I haven’t seen any evidence Alameda itself committed any crime, only that they were terrible traders and lost many billions on margin through FTX, who gave them special treatment for collateral. SBF then tried to bail them out with FTX customer funds since he owned both.
I think Ellison will get off scot free since she only controlled Alameda, and not entirely. Her crimes are probably minor and worth forgiving for her testimony. At least that’s my hot take.
I think you grossly underestimate the amount of regulation Caroline is subject to.
At the very least she will be deemed unfit or proper, which means she will be barred from any financial activity for the years to come.
On top of that, as a MOO & RO she will be professionally and personally liable to millions in fines, and most likely jail time.
Negligence _is_ a crime, a lack of means _is_ a crime, a lack of knowledge or control are crimes as well, for any regulated person, especially at the MOO/RO level, a lack of chinese wall between investment and retail is a crime, accepting money from an unverified source is akin to money laundering for an investment firm.
Edit:
MOO, ROs (responsible officers) and MICs (managers in charge) are regulated activities that should be assigned to individuals performing specific duties in an investment fund. Each regulator will have different names and variations on their duties and structure, but overall it's pretty much aligned.
It is mandatory for a regulated firm to have a specific amount and hierarchy of these regulated activities, and each one of them comes with a set of duties.
These activities are the main vector by which regulators enforce and control individual managers.
MOO is often assigned to the CEO. ROs are often the key investment officers, and MICs are often the key tech & operation officers.
Edit2: Hedge funds are no less regulated than any other investment firm. You are mixing "prop shops"/"family offices" and hedge funds.
Alameda was definitely an asset manager as it received external funds and was selling (debt) securities.
She was in charge a hedge fund. Hedge funds are allowed to trade badly and lose money. It happens all the time. There is a VERY high bar for negligence. Alameda Research was also located in the Bahamas. Did Alameda even have outside investors? It was basically SBF's family office. Caroline isn't likely to be liable for much unless she knowingly conspired to commit crimes.
Hedge funds are not exempt from having to know where their money is coming from. A hedge fund that works knowingly using drug money will have people go to jail. A hedge fund that doesn't do any amount of KYC will have people go to jail.
Hedge funds are not magic places where you can say teehee i just used money I found
My understanding is that she was the CEO of Alameda and received a loan from FTX based on garbage collateral. That’s not a crime? SBF knew the collateral was junk, so it’s not misrepresentation. Was she also an officer of FTX? A good chunk of those customer funds were from margin accounts that could be loaned out, so it may be hard to prove she knew SBF was dipping into the forbidden cookie jar, especially when there were no real FTX financials and it all seemed to be in SBF’s head.
I’m not saying she’s fully innocent, maybe there’s some incriminating text messages or something, but from the public information so far it doesn’t seem cut and dry to convict her of a serious crime.
There are very strict rules for any regulated firm about the provenance of the funds, ultimate beneficiaries, client-assumed risk, KYC, etc.
These are not only for customer protection, but anti money laundering as well.
Small regulators often overlook the client risk part so as to attract foreign money (that's why most of these regulators will be OK with little to no restriction of derivatives). The anti money laundering part though is very important for these small regulators as they could be fined internationally and don't want the bad publicity.
You cannot just "accept money and trust its from a legitimate source".
> I haven’t seen any evidence Alameda itself committed any crime
I've seen considerable evidence that the FTX empire, including Alameda, was jointly run by a narrow set of leaders, in which Caroline was #2, not a set of separate, arms length enterprises.
I'd take that bet 7 days a week and twice on Sundays.
No way Ellison is getting off scot free. I'd expect her to get a huge reduction in her sentence, but would still be shocked if she got no jail time.
It has been reported that there was a meeting that included SBF, Ellison and the other high ups at FTX where the decision was deliberately, explicitly made that Alameda would use customer funds to prop itself up. That is most definitely a crime on Ellison's part if true.
I posted a Twitter thread about this in an early story that I can look up that was super informative with a lot of detail, but the short of it is that it was all a house of cards based on FTT. If Alameda died, it would have tanked the value of FTT, which would have in turn killed FTX, because they were assigning huge value to FTT on their balance sheet (which is, in and of itself, insane because FTT worked more like a stock of FTX itself - a company doesn't put its own stock on the asset side of the balance sheet).
> which is, in and of itself, insane because FTT worked more like a stock of FTX itself - a company doesn't put its own stock on the asset side of the balance sheet
Thinking about it, it makes sense. But I never did before. So where does a company’s own stock normally end up at, balance-wise?
> But I never did before. So where does a company’s own stock normally end up at, balance-wise?
The company’s own stock is in the equity section (treasury stock – stock that the company has repurchased after it was issued is a contra equity account, since the act of purchasing reduces stockholder equity.)
On a balance sheet, assets - liabilities = shareholder equity. This calculated shareholder equity amount is known as a stock's book value, but this can of course differ from its market value: https://www.investopedia.com/ask/answers/how-are-book-value-...
I've always been confused about this point. In the stock buyback world apparently they just vaporize the stock when it's acquired, they don't hold it on the books because if they need to issue more they can always dilute and create new shares when they need it.
Though I would disagree that FTT really functioned equivalently to ownership shares.
* FTX's success was helped a lot by the reputation of Sam and Alameda as the best of the best
* Alameda bankruptcy proceedings would have unveiled some skeletons, like the unlimited borrowing of user funds (confirmed by court filing recently)
She doesn't even need to be aware to be accountable and prosecuted. Most regulated activities have a requirement of _means_ rather than _outcome_. i.e. She is as much in breach for not setting up the means by which she should have known, than actually knowing.
Couldn’t she just claim she believed those funds were coming from the customer margin accounts where the terms allowed that usage? That matches her public statements.
If Alameda executives knew that FTX customer funds were being commingled with Alameda’s then they were well aware their source of capital was from customer money they shouldn’t have been touching. It’s not just that they were given unlimited margin from FTX.
> I haven’t seen any evidence Alameda itself committed any crime
Well if you look at what the mainstream media are saying, the very same mainstream media who were presenting SBF as the second coming of the Christ on their front cover, you're not looking very much.
For a start it's proven that some people who wanted to send hefty sum of money to FTX had to wire it to Alameda to dodge controls. That's wire fraud.
Then it's clear that Alameda manipulated the market and were the ones behind the pump and dumping of several shitcoins. Including several shitcoins of SBF's creation.
But really... People who actually called SBF for the ponzi boy and FTX and Alameda for the complete ponzis they were, months or even years before they failed, have lots of evidence that Alameda was part of a bigger criminal operation, before FTX even existed.
If you really believe it's a coincidence the top lawyers at FTX and Bitfinex happened to be colleague at a company caught in an online poker cheating scandal I've got a bridge to sell you.
From the very start even just the naming of Alameda as "Alameda Research" was part of the con (SBF says on video he added "research" to dodge banking restrictions more easily).
The goal of Alameda Research was, from day one, to engage in criminal activities.
This entire "leveraged trade gone wrong" is lies, lies and more lies, relayed by certain media (once again: the same who were presenting SBF as an altruistic genius that was going to save the world).
Now maybe that Alameda also fucked up trades but I'm pretty sure that a lot of the missing billions mysteriously ended up at the hands of those behind the iFined/tether/Bitfinex/Deltec cartel.
Funnily enough this may make tether a bit more backed now.
One of the latest development btw is that one of the shareholder of Bitfinex is a now convicted money launderer (China just arrested sixty people in relation with chinese mafia money laundering through stashes of cash that found their way to Hong Kong and then were exchanged for USDT: $1.7 bn at least).
FTX / Alameda are one and the same and it's highly likely they were just a front for tether, with SBF as the useful idiot.
Some are going to say: "there's no evidence" but this entire thing stinks.
And nobody will convince me that Alameda didn't commit any crime.
Alameda, just like Moonstone bank (bought by SBF from Deltec) and the tens if not hundreds of companies SBF had, were part of a criminal operation.
Let's assume there's no documentation or non-conspiring witnesses who can pin someone, but there are five co-conspirators. They will quickly turn on each other and spill the beans. Literally the prisoner's dilemma. All the government needs to do is threaten 20 years in prison. People will do anything including betraying friends and lovers to get that down to 5 or 10 or zero.
I would suggest that a CEO should know where any magic beans are coming from beyond a reasonable doubt. Not knowing where those magic beans are coming from is its own kind of special trouble, from a legal liability perspective.
She is highly intelligent but not street smart it seems - one does not win maths prizes for being stupid - just think she was either in over her head and was controlled by SBF and his cult to do rather dodgy stuff.
Did she get any special loans or other gifts from FTX like SBF's parents got a free condo in the Bahamas ???.
Ellison joined Alameda Research in March 2018. She became co-CEO along with Sam Trabucco in October 2021. She became the sole CEO of Alameda Research in August 2022 after Trabucco stepped down.
Sam Trabucco - now there is a name you never hear ... yet he was CEO and left 2 months before they went bankrupt ...
Hard to believe they weren't complicit in the fraud given users were wiring money directly to Alameda's bank accounts (for deposits intended for FTX). You (Alameda) receive thousands of wires from random people, so you just decide it's OK to trade with it?
Granted they technically have no fiduciary duty to users since nobody signed a contract with them, I doubt they get off scott free.
I think Ellison will get off scot free since she only controlled Alameda, and not entirely. Her crimes are probably minor and worth forgiving for her testimony. At least that’s my hot take.