What Happened With SBF & FTX?: A Useful Guide if You're Confused

This Twitter thread is by Punk6529 (source: 12-1-2022). Punk has made a name for himself in the NFT world.

1/ On SBF & FTX I think this is not going to be a hugely long thread (I think). It is not going to be hugely insightful for anyone deep in crypto. But maybe it will help as a reference to our friends in the media who are struggling quite a bit with this topic

2/ Various disclaimers:

• Please include an "allegedly" to everything in this thread, though I think I am only discussing things that SBF himself has admitted to

• I am not a lawyer, your lawyer, etc

• I am not going to cover every single topic, only the essence

3/ Who was in charge here? Well, SBF of course. SBF controlled FTX, Alameda and many other entities in the SBF/FTX ecosystem. He was the "man in charge" He signed the checks. None of this could have without his knowledge and his own *direct action*

4/ What happened? The really important thing that happened is that: SBF moved customer funds (deposits) from FTX (and possibly other entities) to Alameda (his personally wholly owned trading firm) and then possibly to himself personally. Allegedly but SBF has admitted this

5/ So let's make it comprehensible to our non-crypto brethren You deposit money at JP Morgan Chase. One day your money is gone. Where did it go? To Jamie Dimon's personal trading firm and Jamie Dimon personally.

6/ How much money? Well nobody knows for sure, but it appears to be in the range of $10 billion which is an awful lot of money anyway you count it. This is going to be one of the largest (alleged) misappropriations of customer funds in human history

7/ SBF/FTX also allegedly did a whole of other things that may be inappropriate or illegal (e.g. AML/KYC violations, securities violations, market manipulation, use of company assets for personal use and so on). Allegedly there are a lot of these too, but don't get distracted!

8/ Now $10B is a lot of money to be missing. Why wasn't there a whistleblower? Why didn't lawyers, accountants, staff notice? Well because allegedly SBF built a special custom-made accounting system to hide the missing assets.

9/ So to recap, the CEO and control owner of a firm, allegedly:

✅ Took $10B of customer deposits

✅Moved them to a company he owns 100%

✅Further moved them to himself

✅ Made special software to hide the transfers from others

10/ Of course, these are all allegations for now. But given that:

✅ SBF has sortof agreed this is what happened

✅ And withdrawals are frozen at FTX I think we (not the court system) can assume for now that the rough outline of the story is correct

11/ So, ok what is the proper and normal societal response and takeaway to this? Well, I am pretty sure that the normal response is that it is "really really really bad" It is allegedly one of the greatest thefts in human history if true.

12/ What are things we should have close to zero interest in right now?

❎How this affects SBF's "philanthropic" efforts

❎ What SBF thinks of CeFi or crypto

❎What SBF thinks of regulation

❎ "what went wrong"

❎ "was SBF about to raise fresh capital"

13/ Let's take the completely implausible SBF take that "he was about to raise more money" So what? SBF was literally days earlier allegedly stealing customer funds. Why would we have even 1% confidence he wouldn't steal the new money too?

14/ It is *fantastic* news that SBF did not raise more money. Very obviously, nobody should trust SBF to be in a custodial position with anyone's funds ever again. This is independent of any criminal or civil liability. This is simply: "not being a complete moron"

15/ There is a whitewashing effort that SBF is attempting now to soften the public perception ahead of possible legal troubles. The general theme of whitewashing effort is: "we were young and inexperienced and disorganized and bad at risk management and we made mistakes"

16/ This whitewashing is unadulterated bullshit. SBF is a lot of things, but he is not cognitively challenged. He was raised by top university professors and famously attended the Massachusetts Institute of Technology which is famously not a safety school.

17/ He was running one of the world's largest exchanges and a prop trading operation, with a vast global presence, while running an extensive lobbying operation, testifying in Congress and so on. Even doing this "immaturely" is a huge lift, elite tier work, very few could do it

18/ The issue is here is not that "FTX grew too fast, did not have the proper accounting controls and failed" The issue is that when SBF had to make a decision about whether he should allegedly take his customers' funds for himself, he thought: "Why, yes, I think I will"

19/ An alternative view of the situation is not "there were no accounting controls because SBF is dumb" but "there were no accounting controls to facilitate the alleged misappropriation" In other words, the lack of accounting controls was a feature for SBF, not a bug.

20/ I remind you when SBF wanted to hide the transfers, he allegedly made a fake accounting system to do so. So when he needed to build fake accounting controls, he was more than mentally capable of doing so. Hard to find an innocent explanation for this tbh

21/ I am surprised with the relatively mild treatment SBF is getting in the media. The generous view is that there are so many parts to the SBF story and so many allegedly inappropriate things that happened that people are getting confused.

22/ But that is a generous view I think the rough outline of the main alleged misappropriation is clear. And if that is the case, the focus right now should be on preserving evidence and preventing evidence tampering. We are in the law enforcement, not media tour, phase now.

23/ Is SBF innocent until proven guilty? of course Is he going to mount a sophisticated defense?: I assume so, as is his right Is there probable cause that some crime was committed? I mean I am not a public prosecutor but people have been detained for much much less

24/ Is this complicated because it is cross-jurisdictional? I guess sortof, but not really? The Bahamas is an English common law country - a legal framework very similar to the UK and broadly similar to the USA - and with excellent relations with the USA.

25/ In other words, in terms of cross-country coordination of law enforcement activity, this is "easy mode" It is not like FTX was located in the USA and North Korea. And the Bahamas has every incentive to be strict here if they ever want to host a fin svcs company again

26/ The goal right now should be "evidence preservation" and "prevention of evidence tampering" With the allegedly known facts, there is no reason to assume good faith from SBF on these matters. USA and Bahamas law enforcement at a minimum should be sending top specialists

27/ Evidence preservation is going to be a herculean task. It is a lot of money, a lot of crypto, a lot of non-existent accounting controls and, in fact, accounting controls used to obfuscate the truth.

28/ I think there should also be an assumption that assets (probably crypto based) may still be under SBF's or colleagues' control. In other words, while the $10B alleged misappropriation is the big deal, it does not mean that there might not be $100M in a side wallet

29/ The United States government has more capacity on crypto tracing than you may imagine, in different departments and units. This is an excellent time and opportunity to make use of it, for the public good.

30/ The focus right now should be on recovery for the victims. Which means evidence/asset preservation. People deserve the maximum recovery and the real facts on what happened

31/ In time, there will be plenty of time for the civil and possibly criminal issues to be resolved in court. But to do that appropriately today law enforcement should be focused on evidence preservation.

31/ What does this mean for SBF's life arc? Why should anyone care about this? SBF was one of the most privileged people on the planet over the last few years and, one way or another, he abused this privilege. We should care about the victims.

32/ In time, we will learn (or I hope we will learn) what things in this episode were:

✅Massive irresponsibility

✅Civil violations

✅Criminal violations But there is no outcome that is sympathetic to SBF

33/ What about the other people who were deceived by SBF? Politicians, charities, media organizations. Well, now is the time to walk away. A lot of people were deceived somehow by SBF including almost all of us on crypto twitter. (Very few people predicted this)

34/ It is understandable, he did a good job of projecting a certain public image ("a responsible operator, in favor of regulation"), while in practice doing the exact opposite (allegedly, theft basically). It was reasonable to not understand this 1 month ago, but not today.

35/ Not that anyone asked me, but I do not judge anyone for having normal pleasant business and media interactions with SBF 1 month ago. But it is not appropriate today. The business/media presumption now should be against him and we can reevaluate again later

36/ Finally, what does this have to do with crypto? Well, close to nothing. This is a failure of the custodial system, not the non-custodial system. But I will save that for another thread. If this is your first time, we believe in decentralization.

Feature image generated via HackerNoon Stable Diffusion prompt of ‘Money Burning’