard of accounting and financial practices, e.g., a prohibition of using customer funds without there express consent.
 
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  • #461
Vanadium 50 said:
Why?

Seriously. Why have any regulation at all? Willing buyer, willing seller and all that. Sure, these are dodgy, and sure people will try and make a quick buck "investing" in something they don't understand, and sure, the whole enterprise looks more like a casino than a bank. So what?

Do we let grown-ups make bad decisions?
I agree , let grown ups take responsibility for bad trading decisions, but if I invest money in a certain place and then that place takes my money against my will and does whatever with it, then that is a different thing, known commonly as theft, what Sam did was no different to just clearing someone's wallet without them knowing.

Yes sure it was done digitally and in a very abstract way but it's still theft, covering your losses with someone's money against their will or without their consent.
We should call it what it is.
 
  • #462
phinds said:
Well, they DID know it was crypto and for some of us that's really all we NEED to know.
Interestingly I looked up the word "crypto" and it seems it comes from greek "κρυπτός" which translates as "secret, hidden"
 
  • #463
According to Bloomberg, FTX Owes Its 50 Biggest Unsecured Creditors More Than $3 Billion
https://finance.yahoo.com/news/ftx-owes-50-biggest-unsecured-144207143.html
And Reuters
https://finance.yahoo.com/news/collapsed-ftx-owes-nearly-3-090734717.html

Were there any secured creditors? What about depositors?

Bahama homes were purchased with FTX corporate funds
https://finance.yahoo.com/news/bahama-homes-were-purchased-ftx-200915742.html
A new bankruptcy filing, first reported by CNBC, shows that FTX’s corporate funds were used to purchase homes in the Bahamas among other personal items. The details arise less than a week after the now infamous crypto exchange filed for bankruptcy — a decision that founder and former CEO Sam Bankman-Fried said he regrets.
I suspect the regret has to do with the discovery of the internal goings-on at FTX, the lack of liquidity, the high risk/margin, the lack of accounting, and the 'theft' of customer deposits.

https://finance.yahoo.com/news/bahama-homes-were-purchased-ftx-200915742.html
“From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented,” Ray said in the filing.

The document states that corporate funds of the FTX group were used to purchase homes and other personal items for employees and advisers. Ray added that “certain real estate” was recorded in the personal names of employees and advisrrs, and “there does not appear to be documentation for certain of these transactions as loans.”
So, would that be basically embezzlement?
 
  • #464
CNBC - From $32 billion to criminal investigations: How Sam Bankman-Fried’s crypto empire vanished overnight
https://www.cnbc.com/2022/11/15/how-sam-bankman-frieds-ftx-alameda-empire-vanished-overnight.html

The year was 2017, and the ex-Jane Street Capital quant trader noticed something funny when he looked at the page on CoinMarketCap.com listing the price of bitcoin on exchanges around the world. Today, that price is pretty much uniform across the exchanges, but back then, Bankman-Fried previously told CNBC, he would sometimes see a 60% difference in the value of the coin. His immediate instinct, he said, was to get in on the arbitrage trade — buying bitcoin on one exchange, selling it back on another exchange, and then earning a profit equivalent to the price spread.

The arbitrage opportunity was especially compelling in South Korea, where the exchange-listed price of bitcoin was significantly more than in other countries.
Then success
Part of why SBF, as he’s also called, earned street cred for carrying out a relatively straightforward trading strategy had to do with the fact that it wasn’t the easiest thing to execute on crypto rails five years ago. Bitcoin arbitrage involved setting up connections to each one of the trading platforms, as well as building out other complicated infrastructure to abstract away a lot of the operational aspects of making the trade. Bankman-Fried’s Alameda became very good at that, and the money rolled in.

Now infamy
Alameda’s success spurred the launch of crypto exchange FTX in the spring of 2019. FTX’s success begat a $2 billion venture fund that seeded other crypto firms. Bankman-Fried’s personal wealth grew to over $16 billion at its peak in March.

As crypto prices tanked this year, Bankman-Fried boasted that he and his enterprise were immune. But in fact, the sectorwide wipeout hit his operation quite hard. Alameda borrowed money to invest in failing digital asset firms this spring and summer to keep the industry afloat, then reportedly siphoned off FTX customers’ deposits to stave off margin calls and meet immediate debt obligations. A Twitter fight with the CEO of rival exchange Binance pulled the mask off the scheme.

And now the forensic analysis. An investor made mistakes, attempted to cover those mistakes through dubious or criminal actions, and surrounded himself with folks who didn't know or did, but didn't stop him.

Six months ago, a popular U.S. dollar-pegged stablecoin project (the stablecoin known as terraUSD, or UST, and its sister token luna) failed and wiped out ~$60 billion of value, which precipitated the failure of Three Arrow Capital (3AC), which was then followed by failures of crypto brokers and lenders such as Voyager Digital and Celsius had significant exposure to 3AC.

So bitcoins and ether have been declining in value, and that has many tokens to lose significant values. Some investors want there investments back. Some got it, some lost it.

The financial acrobatics between the two firms (FTX and Alameda) somewhat resembles the moves that sank energy firm Enron, . . .
Hence the comparison to Enron. FTX will join Enron in case studies of financial fraud. FTT is described as the 'native' token on FTX. I take that to mean, FTT's value is based on the underlying assets (crypto or digital currency) at FTX supporting FTT. But loans, or transfers, to Alameda, which in turn made loans and other iliquid investments basically removed FTX assets, and FTT depreciated to the point where no one would accept it in place of USD or actual digital currency.

I understand "The cryptocurrency industry’s entire ethos is founded on disintermediation and decentralization, . . . " but it seems the various exchanges undermine that ethos, because they are the middlemen that the crypto financial industry purportedly is seeking to replace.

Correct me if I'm wrong.
 
  • #465
@Astronuc , I am not arguing the government doesn't have the power. Under the commerce clause, they can do pretty much anything they think is a good diea. (Wickard v. Filburn. It held that a farmer growing wheat on his own land for his own use was engaged in interstate commerce)

I am instead questioning whether the government should take action. I see two problems - one is whether this will be effective, or whether it will prop up crypto (as we know it) so that it dies slowly instead of dies quickly. Is there any value in that?

The other is whether the people you would protect deserve protection. They are hoping to buy a worthless asset and sell it when it goes up to someone else. They are hoping to be at the money-making top of the pyramid or at least the middle, and not the bottom. Why are we protecting them? More to the point, if the government props this up, are they really doing anything beyond letting the pyramid grow?
 
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  • #466
Vanadium 50 said:
@Astronuc , I am not arguing the government doesn't have the power. Under the commerce clause, they can do pretty much anything they think is a good idea. (Wickard v. Filburn. It held that a farmer growing wheat on his own land for his own use was engaged in interstate commerce)
Yes, there are certainly many instances of misapplication of regulations, and lax or lack of enforcement, loopholes, etc. That's a whole other topic that will surely get into a political discussion.

Vanadium 50 said:
I am instead questioning whether the government should take action. I see two problems - one is whether this will be effective, or whether it will prop up crypto (as we know it) so that it dies slowly instead of dies quickly. Is there any value in that?
I believe the government should, however, I too am leery of the government. I would be concerned about poorly crafted legislation and resulting public law.

Vanadium 50 said:
The other is whether the people you would protect deserve protection. They are hoping to buy a worthless asset and sell it when it goes up to someone else. They are hoping to be at the money-making top of the pyramid or at least the middle, and not the bottom. Why are we protecting them? More to the point, if the government props this up, are they really doing anything beyond letting the pyramid grow?
Also, good questions. I think the majority were at the bottom of the pyramid, and many probably lacked the sophistication of what would happen if interest rates (of real money or pseudo-real money) rose in response to inflation (a deflationary period for cryptocurrency apparently and depreciation of 'tokens'), but I think most did not expect someone like SBF to 'take' customer/depositor/investor assets and use them for personal use including propping up a highly leveraged and poorly managed hedge fund.

I think cryptocurrency is a terrible idea, especially based on what we have witnessed in the last two weeks. It's value is effectively derived from the 'real' economy, and it looks like it's designed to make a few people very wealthy (in real money, not cryptocurrency), make many others moderately wealthy (those who get in and get out), and potentially leave many with little or no money.

Surely, many of the folks should have seen the warning signs, or earlier, done their own due diligence, which even veteran investors apparently didn't perform. Clearly, there are people like Warren Buffett and Charlie Munger, who stayed away, or Jamie Dimon (JP Morgan Chase Bank) who criticized cryptocurrencies earlier this year and is also not a participant.

“I’m a major skeptic on crypto tokens … like Bitcoin” Dimon said Wednesday, speaking at a House Financial Services Committee meeting with the leaders of other major banks. “They are decentralized Ponzi schemes, and the notion that it’s good for anybody is unbelievable.”
https://www.barrons.com/articles/bitcoin-cryptos-jamie-dimon-51663840617
https://www.coindesk.com/business/2022/10/13/jamie-dimon-again-slams-crypto-calls-blockchain-real/

But Dimon has apparently "Dimon touted blockchain and said he would welcome a properly regulated stablecoin."
https://markets.businessinsider.com...ockchain-regulation-crime-ponzi-scheme-2022-9

Almost a year ago - https://www.marketwatch.com/story/j...ontinues-throwing-shade-on-crypto-11638193757If it should be left to die, as some financial experts have mentioned, then it probably shouldn't have been allow to start or develop in the first place. Lots of wasted resources, when there are more pressing matters to address.
 
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  • #467
I would look at it this way. The suckers late investors are into crypto for some amount of moneyt - surely not the $1T in market cap, Perhaps $100B has been already "invested" - total crime is probably $200 B in the US, and I am assuming crypto is a big chunk of this, but not overwhelmingly big.

So, what do we do? Do we use the US government to make them whole? We could - it would cost $1200 for each family of four. I argued above that people who got burned in a get-rich-quick-scheme more or less deserved it. (That's a little harsher than my position, but let's go with it for now), and I don't think a good use of tax money is to subsidize investors who ignored the warning signs.

What is the alternative? Getting money from the people who have it now isn't going to happen. Yes, the government can regulate now, but the ship has already sailed. At best, they can keep this game of musical chairs going long enough that the new "investors" can pay off the old investors and...wait...isn't that how this business got started?

I would argue don't regulate it, and let it crash. Use existing fraud and money-laundering laws as appropriate to prosecute whomever you can. Relegate crypto - at least crypto as we know it - to cautionary tales like Dutch Tulips.
 
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  • #469
Vanadium 50 said:
@Astronuc , I am not arguing the government doesn't have the power. Under the commerce clause, they can do pretty much anything they think is a good idea...

I am instead questioning whether the government should take action. I see two problems - one is whether this will be effective, or whether it will prop up crypto (as we know it) so that it dies slowly instead of dies quickly. Is there any value in that?

The other is whether the people you would protect deserve protection. They are hoping to buy a worthless asset and sell it when it goes up to someone else. They are hoping to be at the money-making top of the pyramid or at least the middle, and not the bottom. Why are we protecting them? More to the point, if the government props this up, are they really doing anything beyond letting the pyramid grow?

Vanadium 50 said:
So, what do we do? Do we use the US government to make them whole? We could - it would cost $1200 for each family of four. I argued above that people who got burned in a get-rich-quick-scheme more or less deserved it.
It's a tough call for me in terms of how much regulation or if the government should try to shut down the market (if they even could). I think the US government (and most others) have a responsibility to find and prosecute fraud and related crimes. Beyond that? Maybe not much. Ultimately for crypto it may not matter practically if people are victims of fraud or an asset bubble. But I do feel like it is too easy to commit financial crimes.

I'm also not sure "dies slowly" is an issue for regulators or even if an increase in regulation would actually cause it to die slower. Given that there are no significant legitimate uses for cryptocurrency, an increase in regulation might just cause its demise faster.

But ultimately:
20 years ago or so, a buddy's mom had a chest full of supposedly valuable Beanie Babies. I was pretty young then, but even then I thought it was stupid. She didn't get bailed out. A bunch of my friends own crypto today. Are they more deserving of a bailout? No.

Protect against fraud, yes. Bailout, definitely not.
 
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  • #470
My understanding is that when you sign up to a crypto exchange., you sign an agreement saying they can do whatever they want with the money you deposit and also have naming rights to your first child. So what ftx did may have technically been allowed by their user agreement.

Having regulation to stop that seems obviously good. This isn't different than an online casino app that claims to let you bet on roulette but the app is rigged so you lose every time. You can think the underlying activity of gambling on roulette is dumb, but it's still heavily regulated to make sure consumers get what they are paying for.
 
  • #471
Office_Shredder said:
My understanding is that when you sign up to a crypto exchange., you sign an agreement saying they can do whatever they want with the money you deposit and also have naming rights to your first child. So what ftx did may have technically been allowed by their user agreement.
Maybe. Though "allowed by their user agreement" doesn't necessarily equal "legal".
This isn't different than an online casino app that claims to let you bet on roulette but the app is rigged so you lose every time. You can think the underlying activity of gambling on roulette is dumb, but it's still heavily regulated to make sure consumers get what they are paying for.
Right, and a rigged online roulette game would be illegal.
 
  • #472
Vanadium 50 said:
So, what do we do? Do we use the US government to make them whole? We could - it would cost $1200 for each family of four. I argued above that people who got burned in a get-rich-quick-scheme more or less deserved it. (That's a little harsher than my position, but let's go with it for now), and I don't think a good use of tax money is to subsidize investors who ignored the warning signs.

What is the alternative? Getting money from the people who have it now isn't going to happen. Yes, the government can regulate now, but the ship has already sailed. At best, they can keep this game of musical chairs going long enough that the new "investors" can pay off the old investors and...wait...isn't that how this business got started?
russ_watters said:
Protect against fraud, yes. Bailout, definitely not.
I more or less agree. Where some bought cryptocurrency on speculation (in hopes of appreciation, but instead experienced depreciation) should not get a bailout. They were basically gambling and lost.

With respect to Russ's point, I would indicate 'protect against fraud and theft'. If folks invested and established a contract of sorts under the 'terms of service', in which it apparently stipulated that customer funds were inviolable, or otherwise secure, then the government should work with liquidators/trustees to seek some kind of restitution, if folks cannot be made whole. Ostensibly, SBF put some amount of funds somewhere out of sight/touch by others. It's complicated because SBF/FTX/Alameda are physically in the Bahamas, and Bahamian regulators and government officials are involved. Not sure what the US government can do, unless they successfully extradite SBF to US, and others, e.g., Caroline Ellison, and who ever else was aware of things going sideways. The backdoor or hidden tunnel between FTX and Alameda needs investigation.

The other story is the hack of funds from the exchange. It shouldn't be so easy to hack a financial institution, which has happened in a number of exchanges in the past several years. A lot of exchanges don't seem to take security seriously enough, until they get exploited/violated.
 
  • #473
russ_watters said:
Protect against fraud, yes. Bailout, definitely not.
... Also those small nuances featuring the tracking and freezing fraudulent money...
 
  • #474
nsaspook said:
Crypto company's collapse strands scientists
So did Jeffery Epstein's fall.
 
  • #476
This is what Bitcoin is for:
https://www.cnbc.com/2022/11/21/ftx-theft-hackers-start-to-launder-477-million-of-stolen-crypto.html

FTX-owned service being used to launder hundreds of millions ‘hacked’ from FTX, researchers say​

Tom Robinson, co-founder of Elliptic, told CNBC that the hackers were converting the ether into a crypto product called RenBTC which is then being converted into bitcoin via a bridge. This allows one crypto to be converted into another without going through a centralized exchange.

“This is a common tactic in the laundering of crypto thefts,” Robinson said.

Elliptic researchers have documented how RenBridge has been used to launder “hundreds of millions” of dollars in cryptocurrency suspected of being sourced from ransomware attacks or hacks. Some of those hacks have connections to Russian-backed ransomware groups, according to Elliptic.

So far, $74 million has been moved to bitcoin from RenBTC using RenBridge.
 
  • #477
Remember when some-one unkindly compared crypto / bit-coin boom to 'Wild West' era when a zoo of local banks issued their own scrip ?? Only took one fraud, 'oopsie' or bandito raid to break them...

Nah, 'crypto' is safe, safe, safe...
Until, of course, it isn't...

Due Care, Please ??
 
  • #478
So make all cryptocurrency traceable, so if stolen, it's immediately worthless. But then that would disrupt/undermine some illegitimate business models.
 
  • #479
But isn't that kind of the point? Crypto is for buying things you don't want to put on your credit card.
 
  • #481
Astronuc said:
So make all cryptocurrency traceable, so if stolen, it's immediately worthless. But then that would disrupt/undermine some illegitimate business models.
Such a strategy often operates. Some tokens declared as stolen often get blacklisted by exchanges. Many cryptos have a public blockchain, so it is traceable in some way.

For Bitcoin it's a bit hard. There can be several inputs and output addresses for a transaction. I don't really see a way to make sense of ''that fraudulent bitcoin started here and is currently spreaded there''.
 
  • #482
I agree with @russ_watters and @Vanadium 50 , crypto investors shouldn't get bailed out, much like we don't bail out gamblers when they lose millions in a poker match just because someone's suspected of counting cards.

That being said I still believe theft and fraud should be investigated and punished irrespective of how and where it happens.
That means SBF and his friends should get actual jail sentences because what they did was commit fraud and theft on a large scale.
 
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  • #483
artis said:
That means SBF and his friends should get actual jail sentences because what they did was commit fraud and theft on a large scale.
They will. (Well, likely.)

If fraud happens on an unregulated market it still remains a fraud. Just no charges for breaking regulations, no supervision from authorities to prevent fraud and no (far less) tracking/securing for the hijacked money.
 
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  • #484
John Ray, FTX's new CEO, handled the bankruptcies of Enron and Nortel. But he says the mess he has inherited is "unprecedented."
I listened to the commentary this morning. A transcript should be available later today.
Meanwhile - Wringing its hands over FTX's collapse, Washington hopes to prevent more crypto pain
and from Bloomberg on Yahoo - Bankman-Fried Says Collateral Crashed by $51 Billion as FTX Fell
https://finance.yahoo.com/news/bankman-fried-says-collateral-crashed-002936253.html

I don't think he planned this (except for diverting customer funds to cover his poor decisions), as much as a drunk driver doesn't plan to crash his/her vehicle. But the evidence, e.g., lack of corporate governance (no effective outside/independent board of directors), lack of practice of basic financial and accounting standards (including detailed maintenance of accurate records), lack of outside auditing, points to a gross negligence.
 
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  • #485
Astronuc said:
I don't think he planned this (except for diverting customer funds to cover his poor decisions), as much as a drunk driver doesn't plan to crash his/her vehicle. But the evidence, e.g., lack of corporate governance (no effective outside/independent board of directors), lack of practice of basic financial and accounting standards (including detailed maintenance of accurate records), lack of outside auditing, points to a gross negligence.
Well I agree, I too don't think he planned to crash his own company, I bet he loved that money that he made. We now know all that altruism and driving a cheap toyota and wearing clothes that make him look like an average Joe cheapo was just a facade.
But taking investors money to cover your personal losses and funneling money away from the company to unknown places is still theft and fraud.
Even if FTX did not crash they would still need to investigate and charge him , at least according to theory and good practice.

Also I bet all that million dollar donor money to democrats was also part of his strategy to appeal and possibly buy some friends with benefits in Washington.

I doubt SBF cares about US politics at all, I mean why should he as he lived and worked in Bahamas, most likely he was well informed that if sh*t goes south that's the better place to be at.
 
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  • #486
  • #487
Let's avoid the political talk please. People with money use it to influence policy. We all know it/get it. There's no need to discuss it, and PF isn't the place for it.
 
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  • #488
The Economist has had a number of articles about crypto recently. Their take is that the problems are not over. A brief excerpt from one article (bolding is mine):
The events also reveal just how interconnected crypto is, and the vulnerability this brings. When one large project (the Terra-Luna stablecoin system) blew up in the summer, it was enough to bring down a hedge fund and two lending platforms, which was in turn enough to bankrupt one of crypto’s biggest exchanges. This dynamic has been supercharged by the failure of ftx, which already seems to have taken out three smaller exchanges, aax, BlockFi and Liquid, as well as a lending platform, Genesis. Other exchanges faced enormous withdrawals (see chart 2). Given that it took around six months for the fallout of the summer’s blow-up to hit ftx, the stage is now set for more blow-ups.
 
  • #489
phinds said:
The Economist has had a number of articles about crypto recently. Their take is that the problems are not over. A brief excerpt from one article (bolding is mine):
I guess the idea that one can make a currency that would be perfectly stable, decentralized and wide spread is a unattainable fantasy, because money irrespective of it's physical form is a object that is used on a mass scale and that means it is subject to all the influences and short comings of all other items of assigned value used on a mass scale.

So basically the way I see it crypto is re-inventing America just to find out that it has the same problems as the original America, so eventually they will settle the wild west by regulation and law, or it will go bust because even greedy and fraudulent people don't like to lose all the time to even greedier and more fraudulent folks.
 
  • #490
artis said:
So basically the way I see it crypto is re-inventing America just to find out that it has the same problems as the original America, so eventually they will settle the wild west by regulation and law, or it will go bust because even greedy and fraudulent people don't like to lose all the time to even greedier and more fraudulent folks.
Cryptocurrency is not exclusive to America - it's global/international, and the markets are transnational. It would appear the legal issues are found in each nation, and nations may have different regulations and financial structures.

MSN/NBC - FTX’s regulatory chief had 4 job titles in 2 years. What was he really doing?
https://www.msn.com/en-us/money/com...-2-years-what-was-he-really-doing/ar-AA14qCh4

Apparent conflicts of interest abound at FTX. The Chief Regulatory Officer, FTX, was apparently previously involved in an online gaming/gambling company based in Toronto, CA, which was eventually bought by a company based in Malta. That company was involved in a cheating scandal. A LinkedIn profile, which has apparently disappeared (after the FTX crash) did not include the involvement with online gaming/gambling.
 
  • #491
Astronuc said:
The Chief Regulatory Officer, FTX, was apparently previously involved in an online gaming/gambling company based in Toronto, CA, which was eventually bought by a company based in Malta. That company was involved in a cheating scandal. A LinkedIn profile, which has apparently disappeared (after the FTX crash) did not include the involvement with online gaming/gambling.
 
  • #492
Astronuc said:
Cryptocurrency is not exclusive to America - it's global/international, and the markets are transnational. It would appear the legal issues are found in each nation, and nations may have different regulations and financial structures.
I think you misunderstood my analogy, I meant to say that reinventing America as in "reinventing the wheel"

Wrote my post too early in the morning , my bad anyways
 
  • #493
Casablanca

One of Claude Rains best. Sure, he's famous for The Invisible Man, but I dunno. I just could never see him in that part.

o0)
 
  • #495
Business Insider - FTX owned an $11.5 million stake in a tiny rural bank in Washington state with just 3 employees, bankruptcy hearing shows. The bank was initially valued at $5.7 million, and it specializes in agricultural loans to farmers.
https://www.msn.com/en-us/money/com...mployees-bankruptcy-hearing-shows/ar-AA14uG3x

Ties between the farmers' bank and the crypto exchange began in March this year, when FTX's sister company, Alameda Research, invested in Farmington's parent company, FBH. The purchase was led by Ramnik Arora, one of Sam Bankman-Fried's inner circle, who was often responsible for much larger deals.

For a decade, Farmington's bank held around $10 million in deposits. In the third quarter this year, deposits jumped to $84 million – 85% of which came from just four accounts, according to FDIC data cited by the Times.

Online, the bank now appears as "Moonstone Bank," a name which was trademarked a few days before FTX's investment. Moonstone doesn't mention cryptocurrency, but does say it wants to "support the evolution of next generation finance."

Farmington, Washington (pop. 146) touches the border with Idaho in a fairly remote area.

Some folks are wondering how FTX/Alameda got federal approval to buy its stake in Farmington. Some banking veterans believe that regulators would have not have knowingly allowed the crypto firm to make such a purchase. I guess that will be part the governments probe into how Alameda and FTX made deals.
 
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  • #496
Astronuc said:
Some folks are wondering how FTX/Alameda got federal approval to buy its stake in Farmington. Some banking veterans believe that regulators would have not have knowingly allowed the crypto firm to make such a purchase. I guess that will be part the governments probe into how Alameda and FTX made deals.
Is there any implication SBF used/influenced the bank to process illicit transactions for FTX/Alameda-related stuff?
 
  • #498
Chapter 11 seems optimistic w $276M on hand against several billion in liabilities

Also a joke the FTX filed an 11

Does anyone believe these entities will exist post- bankruptcy?
 
  • #499
Another quick one from The Economist
Bitfront, an American crypto exchange, said it would cease operations, though it claimed that the move was unrelated to the collapse of FTX, the platform that went bankrupt earlier this month. Separately, BlockFi, a one-time darling of the industry, filed for bankruptcy and Kraken, another exchange, agreed to pay more than $360,000 to America’s Treasury for allowing transactions with users in Iran.
 
  • #500
WSJ - Years before Sam Bankman-Fried’s crypto empire collapsed, a group of employees quit in a power struggle—after becoming concerned about what they say was his cavalier approach to risk, compliance and accounting. The employees worked at his trading firm, Alameda Research, and were some of his earliest colleagues, including Alameda’s co-founder, Tara Mac Aulay.
https://finance.yahoo.com/m/97e57b37-7d9b-306f-8114-645244acff51/early-alameda-staffers-quit.html
That should have been a red flag, or at least a yellow flag.

Bloomberg - FTX's LedgerX, a Solvent Corner of SBF's Fallen Empire, Will Put Millions in Bankruptcy Pot
https://finance.yahoo.com/news/ftx-ledgerx-175-million-available-021838863.html

LedgerX -- one of the few corners of Sam Bankman-Fried’s crumbled crypto empire that remain solvent -- is preparing to make available $175 million for use in FTX’s bankruptcy proceedings, according to people with knowledge of the matter.

The money, which could be transferred as soon as Wednesday, comes from a $250 million fund that LedgerX had set aside for a bid to get regulatory approval to clear crypto derivatives trades without intermediaries. The firm, which is known as FTX US Derivatives, withdrew its application with the US Commodity Futures Trading Commission as more than 100 FTX entities filed for bankruptcy on Nov. 11.

A spokesman for the CFTC, which regulates LedgerX, said that the agency is aware of a planned transfer. Representatives for LedgerX and FTX didn’t immediately respond to requests for comment.

Bloomberg - FTX's Sam Bankman-Fried Still Hasn't Answered These Questions Ahead of DealBook Summit Interview
https://finance.yahoo.com/news/sam-bankman-fried-set-face-221649350.html

Regarding the question of whether or not FTX (SBF) improperly used customer/depositor funds, I believe the answer is 'yes' based on the use of customer funds without expressed permission/consent.

The Securities and Exchange Commission and the Commodity Futures Trading Commission are investigating whether FTX misused customer funds, and it’s been reported that the company lent clients’ money to Alameda Research, the crypto trading firm co-founded by Bankman-Fried. The two companies shared close ties and FTX received some customer deposits through bank accounts held by Alameda. If FTX did misappropriate customers’ money, the next question would focus on what the funds were used for. Options include covering Alameda’s liabilities, as well as fueling venture investments, Bankman-Fried’s $1 billion bailout spree over the summer or purchases like his acquisition of a 7.6% stake in Robinhood Markets Inc. Bankruptcy records show that Alameda is owed $4.1 billion for loans it extended to “related parties,” including $1 billion to Bankman-Fried.

Interesting development in Japan
Bloomberg - FTX’s Japan Unit Drafts Plan to Return Client Funds
https://finance.yahoo.com/news/ftx-japan-unit-drafts-plan-124544036.html
 

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