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naraburns  nihil supernum  1yr ago (text post)   35581 thread views

Culture War Roundup for the week of November 28, 2022

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I have a lot of sympathy (or maybe pity) for SBF. "Stole client funds" appears to have solidified as a meme much the same way "crossed state lines" had in the Rittenhouse case.

The FTX terms of service were very clear in saying that client digital assets belonged to the client, were the property of the client, were under the control of the client and were not to be loaned or traded out. "Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading. None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading;"

Caroline admitted that in fact they intentionally transferred/loaned these customer deposits to Alameda. That is straight up embezzlement, go directly to jail, do not pass Go, do not collect $200.

This is like a bank drilling into a customer's safe deposit box to take their gold, lending out the gold and then losing it. It's theft, not merely a trading mistake.

"Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading. None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading;"

And that is what he is relying on as a defence, or part of one. "FTX didn't do any of that! It was Alameda, which was totally separate!" Yeah, sure.

This is like a bank drilling into a customer's safe deposit box to take their gold, lending out the gold and then losing it. It's theft, not merely a trading mistake.

You're assuming there was a bank account called CLIENT FUNDS and another account called EXCHANGE FUNDS and they decided to raid the CLIENT FUNDS one to make bets.

What if there was actually just a gigantic intermingled account and the separation between client funds and exchange funds were records in an accounting system that, when they snapped it to reality, they realized the funds they had left were smaller than what they were liable for in client redemptions?

Someone better at financial accounting than me explain this, because it sounds like he was hiding funds:

Customer custodial fund liabilities are comprised of fiat customer deposit balances. Balances of customer crypto assets deposited were not recorded as assets on the balance sheet and are not presented.

This runs all through the bankruptcy filing when parsing the "balance sheets" provided for the various 'silos'. So whatever fund they were keeping as CUSTOMER FUNDS, they sure weren't keeping any separate records of "we took in $50 million of customer money that wanted to buy crypto and bought $X million of crypto with it, and here's a list of the customer accounts with who owns what".

That's going beyond carelessness. But if I'm interpreting it wrongly and there's an honest reason for doing this, go ahead and explain it to me. For instance, this is one of the "balance sheets" where the Customer Custodial Funds are the fiat balances, but whatever crypto assets they might have held aren't anywhere:

WRS Silo

Consolidated Assets as of September 30, 2022

Current Assets

Cash and Cash Equivalents $144,207

Restricted Cash $267,738

U.S. Dollar Denominated Stablecoins $68,035

Customer Custodial Funds $102,225

Accounts Receivable $2,978

Accounts Receivable, Related Party $71,563

Loans Receivable $250,000

Prepaid Expenses and Other Current Assets $21,448

Crypto Assets Held at Fair Value $1,026

Total Current Assets $929,220

Property and Equipment, Net $2,017

Other Non-Current Assets $429,428

Total Assets $1,360,665

(1) Amounts shown in thousands of U.S. Dollars.

(2) In the above table, assets shown reflect the elimination of intercompany entries within and between the WRS Silo and Dotcom Silo.

(3) Restricted cash at the WRS Silo is primarily comprised of approximately $250 million in restricted funds at non-Debtor LedgerX.

(4) Customer custodial fund assets are comprised of fiat customer deposit balances. Balances of customer crypto assets deposited were not >recorded as assets on the balance sheet and are not presented.

(5) Loans receivable of $250 million consists of a loan by Debtor West Realm Shires Inc. to BlockFi Inc. of $250 million in FTT tokens.

(6) Intangible assets (in the amount of $229 million) are not reflected above. These consist of values attributable to customer relationships and trade names.

(7) Goodwill balance (in the amount of $135 million) is not reflected above.

WRS Silo

Consolidated Liabilities as of September 30, 2022

Current Liabilities

Accounts Payable and Accrued Expenses $6,014

Accounts Payable, Related Party $124,221

Custodial Funds Due to Customers $102,225

Purchase Consideration Payable –

Loan Payable –

Lease Liability, Current $1,672

Crypto Asset Borrowings at Fair Value $1,737

Total Current Liabilities $235,869

Lease Liability, Non-Current $9,399

Deferred Taxes $20,185

Contract Liability $887

SAFE Note, Related Party, Non-Current $50,000

Other Non-Current Liabilities –

Total Liabilities $316,014

(1) Amounts shown in thousands of U.S. Dollars.

(2) In the above table, liabilities shown reflect the elimination of intercompany entries within and between the WRS Silo and Dotcom Silo.

(3) Customer custodial fund liabilities are comprised of fiat customer deposit balances. Balances of customer crypto assets deposited are not presented

So this is showing "We have $102,225,000 in customer funds (paper money) and we owe them that amount back" but nothing about "and we bought such-and-such amount of crypto as instructed by them", if I am interpreting this correctly.

It sounds like when you opened an account at FTX, wired them money, and then bought bitcoin with it, no bitcoin was ever necessarily bought. You just got a bitcoin-denominated claim on FTX assets.

That's where the shazam part comes in. It's not at all clear if (1) they took your money and told you it was invested but they spent it on personal loans and Sam's big nap time beanbag (2) they took your money and issued you their own tokens in magic beans (3) they took your money, bought bitcoin, and then wheeee! gambling! oopsies, lost it! never mind, try again with new monies!

Money was certainly coming in, and it was certainly going out, but the in-between part of whose money where when wasn't being tracked. Or at least, only Bankman-Fried knew where it was going. At least, that's how it seems.

The fact that all the dollars were sloshing around in a single big pool doesn't negate the fact that many of them weren't FTX'S dollars, but instead customer dollars. Instead, the act of throwing the money into a single big pool itself is evidence that FTX and SBF were extremely reckless with client funds, and didn't care that the money wasn't theirs in the first instance.

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