Sam Bankman-Fried Declared Alameda 'Unauditable,' New Report Shows (theblock.co) 61
The new management of FTX, headed by CEO John Ray III, on Sunday released its first interim report on control failures at the collapsed crypto exchange. There is a lot to digest. The Block: The 45-page report -- published Sunday afternoon by FTX Trading Ltd and its affiliated debtors -- describes in painstaking detail FTX's slapdash record-keeping, near non-existent cybersecurity defenses and its sparse expertise in key areas like finance. One of the more eye-catching items concerned Alameda Research, the trading firm that allegedly had access to billions of dollars in customer funds stored with FTX. The report states that Alameda "often had difficulty understanding what its positions were, let alone hedging or accounting for them."
Former CEO Sam Bankman-Fried, now under house arrest and facing a litany of criminal charges, described Alameda in internal communications as "hilariously beyond any threshold of any auditor being able to even get partially through an audit," according to the report. He went on: "Alameda is unauditable. I don't mean this in the sense of 'a major accounting firm will have reservations about auditing it'; I mean this in the sense of 'we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history.' We sometimes find $50m of assets lying around that we lost track of; such is life."
Former CEO Sam Bankman-Fried, now under house arrest and facing a litany of criminal charges, described Alameda in internal communications as "hilariously beyond any threshold of any auditor being able to even get partially through an audit," according to the report. He went on: "Alameda is unauditable. I don't mean this in the sense of 'a major accounting firm will have reservations about auditing it'; I mean this in the sense of 'we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history.' We sometimes find $50m of assets lying around that we lost track of; such is life."
Are you kidding me? (Score:5, Insightful)
"I don't mean this in the sense of 'a major accounting firm will have reservations about auditing it'; I mean this in the sense of 'we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history.' We sometimes find $50m of assets lying around that we lost track of; such is life.""
He's right, that doesn't sound like "a major accounting firm will have reservations about auditing it." It sounds like "a major account firm wouldn't touch it with a ten-foot pole and would probably feel obligated to turn you in."
Re:Are you kidding me? (Score:5, Insightful)
It is absolutely clear that SBF treated this who scam, I mean scheme, no scam was better, as one huge joke, a way play with billion of other peoples dollars pocketing as much as he wanted himself, with bothering to do any real work. Important meeting where he was playing videogames are legend (hell, he boasted about it - showing how "smart" he was, or something).
For someone who posed as a "effective altruist futurist" concerned with the fate of humanity in the distant future, it sure did not dawn on him that scamming people out of billions in such a cavalier manner was certain to catch up with him quickly. Bernie Madoff kept his scam running for over 30 years but had a well structured plan to run it - including a completely nepotistic management structure - knowing how to appear professional, and carefully running is as an affinity scam with co-religionists. SBF seemed to dare people to expose him and look as unserious as possible.
He also seems to understand that clownish mismanagement is not a defense in a criminal trial. Even today he seems to thing it is.
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If the clown shoes fit, you must acquit! This kind of buffoonery gives the other con-men a bad name. The whole thing is just so bizarre that it serves as a moral to not do drugs while pregnant. Or maybe it's what you get with Extreme Coddling Disorder (soon to be trademarked). Don't coddle your kids and hide them from the real world! He's probably sitting there now waiting for his (literal) gold star.
But on the other side - people fell for this. People who met with SBF and interacted with him and they
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He was raised as a member of the ruling class and told how clever he was for his whole life.
I'm reminded a lot of the Theranos lady, who wound up with an "all star" board despite having no qualifications for running any sort of business.
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It is absolutely clear that SBF treated this who scam, I mean scheme, no scam was better, as one huge joke, a way play with billion of other peoples dollars pocketing as much as he wanted himself, with bothering to do any real work. Important meeting where he was playing videogames are legend (hell, he boasted about it - showing how "smart" he was, or something).
For someone who posed as a "effective altruist futurist" concerned with the fate of humanity in the distant future, it sure did not dawn on him that scamming people out of billions in such a cavalier manner was certain to catch up with him quickly.
My impression is that he started FTX at the right time and raised such a stupid amount of capital that he convinced himself that he was brilliant. Then Alameda made a bunch of stupidly risky bets, got lucky, and his delusions got worse. He figured he was the next Zuckerberg, Bezos, Gates, Musk, etc. A brilliant tech CEO/Founder who was so successful that he could ignore the rules.
He probably understood he was breaking the rules but wasn't scared of the consequences since he felt entitled to do so and figure
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that he convinced himself that he was brilliant
He didn't have to convince himself that he was brilliant, he just needed to convince himself that everyone else were idiots. Given how he raised such a stupid amount of capital, it's not hard to see how he came to that conclusion.
If the the people who invested in his company were the same ones who were prosecuting him for fraud, he'd be in the clear.
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The crazy thing is if he did run FTX properly, he will probably still be a billionaire and still earn a bunch / get a bunch of loans on his shareholding on FTX.
And if FTX goes bankrupt or something, worst case that will happen is he will also declare bankrupt.
Not have to worry about jail and have to wonder what the hell is going to come out next from his stupid internal communications.
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Mod story Funny, though I'm not so sure about what mod the FP deserves.
Hey, what's $50 million more or less between crypto-friends?
Today's related reading: The Truth Machine by Casey and Vigna. Not very far into it, but seems to be a kind of hagiography of Bitcoin with a focus on "blockchain technology" and other technobabble. I remain unconvinced and have yet to appreciate any of the so-called "solutions" from a "best way to solve a real world problem" perspective... Yet to find a believable solution in
Hagiography (Score:2)
New word for me - had to look it up. I like it a lot - filing it for future use. Thank you!
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You're welcome, though I feel like I have to blame English for being too promiscuous about grabbing new words... My favorite might be "schadenfreude"? Or is that favoritism merely because of the epidemic in recent years?
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Mod story Funny, though I'm not so sure about what mod the FP deserves.
Hey, what's $50 million more or less between crypto-friends?
Today's related reading: The Truth Machine by Casey and Vigna. Not very far into it, but seems to be a kind of hagiography of Bitcoin with a focus on "blockchain technology" and other technobabble. I remain unconvinced and have yet to appreciate any of the so-called "solutions" from a "best way to solve a real world problem" perspective... Yet to find a believable solution in the book so far.
Say, maybe they could audit Alameda on the basis of "discoverable appreciation"? SBF just discovered that some of the assets had "appreciated" by $50 million. Less is more, more or less?
Could this be the comment that triggered the censor storm? Illiteracy might be part of the explanation, eh?
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Tax accountant: "All right then, if you'll just hand me your receipts I'll get started..."
SBF: "Receipts? What are receipts?"
Re: Are you kidding me? (Score:2)
Yup, it would be a 2 week engagement. Probably do 12 interviews over 8 days and then say "Here is our bill, we are going home tomorrow, and won't be back. We never had this conversation. Please don't call us." They wont even get to looking at the books.
They won't turn them in, won't even ask to do consulting to fix things. The audit firms are mostly perception based and they wouldn't want their name linked anywhere to something like this.
They never gave an opinion nor looked at the books so they don't ne
Comment removed (Score:3)
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You're talking about ChatGPT, right?
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Re:Shut it down (Score:4, Insightful)
I think the auditing is not unaudit, but highly easy to audit. Auditing doesn't have to mean find out where every penny is placed and verifying accuracy of all books. The lack of record keeping makes an audit easy - you give it a fail. Now if someone wants the accountants to clean things up so that an audit doesn't fail, then that is what becomes very difficult.
Ya know... (Score:2)
What's the deal here? Nobody wastes that much time dancing around the issue and beating around the bush with any other common criminal, what makes him special?
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Nobody wastes that much time dancing around the issue and beating around the bush with any other common criminal, what makes him special?
What makes him "special" is the fact that he managed to lose eight billion dollars worth of other people's money.
That puts him far outside the bounds of "any other common criminal."
Certainly there were other crashes much larger in scope (Lehman Brothers, for example) but they were not criminal in nature.
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I was gonna say Enron, but it looks like SBF is out to prove those guys were rank amateurs when it comes to fraud.
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I was gonna say Enron, but it looks like SBF is out to prove those guys were rank amateurs when it comes to fraud.
Enron took out Arthur Andersen, one of the Big Five. SBF isn't close to playing in that league!
Re:Ya know... (Score:5, Interesting)
Depends on how you measure amateurism in the financial fraud game. Enron hid its debts by constructing complex webs of shell companies it controlled called "partnerships" to which it transferred ownership of its debts to make them disappear. Alameda just copied the debts into a different directory and told auditors "don't look at this one" (actually they "forgot" to mention it). Enron devised complex new accounting procedures. Alameda just did not do any accounting.
SBF made $8 billion disappear. If you count all the losses people took (including stock market investors) Enron is $60 billion, and a bare minimum of fake assets was $18 billion.
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Not really. Enron managed to lose its shareholders $74 billion. SBF isn't even a tenth of that.
Re: Ya know... (Score:3)
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And what exactly seems to be the problem?
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He was bankrolling the Democrat Party. He bought a lot of friends who are now in high office.
Re: Ya know... (Score:3, Informative)
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"Bankroll" implies he was the chief supplier of funds, which is not true here at all. It's a good story for those trying to accuse Democrats of every sin known to man. But he also gave money to Republicans, and there are far far bigger scams than this that gave money to both parties.
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Being the 2nd biggest donor to the Democrats definitely qualifies as bankrolling them.
Re: Ya know... (Score:2)
Exactly. The number of zeros involved is a "wow" moment but really... nothing more. We don't spent weeks talking about a solar eclipse that already happened. And there is actually more content there!
A guy fooled a bunch of stupid people with far too much cash on hand... zzzzz. That money was not lost or stolen... it was repurposed for better things. This is just a media hype train, nothing more.
If we are looking for any lessons learned... there aren't any here. These are all already learned for decades if
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SBF is that you? Tell me more. Can I subscribe to your newsletter?
He will be shocked (Score:4, Insightful)
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You can't audit what doesn't exist. If they never actually logged the transactions in a way that makes any sense then what are you going to audit?
At best you can see a bunch of contracts that may or may not even be working properly anymore let alone if they actually worked in the first place.
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Yeah, but each time you fail to log a transaction is a violation. You do that enough times, and you fail the audit. The standard can't be that it's up to the auditor to find records that have been lost or destroyed. It's up to the company to produce the records or else.
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You can audit it. You just cannot get a complete record. The total lack of records can still be audited. If you don't believe me, try burning all your records then file a tax return that shows you getting a $1 million refund and see how that audit goes.
On purpose of an audit is to show that the books are clean that that there is no illegal or unethical activities, thus providing confidence to investors and owners. But the same audit also has a purpose to find illegality, funny numbers, incongruities, mi
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You absolutely can audit it. They will fail the audit, for those reasons. That doesn't mean you didn't do an audit.
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Let's be blunt. For an auditor, whether employed by a private firm or the government, the claim "These books are unauditable" will almost immediately lead the auditor to say "Hold me beer..."
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Let's be blunt. For an auditor, whether employed by a private firm or the government, the claim "These books are unauditable" will almost immediately lead the auditor to say "Hold me beer..."
Or just... "Okay, audit failed, I'll let the SEC and FTC know. Enjoy prison."
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Trump, the guy with the GoFundMe rallies scam?
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No one should be shocked (Score:2)
Kucoin one of the larger Crypto exchanges literally would only provide easy access to 6 months of transaction history. You had to put in a support ticket and request a longer one and there was no way to know if the transaction log was complete at all. There were functions on the website that allows any individual to execute literally thousands of transactions in seconds that would take individuals unbelievable number of hours to try and sort through. You can easily setup trading bots that would buy and s
Time Magazine (Score:2)
At least he made it on Time Magazine's most wanted.
The travesty! (Score:2)
It's a shame that an entire industry of upstanding, fine young citizens with a firm grasp of financial fundamentals was able to fall prey to a scheme like this, despite all the regulatory obstacles, safeguards, preventative measures, and checkpoints inherently present in such a protective environment! I mean, the people who lost money are really decent, salt of the earth, grounded individuals who clearly understand monetary policy, economics, financial trends, and smart investing strategies. The fact that
Alert Robert Palmer (Score:2)
It compromise my principle, yeah yeah
That interest rate is mythical
It's anything but typical
It's a greed you'd endorse, it's a powerful force
You're obliged to conform when there's no other course
It used to look good to me, but now I find it
Simply irresistible
(It's so fine, there's no tellin' where the money went)
He seems very relaxed about that (Score:2)
He seems very relaxed and non-chalant about that, big wooopsie 50millions!
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I think he's trying to underscore the reason why it's not auditable. When the books are so incoherent that having $50 mil (ie, a sum anyone would be expected to keep track of, not just some loose change that fell into the sofa) turn up unexpectedly is a standard occurrence.
It turns out he learnt (Score:1)
It turns out he learnt everything he knows about finance from the US military, another organisation that is 'unauditable' and throwing billions of dollars of other peoples money around.
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In the interest of accuracy, I should point out that it's at least possible to count the number of aircraft carriers and submarines and destroyers, also the number of airplanes in the world's first and second largest air forces (USAF and US Navy respectively), and tanks etc, and note the open line-items in the budget that they've at least been able to categorize as "putting hurt on people somewhere but we're not going to talk about who, what, or where", and "there are people we don't like and we want faster
Best lesson a CFO taught me (Score:2)
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Any halfwit should have been able to create a simple report
Maybe, but that assumes the halfwit WANTS to create the simple report. When investors are more worried about missing out on the action than they are about losing their shirts, there's no reason to have the simple report, or keep a coherent set of books, or any of that lame old school stuff. SBF's problem is that he moved beyond the legal scams on suckers (taking hard currency and returning ones-and-zeros, or fleecing the masses in transaction fees, or whatever) and went into actual fraud which didn't seem l
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That hard to find place, Alameda... (Score:2)
Chekov: We are looking for the naval base in Alameda. Could you tell me where the nuclear wessels are?
Pedestrian: Oh, I don't know if I know the answer to that. I think it's across the bay... in Alameda!
Chekov: That's what I said. Alameda.
Uhura: But where is Alameda?
Ironic - cypto open ledger invst firm= Unauditable (Score:1)