24th December 2022 > > FTX fiasco.

tl;dr

Quick update on the latest shenanigans around FTX.

Market Snap

Market Wrap

I am beginning to think that my automated BTC price feed must be broken.

Curious Cryptos’ Commentary — FTX fiasco update

The CCC tries to avoid a tabloid type approach to all things crypto, but there have been some significant developments around the FTX saga, and it is good to stay on top of things.

Sam Bankman-Fried, co-founder and ex-CEO of FTX, has been extradited to the US to stand trial on a litany of alleged crimes including one of wire fraud which by itself carries a heavy custodial penalty.

He has been released from jail after pledging $250mm bail, forfeiting his travel documents, and agreeing to reside at his parent’s home in California. For a man who claims he is down to his last $100k (yeah right, sunshine) that bond seems a bit of a stretch. According to court documents, his parent’s home has been pledged as collateral. Sources claim the house is worth a mere $4mm, so in keeping with everything else we know about Bankman-Fried, none of it ever adds up.

Caroline Ellison, ex-CEO of Alameda Research, whose knowledge and grasp of that business was precisely zero (watch this interview before you disagree with me on that point https://twitter.com/i/status/1591137605613408256) has made a plea bargain with the authorities. By doing so she is avoiding all the charges being laid against Bankman-Fried and will face just one charge of criminal tax violations. Rather than risking a prison sentence of more than 100 years with no parole, she may well not go to jail at all.

Her testimony to get such a deal is damning:

“I understood that FTX executives had implemented special settings on Alameda's FTX.com account that permitted Alameda to maintain negative balances in various fiat currencies and crypto currencies.”

“In practical terms, this arrangement permitted Alameda access to an unlimited line of credit without being required to post collateral, without having to pay interest on negative balances and without being subject to margin calls or FTX.com’s liquidation protocols.”

“If Alameda's FTX accounts had significant negative balances in a particular currency, it meant that Alameda was borrowing funds that FTX's customers had deposited onto the exchange.”

She has stated that her and Bankman-Fried agreed to mislead FTX lenders, investors, and depositors.

Gary Wang, co-founder, and ex-CTO of both FTX and Alameda Research, found himself in a similar position as Ellison. Faced with the possibility of a similarly lengthy jail sentence, he too has made a plea bargain with the authorities. He has confirmed that IT system changes were made to allow Alameda to access FTX customer funds, and to obfuscate this happening in the financial reports, at the direction of Bankman-Fried. He is quoted as saying “I knew what I was doing was wrong”.

In a final twist, the judge in the case has recused herself as her husband is a partner in a law firm that advised FTX in 2021.