The ABCs of SBF and FTX

If you’re like most people, trying to understand cryptocurrencies, blockchains, bitcoins, and the like is likely to give you a headache.

One of the basic tenets of the entire crypto scam is to make the entire thing as opaque as possible, thereby ensuring that you can snare as many marks — excuse me, “investors” — as you can with important and wise-sounding gobbledygook.

This has been the modus operandi of Sam Bankman-Fried (SBF), the self-styled king of crypto who was so good at dishing important-sounding bullshit that he managed to snare “Smartest Guys In The Room” venture capitalists — Ivy League grads, many of them — into investing gladly and knowingly in his scams.

Fortunately, Professor Jennifer Taub, Esq., has one of the best bullet-pointed explanations I’ve seen of what’s happening with SBF, FTX, Alameda Research, etc. — and what will likely happen to SBFin the future:

  • A Hedge Fund Is Born: In October 2017, SBF, then a 25-year-old MIT grad, and his friend Gary Wang founded a hedge fund called Alameda Research LLC, with SBF owning 90 percent and Wang the remainder. Organized under Delaware law, it operated in the U.S., the Bahamas, and Hong Kong.
  • Hedge Fund Control and Funding: SBF was the CEO of Alameda from its founding until October 2021, when his friends Caroline Ellison and Sam Trabucco became co-CEOs. Then in August 2022, Ellison became Alameda’s sole CEO. Despite the title change, even after October 2021, SBF “remained the ultimate decision maker in Alameda” and “directed investment and operational decisions, frequently communicated with Alameda employees, and had full access to Alameda’s records and databases.”
  • Borrowed Money, Volatile Assets at Alameda: Alameda borrowed to invest in crypto assets. Don’t worry about what the hell a crypto asset is. Just pretend it’s some highly volatile asset you’ve read about before, like Dutch tulips in the 1630s or ostrich feathers in the early 20th century, or toxic mortgage-linked securities in the early 21st century.
  • A Sibling Corporation Is Born: In May 2019, SBF, Wang, and Nishad Singh started a new business with SBF as the majority owner. This business let customers trade crypto assets with each other. Organized in Antigua and Barbuda as a limited corporation, it did business as or FTX.
  • FTX Control and Investors: From the time of FTX’s birth until SBF resigned as its head in November of 2022, SBF was the “ultimate decision-maker” at FTX. To fund this trading platform, SBF raised more than $1.8 billion from investors who purchased an equity stake in the corporation.
  • Risky Business at FTX: Customers of FTX could trade crypto assets (think tulips, ostrich plumes, and crappy investments) for fiat currency (meaning legal tender, such as dollars). They could also engage in still riskier transactions involving lots of borrowed money.
  • Allegations by SEC: The SEC alleges that between 2019 and 2022, SBF defrauded the FTX investors (at the same time, he was defrauding the customers). Specifically, for years, he had been diverting FTX customer funds for his use and to support Alameda. The SEC detailed that SBF used customer assets to purchase luxury real estate, make venture investments, and to fund significant political donations. The SEC said he lied to prospective investors in FTX when he claimed that sophisticated systems protected customer assets and that Alameda was not given any special treatment. The SEC said he “provided Alameda with significant special treatment on the FTX platform, including virtually unlimited ‘line of credit’ funded by the platform’s customers.”
  • More Investor Fraud After the Crypto Crash: In May 2022, when crypto assets began to plummet, Alameda faced repayment demands from lenders. So, on top of the money SBF siphoned from FTX customer accounts, he allegedly “directed FTX to divert billions more in customer assets to Alameda to ensure that Alameda maintained its lending relationships and that money could continue to flow in from lenders and other investors.” It was only in November 2022 that this “brazen, multi-year scheme finally came to an end when FTX, Alameda, and their tangled web of affiliated entities filed for bankruptcy.”

It contains explanations for some things I did not know already.

Jennifer Taub is the author of Big Dirty Money: The Shocking Injustice and Unseen Cost of White Collar Crime (Viking), is a professor at the Western New England University School of Law and the host of the new podcast Booked Up With Jen Taub. Follow Jennifer on Twitter @jentaub

The amateur online sleuth who brings down crypto scammers in his spare time

Charlie Warzel, the guy behind The Atlantic’s column Galaxy Brain, talks to James Block, the amateur online sleuth who helped bring down Sam Bankmam-Fried (styled “SBF”) and his FTX/Alameda empire. Block followed the money and eventually figure out that FTX was likely commingling investor deposits in ways that it should not have been doing.

On Nov. 4 Block did a post titled “Is Alameda Research Insolvent” that helped create a run on FTX by investors after everyone started realizing that it was all a house of cards.

But, then again, much of crypto is one big Ponzi scheme, pumped and dumped by ultra-wealthy investors like Elon Musk while the little guys lose their life savings.

These parts of the James Block interview caught my eye most:

Warzel: There’s this idea that crypto is supposed to be decentralized and deeply transparent, that it’s supposed to be so easy to see where all the money is going at all times. And some of your work speaks to that promise. But it also strikes me that these centralized entities like Alameda or FTX play in the crypto world, and yet their balance sheets are not transparent. FTX is not a decentralized entity.

Block: There’s always stuff going on the blockchain, but these companies also have agreements off of the blockchain, right? Everything they have inside these exchanges is not on the blockchain. It’s using regular old database technology, and it’s not traceable at all. So yeah, a lot of the most important economic activity in crypto has nothing to do with blockchain at all. Huge percentages of people who do this kind of retail crypto trading, they don’t even know how to take what they bought off the exchange and put it in their own wallet.

Warzel: Post-FTX, I’ve heard a lot of chatter from crypto true believers about what needs to happen to the ecosystem. But what’s always struck me as a foundational problem in this space is that decentralized finance seems to have no real utility behind it. So much of what is created is just financial instruments and speculative assets. Can you speak to that part a bit?

Block: The AMC-meme-stock thing is a good example of how this can happen. People buy the stock of a semi-worthless company because they have this idea about short squeezing, or whatever. They are not financial experts and have a loose or maybe even wrong understanding of how finance works, and want to try to move the market. Crypto takes this abstraction a step further, because there’s nothing linked to it at all. There’s no economic activity in this space. There’s nothing produced by these companies. In fact, it’s a negative-sum game because of the cost of running the blockchains alone—the computational cost is tremendous. The amount of time and money people put into just running these things is tremendous. And they produce nothing of value. There’s a reason these massive companies aren’t all using blockchain for their processes: It is incredibly inefficient. And realistically, who actually wants their financial information public and visible to everybody?

The vast majority of people who got involved in this have no interest related to the technology or in the political or ideological aspects of crypto. They just see an opportunity to get rich. And a lot of those people end up absorbing and parroting some of the crypto ideals back to you, but they don’t really care to understand what’s going on. It’s just their excuse for what they’ve already done, which is gamble on something they thought was going to make them wealthy.

Warzel: Do you think most entities in the crypto space are insolvent and know it, and are just pretending right now, post-FTX?

Block: Absolutely. That’s because of what I said earlier about crypto. There’s no value created by any of these companies. It’s all just moving money from Person A to Person B. And look at the economic conditions. You have interest rates rising; people and companies are being squeezed economically and not willing to gamble. The fact is that there are fewer suckers aping into this system, and Ponzi schemes rely on new money to survive. I think most crypto companies are, like FTX, just borrowing from customer deposits to keep things afloat. And even the companies that aren’t doing that—I think Coinbase, for example, isn’t doing anything illicit, but their business model is based on this ecosystem where new money comes in. And that’s stopping.

Warzel: By that logic then, what is the future for crypto? Do you see this ecosystem existing in a few years?

Block: I mean, Beanie Babies still exist. Pogs still exist. Will bitcoin still exist? I think it’ll be like owning a ham radio, with hobbyists doing their niche thing together. I mean, who knows. But you know if they were to really regulate the industry, it couldn’t work the way it does. It would look unrecognizable.

Just another way for the mega-rich to get even wealthier by screwing retail investors. But yet there are still untold people out there who worship Elon Musk and the ground he walks on.

Here! Take my money!

Elon Musk’s robotics event panned as slick sideshow of nothingness

It’s crazy that, after all his lies about pie-in-the-sky projects, the financial press is still mostly credulous about all things Elon Musk.

This time it’s the Wall Street Journal running an article about Musk’s big two-legged anthropomorphic robot event that everyone who knows anything about robots laughingly said was a sham. There was this paragraph slipped into the larger article:

Mr. Musk, who has been instrumental in popularizing electric vehicles and pioneered landing rocket boosters with his company SpaceX, also has a record of making bold predictions that don’t immediately pan out. Three years ago at an event about automation, he projected that more than a million Tesla vehicles would be able to operate without a driver by the middle of 2020, positioning the company to launch a robot taxi service. That hasn’t happened.

That “don’t immediately pan out” LOLOL.

You mean like his ridiculous tunnel in Las Vegas?

Or his unbreakable truck glass?

Or any number of other lies he’s Tweeted to manipulate his stock price?

Robotics experts mostly panned his Sept. 30 robot event, with many of them saying that a two-legged humanistic robot makes no sense from the standpoints of design and usability.

One of the big questions around Tesla’s humanoid robot is its central purpose, said Chris Atkeson, a Carnegie Mellon University robotics professor. If Tesla’s main goal is to improve manufacturing, a quadruped likely would have been easier to build than a humanoid robot, in part because additional legs make it easier to balance, he said.

So this is all likely another sham meant to prop up stock prices until everyone figures out Musk is selling snake oil again.

Brett Favre’s alleged involvement in stealing funds meant for poor people just gets shadier and shadier

It never ceases to amaze me the ways that powerful well-to-do people will try to work the system in their favor even if it means taking money from poor people in the poorest state in the union — with the (alleged) added assistance of a powerful Republican then-governor.

Text messages entered Monday into the state’s ongoing civil lawsuit over the welfare scandal reveal that former Gov. Phil Bryant pushed to make NFL legend Brett Favre’s volleyball idea a reality.

The texts show that the then-governor even guided Favre on how to write a funding proposal so that it could be accepted by the Mississippi Department of Human Services – even after Bryant ousted the former welfare agency director John Davis for suspected fraud.

“Just left Brett Favre,” Bryant texted nonprofit founder Nancy New in July of 2019, within weeks of Davis’ departure. “Can we help him with his project. We should meet soon to see how I can make sure we keep your projects on course.”

When Favre asked Bryant how the new agency director might affect their plans to fund the volleyball stadium, Bryant assured him, “I will handle that… long story but had to make a change. But I will call Nancy and see what it will take,” according to the filing and a text Favre forwarded to New.

The newly released texts, filed Monday by an attorney representing Nancy New’s nonprofit, show that Bryant, Favre, New, Davis and others worked together to channel at least $5 million of the state’s welfare funds to build a new volleyball stadium at University of Southern Mississippi, where Favre’s daughter played the sport. Favre received most of the credit for raising funds to construct the facility.

This is in addition to the $77 million in additional funds for the needy that were allegedly misspent by a shady non-profit with Republican connections.

$77 million + $5 million in a dirt-poor state like Mississippi would have helped an awful lot of needy people.

Note also that Mississippi’s current GOP Gov. Tate Reeves “abruptly fired the attorney bringing the state’s case when he tried to subpoena documents related to the volleyball stadium.”

Reeves famously hates poor people and helped precipitate and then ignore the water crisis engulfing poor Jackson, Miss. residents.

Meanwhile, Favre appears to be so crooked I fully expect him to run for Republican office in the near future. The GOP base LOVES Republicans who cheat poor Black people and then paint the poor Black people with the age-old racist brush of being shifty and lazy.

Sports hero Brett Favre is alleged to have misappropriated funds meant for the needy to instead build a state-of-the-art volleyball complex at the university where his daughter attends.

Ga. governor signs off on Hyundai’s fleecing of his state’s taxpayers

Now that incumbent Georgia Gov. Brian Kemp overwhelmingly won his primary over Sonny Perdue — thus helping to prove that Trump is not all-powerful — we can go back to loathing Kemp.

He’s still a Trump toadie, despite having political courage and principles just that one time when he stood up to Stop The Steal nuts. (It doesn’t take all that much courage to look at someone and say, “This is not what the law says.” The only reason it needs to be celebrated at all is because it stands out so much from normal everyday GOP corruption and narcissism. It’s not that Kemp is that principled, it’s that people surrounding him in his party are so devoid of scruples.)

To that end, it’s important that everyone point out that Kemp’s deal to build a Hyundai assembly plant in Ga. is a massive give-away to Hyundai that will create jobs at a shocking cost of $228,000 per job. And it will rob state public works programs to pay for making Hyundai richer.

For that kind of a shitty deal, you have to wonder who’s getting paid off where.

The folks at ITPI are on the case:

Take Georgia’s new big, shiny $1.8 billion factory deal with South Korean automaker Hyundai. The state’s republican governor Brian Kemp is making it sound like a win-win for all involved.

“We are proud to welcome Hyundai Motor Group to Georgia as we forge an innovative future together,” Kemp said in a press release. “We will continue working to make Georgia the premier destination for quality companies who are creating the jobs of today, tomorrow, and beyond.”

But when you actually look at the terms of the deal—which is the largest subsidy package for an automotive plant ever in the U.S.—your head can’t help but hurt. There’s a reason Georgia officials wouldn’t reveal what incentives Hyundai had been promised until after the agreement was signed.

Here they are:

  • Local governments are giving Hyundai more than $472 million in property tax breaks.
  • The company will also receive more than $212 million in state corporate income tax credits. (Get this: If Hyundai doesn’t end up owing that much in state income tax, Georgia will instead give the company personal income taxes collected from the company’s workers.)
  • The state and local governments spent $86 million to purchase the plant site
  • Georgia will spend $200 million on road construction and improvements, plus $50 million more to help fund construction, machinery, and equipment.
  • Sales tax exemptions on construction materials and machinery expenses are estimated to cost $396 million.

All in all, Georgia and four counties will be giving Hyundai about $228,000 per job created.

You can read the rest of the article at this link.

Ga. Governor Brian Kemp signs-off on a plan to let Hyundai raid his state’s treasury .