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At least, it seems SBF lied or misled about Alameda having privileged access, because Alameda could borrow and go badly into the negative without posting adequate collateral and without liquidation, and this was something only Alameda was allowed to do, and was intentional by design.

I touched on this in my post and added a little more detail in the final paragraph of my reply to Nathan, but to expand further:

  • As far as I can tell, when SBF denied that Alameda had privileged access, the context was addressing concerns about potential front running. In the famous 2019 tweet, well, you can read the thread and judge the context for yourself. The prosecution also quoted an email where SBF claims the context was front running[1] and they implied that SBF told Zeke Faux that "Alameda played by the same rules as other traders" or words to that effect but, again, SBF claims the context was front running.[2]
  • Alameda was allowed to go negative without auto-liquidation in direct response to an event that nearly erroneously liquidated Alameda, which means that the losses were nearly passed on to other customers. It was in everyone's interest for backstop liquidity providers to be granted special privileges and SBF was confident that he would not shoot himself in the foot by allowing a backstop liquidity provider that he owned to intentionally abuse such freedoms.
  • SBF claims that he did not specify exactly how he wanted to avoid such an event, he just directed Gary and Nishad to code something (like an alert or a delay[3]) that would prevent such a disaster from ever occurring. Gary wouldn't/couldn't say whether it was himself or SBF who chose the $65b figure.[4]

Also, it seems their insurance fund numbers were fake and overinflated.

It's plausible to me that this case is similar to that of the exemption from posting collateral. SBF knew that he would contribute his own funds in an emergency—as indeed he did—but perhaps he didn't expect anyone to believe that and so decided to use a more believable fluctuating "randomish number around 7,500" instead.

In fact I think there's been a few times when the effective altruists have treated their personal funds as available to support Alameda or FTX if needed, while practically everyone else (having never encountered the strange incentives of a committed effective altruist before) has thought that's bull. The sacrifices SBF made to try to make customers whole inclines me to think it was rational for him to at least treat his own money as at the disposal of Alameda/FTX as needed.

I haven't followed the case that closely...I'm not sure what happened to allow Alameda to borrow such funds...It also seems like an obvious thing to code.

But they didn't ensure this, so what could have happened?

I went down a bit of a rabbit hole with this trial and read all or nearly all of the transcripts at least once. My understanding is that the $8b fiat@ liability that I discuss in 1. was a genuine error and the remainder, which I discuss in 3., was indeed within the bounds of the margin lending program. To expand on the $8b fiat@ liability:

  • FTX initially used Alameda as one of several payment processors to accept customer fiat funds until they were able to get their own bank account. None of the witnesses seem to find this in itself objectionable.
  • For some reason, Caroline treated this as on loan to Alameda to do with as she pleased and assumed that someone at FTX was tracking the liability. SBF on the other hand, assumed these funds were either being held by Alameda and readily accessible by FTX or were being immediately transferred to FTX. In the trial SBF claimed to have thought that if Alameda had been spending the deposits, they would have at least kept track of these liabilities on their main FTX account (known as "info@") where they tracked the rest of their liabilities to FTX.
  • SBF was not heavily involved in the process of setting up Alameda as a payment processor in this way and even claims that staff asked him to stop asking too many questions about it because it was distracting. SBF, Caroline, Gary and Nishad all learnt in June 2022 that Alameda probably somehow had an additional $8b liability to FTX (after initially thinking it was $16b), but it wasn't until September/October that they got to the bottom of why and SBF finally understood what had happened.


  1. ^

    "Q. And I want to direct your attention to the email at the bottom from Rob Creamer at genevatrading.com. And do you see where he wrote, "One issue that was brought up to me individually is the role of Alameda in the ecosystem and how conflicts of interest are managed." Do you see that? A. Yup. Q. Does this email anywhere mention front running? A. No. He had mentioned it to me in person."

  2. ^

    "Q. Now do you remember telling Zeke Faux in early 2022 that Alameda played by the same rules as other traders? A. Not in that wording, no. Q. So you don't recall that. A. No. Q. Do you recall telling him that in other wording? A. I recall saying that Alameda wasn't front running other customers, that its trading access was like other customers."

  3. ^

    Bloomberg: "[SBF] says he told Wang and Singh 'maybe it would be an alert or a delay.'"

  4. ^

    "Q. Okay. But the goal of doing this was simply to get to a point where it wouldn't——it wouldn't impact the trading activity, right? A. It would not impact Alameda placing orders on the exchange for market making. Q. In its role as a market maker, right? A. Yes. Q. And you don't recall who picked the 65 billion number, do you? A. It was——I mean, it was one of the two of us."

I agree.

And thank you for engaging. I'm genuinely impressed with your open-mindedness in reconsidering some aspects of a heated topic that your wider community has treated as an open and shut case and that everyone is very tired thinking about.

Thank you for replying despite understandably not wanting to get into it all again. I really appreciate it. And I do regret not finding the courage earlier to make myself the only (?) person on here to suggest that perhaps not all of the accusations are obviously true.

I do believe they knew about it. Most people do know about such things. 

Do you think Caroline, Gary and Nishad lied[1] about this in their testimony then, but told the truth about everything they accused SBF of? (It's possible. But it does seem a little cherry-picked.)

On priors, it does seem absurd to not know about it. But there also was another accounting error that made them think they had $8b less than they actually did for a while (I don't know if it was coincidentally the same amount or somehow related). Moreover, the Alameda fall out in 2018 was sparked in part by SBF's losing track of 10% of their transactions, only to find them again post-split. I think their accounting was just utter chaos.

Well Alameda could have not had a balance sheet mostly composed of FTT. And FTX could have not lent alameda the money in the first place. FTX could have admitted as soon as they found the mistake.

Your first point is a separate issue. The second one is not relevant to "when they discovered this mistake."

What would have happened if FTX had admitted as soon as they found the mistake? I imagine everyone would be in much the same position as we're in now, but they wouldn't have had a shot at fixing everything.[2] Kaplan did not generally[3] permit the defense to talk about the legal advice/assistance SBF received lest it confuse the jury, so we don't know what they thought their legal options were at the time.

This feels like exactly the kind of technicality that a trial would spot.

I think it did?[4] But we have no way of knowing which specific accusations members of the jury did or did not believe, just their overall verdict. So I'm curious to at least know which accusations people here believe.

Clients did not expect their money to be lent to a hedge fund.

I'm quite unsure about this one. People may say that now but it's easy to say things like that with hindsight.[5] People knew that Alameda was not only a customer but a liquidity provider for FTX.[6][7] There were other hedge funds (not owned by SBF) who also acted as backstop liquidity providers for FTX.[8] Most of the assets on the exchange were part of the margin lending program.[9] It doesn't look like these things worried people—it was the possibility that Alameda might be front running other customers that they expressed concern about.

  1. ^

    They each themselves claim to have only found out about it over summer-fall 2022. None of them claimed SBF knew about it before that point and their narratives suggest that SBF only realized what might have happened when they explained it to him. Caroline's testimony is particularly illuminating: she admitted SBF "might not know" that much of the fiat funds never made it to FTX, she couldn’t recall if she included the fiat funds when preparing scenario planning spreadsheets with SBF in 2021, the accountants she tried to hire at Alameda all left and she described her "keeping track" of Alameda’s borrows from FTX by mid-2022 as "Not necessarily carefully, but to some extent."

  2. ^

    Caroline even explained her reasoning for acting the way she did when she discovered their mistake: "Q. So why, given all that, did you proceed to use customer money to repay Alameda's lenders? A. Because——I mean, because Sam told me to and because I thought that if Alameda just defaulted on its loans and went bankrupt right away, that would be really bad, and if we used customer money, at least there was some chance that we would be able to fix things somehow, that maybe Sam would be able to raise money to repay our loans."

  3. ^

    The one exception was around lawyers drafting FTX's document retention policy.

  4. ^

    The best the prosecution could manage in their closing argument seems to have been "What this shows is that from June to November 2022, Alameda had taken between 8 and 12 billion, when there was at most 4 billion in the margin lending program", which is consistent with "The funds Alameda otherwise borrowed from FTX came entirely from the margin lending program". I find the witness for the defense on this topic a little hard to follow without access to the graph he is referencing, but he at least seems to be saying that as of November 2022, there was $6.91b in accounts that were enabled for spot margin, spot margin lending and had futures activity, with $4.54b of that in USD, ETH, BTC and Tether.

  5. ^

    I really appreciated So8res' mindfulness of things like this in their reflections on SBF.

  6. ^

    "Alameda's role as a market maker on FTX was described in documents that FTX put out to the public, right? [Gary:] Yes."

  7. ^

    Reuters on Gary's testimony: "Earlier on Friday, he testified about several changes Bankman-Fried asked him to make to FTX's software code to allow Alameda to withdraw unlimited funds from the exchange. He said no other FTX users had those special privileges, which the exchange did not disclose to its investors or customers. During cross-examining on Friday afternoon by Bankman-Fried's lawyer Christian Everdell, Wang agreed that the changes were necessary for Alameda to provide liquidity on the exchange."

  8. ^

    "Who are these backstop liquidity providers? [Gary:] These are typically hedge funds on trade on FTX."

  9. ^

    "And you recall we had testimony from Dr. Pimbley, who did an analysis of the data, and he concluded that 80 percent of the assets on FTX were margined assets used in futures trading. 80 percent are in this margin trading where customers are always borrowing other customers' assets"

There were two different ways through which Alameda used funds from FTX. One was the ~$8b via the same bank accounts which I talk about in 1. The other was ~$2-3b via the margin lending program which I talk about in 3.

Sorry, I just meant the second part ("was under extreme pressure to declare bankruptcy")

Perhaps. But it sounds like many[1] have been treating the fact that FTX did in fact face a liquidity crisis as strong (conclusive?) evidence of SBF's excessive risk-taking in a way that's relevant for intent. And now they claim that the extent to which customers are made whole or FTX was insolvent is not relevant.

It feels like people in general are happy to attribute good luck to his decisions but not bad luck.

  1. ^

    Including the prosecution: "its customers were left with billions of dollars in losses", "the defendant talked with his inner circle about...how customers could never be repaid", "Billions of dollars from thousands of people gone", "there is no serious dispute that around $10 billion went missing"...

Agree. In fact, SBF himself described FTX International as insolvent on his substack. 

Although I think people may be using the term "solvency" in slightly different ways in discussions around FTX. I think that in FTX's case, illiquidity effectively amounted to insolvency, and that it's uncertain how much they could have sold their illiquid assets for. If for some reason you were to trust SBF's own estimate of $8b, their total assets would have (just) covered their total liabilities.

Sullivan & Cromwell's John Ray said in December 2022 "We’ve lost $8bn of customer money" and I think most people have interpreted this as FTX having a net asset value of minus $8b. Presumably, though, Ray was referring either to the temporary shortfall in liquid funds or to the accounting discrepancy that was uncovered that summer/fall.

SBF also claimed that he could have raised enough liquidity to make customers substantially whole given a few more weeks, but was under extreme pressure to declare bankruptcy. I think there's a good chance this is accurate, in part because most of the pressure came from Sullivan & Cromwell and a former partner of the firm, who are now facing a class action lawsuit for their alleged role in the fraud.

(If anyone has evidence that FTX's liabilities did in fact exceed its assets by $8b at the time of the bankruptcy, I would be interested in seeing it.)

Thank you for keeping us updated, Rob, even before the final trustee has been finalized, and thank you to all of you for your service.

Please feel under no obligation to respond to this, but if you are able to share: From the outside, it looks as if the EVs have really struggled to find new board members and I'm curious what the bottleneck is. Did very few applications meet your criteria? Did you actively reach out to lots of people but they said no? Etc.

I suppose I am not surprised by an apparent lack of interest from suitable candidates—the opportunity costs for such people will be high and frankly it mostly looks like stressful and thankless work. But I'm curious if there's anything the wider community could do to make the search easier next time.

This is extremely good thank you.


True, true. But that charge is part of next year's trial and is a helluva lot more straightforward than the 7 charges in this one. (And it shouldn't have featured in this trial—"She called this a bribe earlier in her testimony, a comment stricken from the record by Judge Kaplan. The judge also instructed the jury to disregard this comment." says Blockworks)

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