> Moonstone and FTX did not immediately reply to a request for comment, sent outside normal US working hours.
Generally shady FTX shit aside, couldn't they have waited <24 hours to see if they would respond within business-hours? Where did journalistic integrity go?
It's typical now, for better or worse. They have a story and want to publish, now. But have to ask for comment. So they ask for comment, count to 5 and publish with that disclaimer.
That's too late. First impressions matter. Once a narrative is set and biases established, even facts after the fact don't do well to alter what's already in place.
They are transparent about it to people in the know. The average person reads this and assumes the target is dodging the interview. Journalists have become activists.
One technique now when asked for comment is to give the story to a friendlier competitor journalist. Then the one asking for comment gets near zero views because their article gets scooped.
Or like Musk, when asked for comment on the horse for hand job scandal, came out as a republican to try and get ahead of it somehow.
People have completely unrealistic expectations of our criminal justice and regulatory system. FTX failed less than a month ago, investigators need to collect evidence of their wrongdoing, establish some sort of jurisdictional claim that allows them to be prosecuted in the US, present that evidence to a Federal Grand Jury, and then have them authorize an indictment. At that point the DOJ would need to get cooperation with wherever the executives are physically located to have them arrested and then eventually extradited.
They didn’t set up in the Caribbean for the weather, but to ensure they were largely free from US regulation. As desired by most crypto enthusiasts!
None of this is quick but as true as before, “The wheels of Justice turn slowly but grind exceedingly fine.”
Complex financial crimes can take years to get to the arresting point. It's very silly to expect something of this nature to lead to arrests in under a month.
Once a murder took place there is no doubt that there was a crime and more or less which crime and the suspect is ... well - suspected. For a financial crime the work consists in determining if there was a crime. And if so which one.
I want to see him in jail just as much as you but I’d counter point that:
1. No bodily harm occurred in this act
2. Murder trials are usually easier to get evidence from
In another jurisdiction, the tornado cash developer is arrested almost immediately after the system was sanctioned. Still held under arrest as of today. For writing code? Might there be more to it but it really makes you think specially with all those puff articles stating that SBF was some robin hood that was poised to save the world until some bad luck strikes his plans.
Imposing those sanctions would be preceded by an investigation. The fact that only one dev got arrested is probably indicative that it’s more than just “for writing code”.
> It is now clear that what happened at the FTX crypto exchange and the hedge fund Alameda Research involved a variety of conscious and intentional fraud intended to steal money from both users and investors [...] [T]he funds were sent to the intimately linked trading firm Alameda Research, where they were, it seems, simply gambled away. This is, in the simplest terms, theft at a nearly unprecedented scale
The right to a speedy trial means it is often better to build out a comprehensive case rather than do charges immediately when the first crime is found.
> Its then-president, John Widman, told the newspaper that it had stopped making mortgage loans because the paperwork was too much effort.
> Its single branch had three employees until this year, and didn't offer online banking or even credit cards. It instead specialised in agricultural loans to farmers.
> For a decade, Farmington's bank held around $10 million in deposits. In the third quarter this year, deposits jumped to $84 million – 85% of which came from just four accounts, according to FDIC data cited by the Times.
> The town of Farmington has just 146 residents, and is so small that Google Street View doesn't cover the whole town.
I mean, it definitely looks like they were looking for a tiny, out-of-the-way place to do shady stuff. That said (and this is a rookie question for you financial crime geeks out there):
Why buy a bank?
If you’re a criminal and your goal is to launder money, what does owning a bank do that owning a (for example) car wash or funeral home or laser tag venue doesn’t? Is it purely a scale thing? Given all the regulatory hoops you’d have to jump through in order to buy a bank, I’d think there would be other ways to achieve the same scale with less oversight.
Also, if you’re going to buy a bank, I get why you’d want to buy a small one (smaller purchase price and fewer headlines). But wouldn’t a sudden order-of-magnitude increase in assets or loans made (or whatever) set off a ton of red flags at the SEC, FDIC, and various other federal and state agencies?
For one thing, a bank is necessary to issue debit cards, which is a nice way for crypto exchanges to bring in exorbitant fee income. Owning one would take away the scrutiny that most 3rd party banking partners would insist on.
> But wouldn’t a sudden order-of-magnitude increase in assets or loans made (or whatever) set off a ton of red flags at the SEC, FDIC, and various other federal and state agencies?
Apparently, not. So then we should be asking, why not? Why did the SEC, FDIC, etc. look the other way?
It isn't necessarily criminal desires... there are a lot of financial things that require a banking license, and they aren't easy to get. This is why most fintech companies end up partnering with a bank in order to do things like take deposits and give credit.
It might be easier to just buy one if you want to do bank things.
Applying for a banking license is time-consuming. Buying a local bank is a comparatively quick way to end-run around that process. In and of itself it's not a sign of anything shady - buying a bank is a pretty common part of the business plan for fintech startups that don't want to sit around for years waiting for government approval.
Compounding pharmacies work like this too. There are people like Mikki the gambler (Spencer Cornelia's channel has a lengthy interview about this, with proof) who get the licenses and then sublet them in bulk.
SoFi bought Golden Pacific Bank, a tiny, nothing bank, and runs their entire infrastructure off of its charter now. FTX was trying to expand into legitimate financial services, buying this bank up would have been a great way to do that if they were an actual financial company
That being said, SoFi bought the entirety of Golden Pacific Bank for $23 million, and they were 20x the size of this bank (as well as having actual mortgage infrastructure and a wide variety of products). Buying 10% of a bank with only $10 million in assets for $12 million is very weird, at the very least it’s a horrible deal
Why? He won't "officially" control it, but has a lot of influence (see all the other briberies, I mean donations, he did). SBF is one sneaky bastard that knows very well what he's doing.
I think it's a mistake to assume anything connected to FTX or that SBF did is by default shady or criminal in nature. Like, if you found out they purchased their company toilet paper from Amazon - would that indicate some nefarious motivations?
Yes, they're criminals who belong in jail but only for the way they managed their balance sheet. They were also great builders who had awesome products and wanted to do all the great things they said they wanted to do.
Buying a bank is something probably every crypto exchange has considered doing, so they can have access to the financial system and not have to pay massive amounts of money and have huge headaches processing payments for their customers. I'm surprised Coinbase doesn't own one by now - or perhaps they do.
If they paid 5x the normal price of toilet paper and they were picking it up in the middle of a desert then yes I'd assume there's something shady going on.
If they purchased toilet paper by paying 10-100x to a no-name supplier based in the middle of nowhere, and the same company is known for countless shady/fraudulent deals and non-existent financial checks and balances, then yeah that toilet paper has bullshit smeared all over it.
Oh I'm all on the other side... I think it's a mistake to think anything SBF does is not shady. It's his history, everything that revolves about him, ftx, alameda, or his past is shady.
I think SBF was VERY informed, especially looking at his background. It's simple greed for power (not even the money).
Interesting. My weekend memory is not too notch, but I kinda recall that if something/someone owns more than 10% of a bank then it becomes it's high holder (top holder?) for ffiec/Frb purposes and then starts popping up in a lot of reports (y9c etc)
Yeah, that’s what I meant by it being very weird. Assuming no illicit purpose, it’s a terrible deal, but this is FTX so it was probably a scam somehow, or money laundering. The bank appears partially owned by Deltec which is connected to Tether, there could be something there
The fancy new X1 credit card is issued by Coastal Community Bank, a local bank in WA state. It seems an odd pairing, that a "revolutionary" new credit card aimed at techies is partnered with a seemingly random bank.
Banking is weird. Like, how did they find this bank? What makes it better than other random local banks across the country? Is there a marketplace for these banking partnership opportunities?
Fintechs can’t just start up and operate as banks, because regulations are really high on who can accept deposits (for obvious reasons, this is a post about FTX). They get around this by using banking-as-a-service providers, which are essentially commercial banks that accept deposits from fintechs and allow them to get cards and deposits through their infrastructure. The Bancorp Bank is the biggest one but there are a lot of them, I’ve seen Column posted a lot here and Coastal Community Bank also appears to be one
I got suggested to buy a bank once. Nothing shady about it, the fact that it's a bank means they've got an insured deposit base, which is great for number of investment purposes.
Why it would be easier to buy a bank than to get a license I never got an answer to. Surely the authorities would not leave a loophole? But I don't know.
There are many situations where buying an existing business is cheaper and faster than dealing with the regulatory regimes for opening a new business (e.g., gas stations, restaurants, liquor licenses). I don’t see why banks would have less of an advantage there.
I don't think there are any loopholes in that sense. I can easily imagine you preferring to buy a ready team with existing infrastructure for regulatory reporting than building one from scratch. Especially if your financial background is from prop trading and you despise - while having zero clue about - how banks actually manage their risk and communicate with regulators.
Part of it is that both regulators and competitors simply don’t want many more bank licenses in the US. So they won’t make the issue process easy even though analysis and background check capabilities have improved so significantly.
An analogy might be the old taxi medallion regulation in New York that had limiting the number of taxis as a goal in addition to qualifying cab owners and drivers.
It’s a frustrating situation because an organization unworthy of a license like FTX can just buy one anywhere in the country, but a worthy organization working locally can’t start a new bank, because they’d likely have to buy one too far away. Anyone who believes there should be more small banks is just out of luck.
My guess is that it's because it's very, very difficult for Bitcoin/crypto companies to maintain bank accounts due to overly strict AML compliance departments.
Even Tether, which controls billions of dollars and is one of the largest crypto companies, was unbanked for some of its existence. I assume that FTX wanted to avoid that.
> what does owning a bank do that owning a (for example) car wash or funeral home or laser tag venue doesn’t? Is it purely a scale thing?
All three of those are very much focusing on _cash_ transactions. It would be difficult for any of those to hide wire fraud.
As all of those are references to TV shows revolving around drugs. Drug sales are usually done in cash. If you have over tens of thousands in illicit cash, you need a cash business to mix those transactions in. Clean cash + dirty cash = plausibly clean money. Did your laser tag place really take in 50k in cash a week? That is a harder question to prove than you don't work, where are you getting 25k a week from? You'll need good book keeping.
However crypto investments don't have any cash transactions. You need to make and recieve wire transactions. These transitions are likely legal but still questionable, and most banks will terminate you if you have questionable transactions. Owning the bank means you don't need to answer a lot of these questions like "where did this money come from?"
This has absolutely nothing to do with the substance of the story but I got hung up on this bit:
> and is so small that Google Street View doesn't cover the whole town.
...which is a weird way to emphasize a town's smallness. Is the idea that the driver of the Google maps car got halfway through and said, you know, this town is so small, I'm not even going to drive the rest of the way down the street! Or they were so overcome with small-town charm they just stopped the car and bought a house there or what
For anyone familiar with the American west (starting somewhere between the Mississippi and the 100th meridian west ), there are hundreds, if not thousands of small towns for which Google Street View has only pass through on the main street, which is typically the state or county road. They don't turn off on any side streets.
If you go to these towns, and I have done thousands of miles of driving around the West, far from the Interstates, these side roads turn often turn out to be barely-defined dirt, or maybe gravel, turnoffs. Often they just go a few blocks and end. An urban dweller might not even recognize them as side roads, because they blend seamlessly with the lots around the few buildings, and often you'll see cars, farm equipment, or other miscellaneous items strewn haphazardly.
The other thing you'll find way out in those parts of Washington, Idaho, and Oregon are right-wing anti-government militia types. People who listen to Fox News and think it's too liberal. QAnon types who follow Alex Jones and watch OANN. Could that be the connection?
Enron used shell companies to hide their debts. Once these companies were discovered, it was the end of Enron, because they clearly lied about their profits, tried to cover up their lies, and executives were clearly were going to go to jail.
FTX seems to have taken a different approach acting like nothing they did was illegal. They are acting like what they did was no different than what other startups or banks do, they just made a mistake calculating their reserves.
We know that SBF's parents plan on 'returning' a beach front vacation home to FTX. I wouldn't call those funds 'missing'. We know where the vacation house is
This is eerily reminiscent of Full Tilt Poker's 2011 collapse, when it came out it had been buying tiny banks from small towns to do some financially shady stuff.
The tornado cash dev got jailed for life for his software, meanwhile mister Fried gets interviews with top newspapers after stealing billions. Where is the justice?
Does the cannabis industry (the beneficiaries of most the loans I think were farmers) have anything to do with this? Is it a totally clean industry now?
89 comments
[ 2.7 ms ] story [ 155 ms ] threadGenerally shady FTX shit aside, couldn't they have waited <24 hours to see if they would respond within business-hours? Where did journalistic integrity go?
I don’t think there is much of any to worry about.
Like if they would write:
> The above source was never verified, but we swear we talked with a real person
And then call it a day. What kind of journalism is that?
I don’t think they are going to respond.
Or like Musk, when asked for comment on the horse for hand job scandal, came out as a republican to try and get ahead of it somehow.
[1]: https://protos.com/exclusive-moonstone-bank-explains-ties-wi...
https://lh6.googleusercontent.com/U9Wf3gWF25o0P8HMie7Zdpwkc-...
They didn’t set up in the Caribbean for the weather, but to ensure they were largely free from US regulation. As desired by most crypto enthusiasts!
None of this is quick but as true as before, “The wheels of Justice turn slowly but grind exceedingly fine.”
It’s a lot easier to do a second murder than a second FTX.
In complicated murder cases it can take decades to get an arrest, too. For example, a murder in 1963 and a conviction in 2001: https://www.nytimes.com/2020/06/26/us/thomas-blanton-dead.ht...
Evidence seems to be pointing towards SBF being incompetent, not a criminal.
https://www.coindesk.com/layer2/2022/11/30/ftxs-collapse-was...
I’ve some exposure to rural banks due to some family in that business, and I’ve never heard of one that small…
> Its single branch had three employees until this year, and didn't offer online banking or even credit cards. It instead specialised in agricultural loans to farmers.
> For a decade, Farmington's bank held around $10 million in deposits. In the third quarter this year, deposits jumped to $84 million – 85% of which came from just four accounts, according to FDIC data cited by the Times.
> The town of Farmington has just 146 residents, and is so small that Google Street View doesn't cover the whole town.
I mean, it definitely looks like they were looking for a tiny, out-of-the-way place to do shady stuff. That said (and this is a rookie question for you financial crime geeks out there):
Why buy a bank?
If you’re a criminal and your goal is to launder money, what does owning a bank do that owning a (for example) car wash or funeral home or laser tag venue doesn’t? Is it purely a scale thing? Given all the regulatory hoops you’d have to jump through in order to buy a bank, I’d think there would be other ways to achieve the same scale with less oversight.
Also, if you’re going to buy a bank, I get why you’d want to buy a small one (smaller purchase price and fewer headlines). But wouldn’t a sudden order-of-magnitude increase in assets or loans made (or whatever) set off a ton of red flags at the SEC, FDIC, and various other federal and state agencies?
Apparently, not. So then we should be asking, why not? Why did the SEC, FDIC, etc. look the other way?
I dunno, maybe we could ask the victims of the 80s/80s Savings & Loan collapse and the 2008 financial crisis?
Same song, 3rd verse.
It might be easier to just buy one if you want to do bank things.
Applying for a banking license is time-consuming. Buying a local bank is a comparatively quick way to end-run around that process. In and of itself it's not a sign of anything shady - buying a bank is a pretty common part of the business plan for fintech startups that don't want to sit around for years waiting for government approval.
That being said, SoFi bought the entirety of Golden Pacific Bank for $23 million, and they were 20x the size of this bank (as well as having actual mortgage infrastructure and a wide variety of products). Buying 10% of a bank with only $10 million in assets for $12 million is very weird, at the very least it’s a horrible deal
Yes, they're criminals who belong in jail but only for the way they managed their balance sheet. They were also great builders who had awesome products and wanted to do all the great things they said they wanted to do.
Buying a bank is something probably every crypto exchange has considered doing, so they can have access to the financial system and not have to pay massive amounts of money and have huge headaches processing payments for their customers. I'm surprised Coinbase doesn't own one by now - or perhaps they do.
I think SBF was VERY informed, especially looking at his background. It's simple greed for power (not even the money).
Banking is weird. Like, how did they find this bank? What makes it better than other random local banks across the country? Is there a marketplace for these banking partnership opportunities?
Why it would be easier to buy a bank than to get a license I never got an answer to. Surely the authorities would not leave a loophole? But I don't know.
An analogy might be the old taxi medallion regulation in New York that had limiting the number of taxis as a goal in addition to qualifying cab owners and drivers.
It’s a frustrating situation because an organization unworthy of a license like FTX can just buy one anywhere in the country, but a worthy organization working locally can’t start a new bank, because they’d likely have to buy one too far away. Anyone who believes there should be more small banks is just out of luck.
My guess is that it's because it's very, very difficult for Bitcoin/crypto companies to maintain bank accounts due to overly strict AML compliance departments.
Even Tether, which controls billions of dollars and is one of the largest crypto companies, was unbanked for some of its existence. I assume that FTX wanted to avoid that.
Same reason you do a reverse merger
All three of those are very much focusing on _cash_ transactions. It would be difficult for any of those to hide wire fraud.
As all of those are references to TV shows revolving around drugs. Drug sales are usually done in cash. If you have over tens of thousands in illicit cash, you need a cash business to mix those transactions in. Clean cash + dirty cash = plausibly clean money. Did your laser tag place really take in 50k in cash a week? That is a harder question to prove than you don't work, where are you getting 25k a week from? You'll need good book keeping.
However crypto investments don't have any cash transactions. You need to make and recieve wire transactions. These transitions are likely legal but still questionable, and most banks will terminate you if you have questionable transactions. Owning the bank means you don't need to answer a lot of these questions like "where did this money come from?"
> and is so small that Google Street View doesn't cover the whole town.
...which is a weird way to emphasize a town's smallness. Is the idea that the driver of the Google maps car got halfway through and said, you know, this town is so small, I'm not even going to drive the rest of the way down the street! Or they were so overcome with small-town charm they just stopped the car and bought a house there or what
https://www.google.com/maps/place/Farmington+State+Bank/@47....
If you go to these towns, and I have done thousands of miles of driving around the West, far from the Interstates, these side roads turn often turn out to be barely-defined dirt, or maybe gravel, turnoffs. Often they just go a few blocks and end. An urban dweller might not even recognize them as side roads, because they blend seamlessly with the lots around the few buildings, and often you'll see cars, farm equipment, or other miscellaneous items strewn haphazardly.
The other thing you'll find way out in those parts of Washington, Idaho, and Oregon are right-wing anti-government militia types. People who listen to Fox News and think it's too liberal. QAnon types who follow Alex Jones and watch OANN. Could that be the connection?
FTX seems to have taken a different approach acting like nothing they did was illegal. They are acting like what they did was no different than what other startups or banks do, they just made a mistake calculating their reserves.
A finance startup buying a small bank is pretty normal. We’ll find out more in time.