FTX Fraud
On November 11, 2022 it was reported that Sam Bankman-Fried’s (SBF) empire, which included FTX (cryptocurrency exchange) and Alameda (hedge fund), “collapsed”. There is a ton of news about this so surely you have heard that millions of customer accounts are frozen and countless billions are missing (ahem…stolen and squandered). SBF claims he cremated his net worth from $20,000,000,000 to $100,000
That’s not a typo, son!
I’m bringing up this debacle to make sure you question what you may hear via Mainstream Media and seriously consider what took place is almost certainly fraud.
Why is this important?
SBF’s PR team is stewarding an atypical roadshow including appearances at the NY Times DealBook Summit and a tête-a-tête with George Stephanopoulos, during which SBF blunders and bamboozles in an effort to convey negligent behavior (but not fraud!). I’m no legal expert but wouldn’t any monetary beneficiary of said fraud be investigated in order to attempt recovery. Keep in mind SBF was the second largest donor to the Democratic party and one of the top donors to the Republican party via dark pools. Not sure those playas want to play the recovery game, so maybe it will be easier to give this nerd a pass….
12 of 12 jurors must vote to convict in a criminal jury so it appears that Team SBF’s strategy is to muddy the waters between negligence and fraud in an effort to escape the harshest of punishment. Don’t forget his folks are legal scholars at Stanford and long-time political operatives.
A few more noteworthy reads:
How SBF tried to curry favor with the CFTC
Deeper dive into the “flywheel” of FTX’s Ponzi scheme
Bonus level: Illuminati conspiracy from Rounding the Earth
So what is a Ponzi Scheme? It’s a term bandied about often incorrectly, especially when someone doesn’t understand or agree with a particular investment opportunity. Something is not a Ponzi just because it is speculative or risky. Something is not a Ponzi just because early adopters of the investment opportunity may get / got rich before latecomers.
Risk ≠ Volatility ≠ Uncertainty
If you are familiar with intermediate accounting principles you may know of FIFO (First In First Out) and LIFO (Last In First Out). Either method can be used to account for the cost of inputs when preparing financial statements.
Ponzi = LILO: Last In Last Out.
LILO is wen the newest investor in said scheme is the last one to get their money out - if at all - and the cash inflows of the newest investors are used to provide a return to the oldest investors. Over time a Ponzi’s flywheel ceases to spin and the whole thing comes crashing down.
Thinking in Bets
Annie Duke’s book is a fun read about decision making. Here’s what I learned:
The way we internalize outcomes is path dependent.
What matters more is not where we end up but how we got there. For example, if you are gambling with your friends and win $1,000 right away and then over the next 5 hrs you lose $900 to end the night up $100 😭 you may feel beaten down and have less incentive to “buy a round of drinks” vs. losing $900 right away and then hitting a $1,000 winning streak to end the night up $100 🥳 - drinks are on me!
Remember the 10^x rule when making decisions.
Think of your future self and how you might feel about this decision in 10 mins; 10 days; 10 months; 10 years
The goal is to experience regret in the present in order to make better decisions. Pull yourself out of the moment to navigate the distortion of present-state emotions, which cloud effective decision making.
Song of the week - Oh No by Biig Piig
This is a fiyah tune from Biig Piig - an Irish bilingual West London-based singer. Also I couldn’t resist adding a song called “Oh No” by a porcine entertainer while muckraking SBF .
Feedback
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