This might be a reasonable argument in a vacuum, except that:
> [SBF] told investors and prospective investors that FTX had top-notch, sophisticated automated risk measures in place to protect customer assets, that those assets were safe and secure, and that Alameda was just another platform customer with no special privileges. [emphasis added]
And also:
> Bankman-Fried also told investors, and directed other FTX and Alameda employees to tell investors, that Alameda received no preferential treatment from FTX. For example, Bankman-Fried told the Wall Street Journal in or around July 2022: “There are no parties that have privileged access.” Likewise, in a Bloomberg article published in or about September 2022, Bankman-Fried claimed that “Alameda is a wholly separate entity” than FTX. In the same article, Ellison is quoted as stating about Alameda: “We’re at arm’s length and don’t get any different treatment from other market makers.” Bankman-Fried made similar statements directly to investors. [emphasis added]
(The above are direct quotes from the SEC complaint [1] against SBF.)
Singh might argue that he wasn't aware of the private statements to investors. But the WSJ and Bloomberg stories show the "arm's length" claim was something they consistently messaged to the public at the highest levels. To argue that Alameda's role as market maker of last resort justified a privileged status would be inconsistent with all their prior public claims to the contrary. "We lied to the public repeatedly about our risk management" isn't a defense; it's a confession.
[1] https://www.sec.gov/litigation/complaints/2022/comp-pr2022-2...
That is outrageous. The company owners have limited liability protections. The employees should receive at least that unless they are in a position that requires specific legal training like an engineer legislatively appointed to be responsible for some safety function. Where they are appointed and remunerated specifically for their legal responsibility, in other words.
And the court cases after WWII are hardly reliable precedent. They were basically making it up as they went with fairly flimsy justification apart from the fact they had a bunch of troops still in fighting form.
> That is outrageous. The company owners have limited liability protections.
The owners have limited financial liability, not limited legal liability.
https://en.m.wikipedia.org/wiki/Limited_liability
> Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or partnership.
> That is outrageous.
And this is why software engineering is a joke.
Software engineers are not lawyers and they are bad at interpreting laws.
If the product of your engineering directly enables unethical actions, yes, you should bear some of the responsibility for it.
Right, so if something seems sketchy ("please ignore these specific deductions when calculating our holdings") , get a lawyer - or CEO or CFO or whatever - to say in writing that it's fine.
And if something seems actually illegal ("just run the blood test results out-of-spec and report them anyway") just don't do it. Nothing absolves you of some things.
The practical answer is that it's because we do want to discourage criminals from "splitting liability" by having most of a gang doing some illegal goal together stay "clean" and only delegating a single "fall guy" for the final touch; so criminal law is explicitly written to consider everyone who knowingly assists a crime to be partly liable as well.
'Hi mate. We just bought this rebar from Alibaba, saved as a ton of money. Could you sign here real quick? We need to finish that bridge!'
No one has had their engineer title taken away for being a crook, as far as I know. Unless the crooked thing they did was fake their diploma.
Titles won't fix this.
This seems an absurd claim, unless you're going to get very pedantic about some distinction between "engineer title" and "legal right to function as an engineer".
> https://montreal.ctvnews.ca/engineer-s-licence-revoked-after...
This is one example found after just a few seconds of searching, but it is absolutely commonplace to have your engineering license revoked for carrying out criminal activity.
> In those jurisdiction where it's a protected title, it just implies that you have some mix of STEM topics in your degree.
This seems a bizarre claim too. In jurisdictions where membership of a professional licensing body is necessary in order to refer to oneself as an engineer and practice as an engineer, it is absolutely not the case that all you need is the right "mix of STEM topics in your degree". It means you have a certain degree, have completed a set amount of work experience, have completed a professional certification exam and then maintain that license, which may require meeting other requirements periodically. And yes, "not being a crook" is certainly one of those requirements, and being involved in major criminal activity, especially criminal activity related to your professional practice, is absolutely grounds for having your license and certification as an engineer revoked.
This seems pretty unambiguous though. Sometimes you're just facilitating breaking the law, or making things dangerously unsafe.
Are you serious? Make sure your ass is covered if you're doing illegal shit for your company, because they're never looking out for you over the org.
Yep.
"comprehensive knowledge of their companies media output" is an interesting way to put it. I would really just recommend engineers maintain some sense of self awareness.
In any case it's not needed: liquidators get the 3% initial margin so are usually in profit. For the cases when the market moves faster than that, they should have done what the better-run exchanges do and close the most leveraged positions from the opposite side: if lots of longs get liquidated in aggregate the shorts get their profit trimmed by the losses of the longs beyond maintenance margin, in order of leverage, which is fair enough when duly documented in the terms.
These days a naive market making strategy in crypto just incinerates capital very reliably as the tiny bid ask spread is a small fraction of the adverse selection risk (whole spread moving past). They did probably make money on this in the early days and got smoked when the sophisticated tradfi players joined.
Front running large trades by looking at non public info on the order book is possible but this is also fraud, so not a strategy to avoid legal troubles, and it also only works if the large traders are naive and not adversarial (putting fake large orders to front run you etc).
What SBF could have done is close down Alameda when it was clear they were not competitive, and concentrate on growing the exchange by reinvesting the fees, but that would have clipped the growth and donations/acquisitions lifestyle to something much less flamboyant.
This is not true at all, in general quoting in these markets is absurdly capital-intensive compared to tradfi.
> These days a naive market making strategy in crypto just incinerates capital very reliably as the tiny bid ask spread is a small fraction of the adverse selection risk (whole spread moving past). They did probably make money on this in the early days and got smoked when the sophisticated tradfi players joined.
Are the sophisticated tradfi players here yet? Seems like no?
Source: I work at a firm that does this.
For example, it's surprising that big tradfi players were not able to prevent take-only basis arb bots written in Python running on a un-tuned VPS from printing five figures on individual new listings in mid 2021, or permitted us to click trade tokenized stock quarterly futures minutes from expiry for nearly guaranteed profit also in mid 2021.
* Attribution: who's making the order?
* Short labelling... are they selling or shorting?
* Non-display or iceberg orders (not common in crypto?)
* Immediate-or-cancel orders... the executions hit the feed, but not the original order details. Also whiffs (order but no fill) don't get disseminated in any way.
* Certain order types that may rest on the exchanges order book but either don't have a specific price or display doesn't make sense... market orders, midpoint orders, pegged orders, auction order books (less common in crypto)
EDIT: On the attribution side -- they could also know the leverage any customer is taking and use that adversarially (which was the straw that broke their camel).
> Certain order types that may rest on the exchanges order book but either don't have a specific price or display doesn't make sense.
I suppose orders than are designed to only be consumed by a matching engine don't need to be made public unless they are matched.
That's for honestly run APIs, then an exchange can play some games with that feed if they want to...
That said they are being accused of something much less sophisticated. They were allowed to take money out when they made money but didn’t have to pay money in when they lost.
…do you see the problem?
There are people who make a living playing poker that are not intellectually gifted. Their secret? Do as you say, play boring, safe strategies that will guarantee you will make money in the long run. They might not run up 1000$ to 10000$ very often but they sure do win. However, remove discipline, add intellectual ability and an abundance of overconfidence and you get FTX and Alameda Research.
It would be hard (but not impossible) to implement such functionality without dozens of software engineers being very aware of it's existence and the implications.
This kind of software change only touches the edges and can be done with much more plausible deniability. The exclusion to margin calls was a single if statement inserted by a single engineer with the justification Alameda were the primary market maker. The dashboard change might have been just a bug they avoided fixing (If you normally automatically margin call negative balances, why would your dashboard bother reporting negative balances?)
And the fact that by far the largest market maker in the US is also a hedge fund (two different companies with the same owner(s), where have we seen that before?).
I am baffled by why fraud was necessary. I guess it's just means to an end for "effective altruism".
Reconciliation was still happening every 24h tho.
If the chief engineer for NASDAQ put in a backdoor to allow a market maker unlimited margin, would you assume they just figured it was legit because someone said so?
He knows how markets work too well for a defense like that.
Remember Alamada wasn’t a normal customer. It was acting as a market maker/counterparty of last resort to many other FTX customers. In that case there could be situations where ‘normal customer liquidation rules’ shouldn’t apply - it can go in the red temporarily to enable others to trade (and FTX to make commission).
From the facts in the article (which are obviously not complete) if I was Singh my defence would be I assumed/was told the changes were to support Alamadas role as market maker and their actual long term exposure was being monitored elsewhere.