Secret Software Change Allowed FTX To Use Client Money (reuters.com) 62
An anonymous reader shares a report: In mid-2020, FTX's chief engineer made a secret change to the cryptocurrency exchange's software. He tweaked the code to exempt Alameda Research, a hedge fund owned by FTX founder Sam Bankman-Fried, from a feature on the trading platform that would have automatically sold off Alameda's assets if it was losing too much borrowed money. In a note explaining the change, the engineer, Nishad Singh, emphasized that FTX should never sell Alameda's positions. "Be extra careful not to liquidate," Singh wrote in the comment in the platform's code, which it showed he helped author. Reuters reviewed the code base, which has not been previously reported.
The exemption allowed Alameda to keep borrowing funds from FTX irrespective of the value of the collateral securing those loans. That tweak in the code got the attention of the U.S. Securities and Exchange Commission, which charged Bankman-Fried with fraud on Tuesday. The SEC said the tweak meant Alameda had a "virtually unlimited line of credit." Furthermore, the billions of dollars that FTX secretly lent to Alameda over the next two years didn't come from its own reserves, but rather were other FTX customers' deposits, the SEC said.
The auto-liquidation exemption written into FTX code allowed Alameda to continually increase its line of credit until it "grew to tens of billions of dollars and effectively became limitless," the SEC complaint said. It was one of two ways that Bankman-Fried diverted customer funds to Alameda. The other was a mechanism whereby FTX customers deposited over $8 billion in traditional currency into bank accounts secretly controlled by Alameda. These deposits were reflected in an internal account on FTX that was not tied to Alameda, which concealed its liability, the complaint said.
The exemption allowed Alameda to keep borrowing funds from FTX irrespective of the value of the collateral securing those loans. That tweak in the code got the attention of the U.S. Securities and Exchange Commission, which charged Bankman-Fried with fraud on Tuesday. The SEC said the tweak meant Alameda had a "virtually unlimited line of credit." Furthermore, the billions of dollars that FTX secretly lent to Alameda over the next two years didn't come from its own reserves, but rather were other FTX customers' deposits, the SEC said.
The auto-liquidation exemption written into FTX code allowed Alameda to continually increase its line of credit until it "grew to tens of billions of dollars and effectively became limitless," the SEC complaint said. It was one of two ways that Bankman-Fried diverted customer funds to Alameda. The other was a mechanism whereby FTX customers deposited over $8 billion in traditional currency into bank accounts secretly controlled by Alameda. These deposits were reflected in an internal account on FTX that was not tied to Alameda, which concealed its liability, the complaint said.
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No, the agile is a different kind of side hustle. ...said the scrum master, currently running agile projects...
Re: Needs a user story... (Score:2)
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Re: Needs a user story... (Score:4, Interesting)
Then the entire development team gets thrown under the bus. If Singh was foolish enough to make the change based on a hallway conversation or unlogged phone call, then he and his team become the perfect patsies, irrespective of whether Singh can argue he gained no significant personal benefit from the change. So I do hope that there was a formal request, or lacking a formal request, some notes on his part to indicate that he was following a directive from superiors.
Re: Needs a user story... (Score:5, Insightful)
This, plus since he knew the risk and commented about it, maybe he will get a deal or not even charged.
But back then he could have resigned and easily find a new job in crypto and I think he should have known better.
I faced a similar situation decades ago in the mini days.. The CFO's Direct Report asked me to change numbers on a Finance Report, thinking it was an academic question, I said yes. So he said, please change it and print it out for me. I said no and told him he can fire me if he wants, I told my direct manager and she said she would back me up. A few years later, that company went Chapter 11 and no longer exists (It was a 4 billion USD Company).
So new programmers, be aware of the legal impact of your changes, especially if working on finance systems.
Re: Needs a user story... (Score:2)
Re: Needs a user story... (Score:2)
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greezy (Score:2)
Starts two companies, Alameda and FTX, and then orders himself an unlimited loan from the other. I wonder if he planned this in advance when starting FTX a few years after Alameda. Or if it was a spur of the moment thing done to keep Alameda profitable and then got way out of hand. I want to give people the benefit of the doubt, but I'm struggling with this one.
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Re:PONZIIIIIIIII (Score:5, Informative)
But that's the core of any sort of Ponzi scheme. Peter and Paul give you money, expecting you will invest it. You spend Paul's money on houses, cars and party drugs, and then when Paul comes knocking, you dip into Peter's money without Peter's knowledge or consent to prove to Paul that everything's cool. Throw in some fake accounting to make it look like both Peter and Paul are still whole, and you've started a Ponzi scheme. You continue this with Jane, Fred, Mary, Steve and every other person who has deposited money with you, you buy even more stuff and have even more orgies, sending out fake financial statements so Peter, Paul, Jane, Fred, Mary and Steve all still believe things are on the up and up. Of course, like all Ponzi schemes, the house of cards is eventually going to come tumbling down, but hey, you lived a good life for a while. Pretty classic sociopathic behavior.
if prison was not certian before (Score:5, Interesting)
If prison was not certain before it is now. They can't hide behind ignorance about how to manage capital. This is proof they HAD designed controls, so there was more than simple negligence. Its also proof there was a multi-party conspiracy to evade said controls.
This will hang Mr. I don't even know how to code, SBF and several others.
Re: if prison was not certian before (Score:2)
Lots of palm greasing (Score:2, Informative)
Bankman-Fried and his co-founders at FTX contributed $300,351 to nine Democrat members of the House Financial Services Committee, according to Federal Election Commission records. Only Rep. Chuy Garcia (D., Ill.) has said he would return a $2,900 contribution from the billionaire.
In total, SBF donated nearly $40 million to Democrats during the midterm cycle.
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Re:Lots of palm greasing (Score:5, Insightful)
It doesn't seem to have done him much good.
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These cases could go on for years to fully sort out the full gamut of this guy's actions.
Re: Lots of palm greasing (Score:4, Informative)
Let's not forget the $23 million donated to Republicans over the same period.
Re: Lots of palm greasing (Score:2)
Re: Lots of palm greasing (Score:5, Informative)
The little shit publicly donated to Democrats and secretly donated to Republicans-- all because he knew the optics of the Republican party. He's playing everyone.
Re: Lots of palm greasing (Score:4, Insightful)
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And posters here are demonstrating why someone would do it that way..âdonated to Democrats, whateverbut OMG!!!11 look he donated to Republicansâ.
That, sir, is complete bullshit. First came the claims of "he donated all this money to Democrats so they're not going to punish him", then some of us pointed out that he also donated to Republicans, and not just Democrats. IOW, the situation here is the exact opposite of what you claim. I know, because I was here writing some of those comments at the time. Then you came along after the fact to cry about how unfairly the Republicans were being treated. Well, they aren't; they're being treated fairly in resp
Re:Lots of palm greasing (Score:4, Informative)
He claims he donated as much to Republicans, and now that he's been arrested we might or might not find out. Presumably they'll be going through his receipts, though.
whoops failed at linking (Score:4, Informative)
https://decrypt.co/116005/sbf-... [decrypt.co]
Re: whoops failed at linking (Score:2)
Nice whataboutism. (Score:3)
It's part of what allows both sides to be corporate shills forever.
You guys keep posting this (Score:1, Troll)
Corporations always play both sides. What you're doing here is called "The Benghazi". You're trying to create a vague feeling of distrust for the Democratic party rather than argue on the basis of policy.
If we're talking policy, the Democrats have been repeatedly shown to be better for the economy [wikipedia.org] and 96% of jobs are created under Democrats [twitter.com]
Meanwhile the GOP's up and coming leader is using the lega
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Budgets are created in the House. Check out who controlled the House during the Democrat presidencies and vice versa. Republicans are *way* better for the economy.
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Historically, the United States economy has performed better on average under the administration of Democratic presidents than Republican presidents since World War II.
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Budgets are created in the House. Check out who controlled the House during the Democrat presidencies and vice versa. Republicans are *way* better for the economy.
Federal budgets are guidelines for appropriations. Article 1, Section 7, Clause 1 of the Constitution says, "All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills." So, technically the House gets to "originate" the appropriations bills, but the Senate gets to "propose" and "concur". Since the Senate gets to amend the bills (which effectively grants the power of "origination" by simply changing whatever the Sen
The Democrats do (Score:1)
If you'd stop voting Republican we could stop those job losses, and replace them with gains.
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that's why I said "Democrat administrations". When the GOP takes the house in the Mid terms economic & job growth slows.
BULLSHIT - "the administration" always is used to refer to the executive branch. You were spouting counterfactual nonsense and someone called you out. Now you are just gas-lighting like you always do.
Re: You guys keep posting this (Score:2)
The Dems do (Score:1)
Dems care, but they can only do so much when you keep votin
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they tried to give you healthcare. You (and by "you" I mean voters) got scared by "Death Panels" and instead of a public option we got the ACA.
lets just start debunking this with the term Affordable Care Act. you dont take out of control premiums and create a 1200 page bill outlining a ton of NEW things to cover and expect premiums to go DOWN. In fact they did not. Dems tried to take 12 bites at the apple all in one bite.
Republicans did that. Dems tried to propose a public option which was shot down by Republicans, so instead we got the ACA which was modeled on Romneycare. It's literally the Republican plan, which is why it's unsurprising that it's garbage. The Republicans objected to having the government be responsible for "death panels" just like was said, and instead we got insurance companies running them.
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Re: Hyphenated name (Score:5, Informative)
Because his mother (or more distant ancestor) had more money and/or prestige than his father (or more distant ancestor). So his ancestors decided to pass on a hyphenate to their children so the kids wouldn't lose the mother's family name.
At least that's the typical reason. This is not uncommon. Especially back when the aristocracy was in decline and found themselves with good names and lots of debt, so they married wealthy commoners to stave off the family's disappearance.
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It's still a feminist thing: His mother's name is Barbara Fried and his father's name is Joseph Banks. She wouldn't change her name for marriage, and arranged for their son to have both their names.
Re:Hyphenated name (Score:5, Insightful)
You do not have to be a feminist to perceive that automatically changing your name as if you were chattel is not a super attractive idea.
My own wife did not change her name for a particular reason: she already had publications and a professional reputation under her maiden name, and changing her name at that time would prove an annoyance. Later on, after she ditched that career, she reconsidered. That we now had a child and she actually liked her in-laws more than her own parents made changing her last name to mine seem like a natural choice.
For her, no particular choice was obviously correct. She weighed the pros and cons, and then decided. Does thinking for herself rationally make her a feminist?
As for SBF, I believe that both his parents are academics. His mother did have a logical reason to not change her name.
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Does thinking for herself rationally make her a feminist?
Thinking she has the right to choose for herself does.
"It was just bad software" (Score:4, Interesting)
"It was just bad software" is already the excuse being put forth by the industry. See this appearance [youtube.com] on the news today, where some Coindesk bigwig makes very sure to harp on the fact that FTX was using Quickbooks somewhere, and this is not good enough software, implying that it must be Quickbooks' fault the money disappeared. (I realize the software in question here probably isn't even Quickbooks, but the average viewer will not.)
The Coindesk dude also runs through the rest of the narrative that he was just incompetent, in way over his head, wrestling with bad software, etc. Anything to make it look like there's no scam going on. It's a very concise statement of what the industry line will be going forward.
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Mark Karpelès was not actually the first, but the implosion of MtGox was sufficiently prominent that everyone should suspect every crypto exchange is going to collapse with "oops, my software was bad" as the excuse.
Today, the kinds of risks associated with exchanges are worse than ever, even if by some stretch of the imagination the CEO so happens to be basically honest. The crypto assets that get put up as collateral for crypto loans is much more volatile and less liquid. It takes much more sophisti
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"It was just bad software" is already the excuse being put forth by the industry. See this appearance [youtube.com] on the news today, where some Coindesk bigwig makes very sure to harp on the fact that FTX was using Quickbooks somewhere, and this is not good enough software, implying that it must be Quickbooks' fault the money disappeared. (I realize the software in question here probably isn't even Quickbooks, but the average viewer will not.)
The Coindesk dude also runs through the rest of the narrative that he was just incompetent, in way over his head, wrestling with bad software, etc. Anything to make it look like there's no scam going on. It's a very concise statement of what the industry line will be going forward.
Except that's not the excuse. "Bad software" would be a bug somehow causing the bad behaviour, this story is that they deliberately modified the software to enable the bad behaviour.
As for the Quickbooks thing, I think the point is that Quickbooks is something you use to run a small to medium sized business, not a multi-billion dollar bank and trading firm.
Basically, the story is they were doing things they knew they shouldn't (criminal liability) and at the same time they were in waaay over their head.
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The implication of their use of Quickbooks is that they weren't taking accounting seriously, which at this point should be relatively obvious.
The CEO of Coinbase isn't going to make any accusations of fraud without proof because not only would that be a terrible precedent to set, it could result in SBF suing him and Coinbase, and that would be very expensive for no good reason.
Fancy words for stealing (Score:5, Interesting)
The worst part here is that he stole all of that money and yet his trading firm was so incompetent that they lost it. If had just stolen the money and put it into US treasury notes, he could have paid it back without getting caught and actually be rich.
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They should patent it! "Ponzi Scheme, but totally different, because it's done on a computer."
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Except it wasn't even a Ponzi scheme, it was just plain them losing money right and left while they spent money right and left. A Ponzi scheme at least pays some of the investors money.
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We have seen this movie before. Being apparently "incompetent" proved convenient for Mark Karpelès. Does anyone believe that he did not take a piece of the action before MtGox went down?
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If he had just stolen money like a normal Ponzi scheme, the crash in the value of crypto-currencies would have let him meet redemptions and still have a huge profit. I guess he started to believe his own bullshit. That's too bad. Because if he had been net short on crypto-
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SBF just never really understood what he was doing, on a good day. Apparently FTX outright lost several hundred million in real money lending to an aggressive crypto speculator whose "collateral" suddenly crashed in value. Duh.
FTX thought they could grow big and be the shark, when they were actually nothing more than a barrel of fat minnows waiting for the bullet. "Luckily" there was probably enough embezzlement going on that at least some of the customer funds were protected from FTX's and Alameda's inv
Binance appears to be collapsing (Score:5, Interesting)
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This hardly unexpected development, coming so soon after, puts Binance's brief FTX "rescue" foray into a different light. Maybe it quickly backed away not because it said "Woah! This is too far gone to fix." but "Woah! This is too far gone to loot BTW, can you book me a charter flight to Dubai?"
financial wild west (Score:3, Insightful)
isnt this the whole point of crypto, no regulations? absoulutely nobody should be surprised
Crypto is always a scam (Score:2)
It's surprisingly hard to manipulate the stock market.
It's stupidly easy to manipulate crypto.
Instead of a crooked accountant, this company used a crooked software engineer -- who is going to sing like a canary on the stand