We’re reporters covering the fall of FTX and Sam Bankman-Fried. Ask us anything! (open to suggestions on something clicker!)

Were Hedge Funds and Market Makers using 'tokenized stock' created out of thin air as locates for 'real shares' to cover/short sell with?

That's the 100trillion dollar question.

I’m afraid I don’t currently know how FTX’s stock token offering functioned, as it hasn't been an area I’ve looked closely at. It also wasn’t referenced in the SEC or CFTC complaints. But I’m seeing a number of questions about this, so it seems this is an area we should look at in future. If you have information to share on this, you can write to me at [email protected] - AB

How is FTX's strategy of "taking their customers' money and not actually buying anything" any different than current stock brokers and market makers with billions of securities "sold but not yet purchased" and the constant stream of failures to deliver? Was their liquidity problem similar to a good ole fashioned bank run? Did they seem to derive a lot of their trading AI and business practices from large investment banks?

The main thrust of prosecutors’ fraud allegations against Bankman-Fried and two of his closest associates is that FTX used its customers' deposits to pay off debts at Alameda Research - Bankman-Fried’s crypto hedge fund. Prosecutors also say Bankman-Fried used customer funds to buy luxury real estate and make political donations. So according to prosecutors, top FTX executives did indeed buy things with customer money, but without their customers knowing about it or consenting to it. -LC

Since SBF was making risky bets with Alameda, it was only a matter of when, not if it would fall. However, in the theoretical universe where FTX either remained stable or kept growing -that is, remained solvent- would he be investigated for the same charges of fraud that are currently being levelled against him?

It’s hard to speculate about a counterfactual, but I found it notable that prosecutors alleged that the fraud had taken place since FTX was founded in 2019 - in other words, it is not alleged to have been something that began when cryptocurrencies began tumbling in value last year. It certainly is possible that in a universe in which crypto prices remained high and FTX was able to stay solvent that someone with knowledge of the illegal activities alleged to have taken place would have taken their concerns to law enforcement anyway. -LC

It seems pretty clear that there are other crypto businesses that are doing very similar fraudulent activities. Do you think we'll see more cases like this or is FTX essentially taking the fall for the whole industry? Really my question is- do you see evidence that authorities are now looking into other crypto businesses or is FTX only getting hit with the book because the collapse hurt their customers?

I think that FTX’s collapse, and the subsequent revelations about SBF’s practices, has drawn a huge amount more scrutiny to the industry, which may reveal similar activities at other companies. There are other crypto companies that disclose even less public information than FTX, meaning it is difficult to currently verify what activities are taking place there. Since its collapse, U.S. authorities have said they want to clean up the crypto industry, so I don’t see this case as the end to crypto enforcement, but rather the start of a tougher era - AB

FTX and Theranos - the same tale of fraud that's existed for decades (e.g. Enron) or a different novel strand?

Thanks for doing the AMA!

There are similarities in the sense that both FTX and Theranos shared charismatic founders and obtained high valuations by persuading investors that they would revolutionize their respective sectors (financial services and healthcare). The mechanics of the alleged fraud at FTX, however, differ substantially, as it involved the removal of customer funds and the concealment of that practice. - AB

Hello! Do you See any similarities to the german wirecard scandal? Especially in terms of political connections and failing (ignoring) of financial supervision?

FTX and Wirecard certainly were both companies that, for a time, were beloved by investors, had close relationships with regulators, and had charismatic founders. Both have also been accused of fraudulent accounting practices, though in neither case have the trials of their founders concluded. - AB

With all of the focus understandably of FTX, are you guys (Reuters) also trying to be ahead of the next Crytpo house of cards? Do you think there is evidence that Binance could have some of the same problems?

We have reported extensively on Binance already. Over the past year, my colleague Tom Wilson and I produced a series of investigative articles that detailed Binance’s troubled history with compliance and its strategy to evade regulators. I recently did a Twitter thread grouping these articles together, which show our main findings about how Binance operates. However, despite over a year of reporting, plenty of mysteries about Binance remain, such as the true state of its financials, given it discloses so little information. In our last article of 2022, we called Binance a “black box.” - AB

Thanks for doing an AMA. As reporters on technical topics do either of you have education pertaining to law, finance, politics or economics?

While I studied history at university in the UK, I’ve reported on business and finance for most of my career and always take the time to understand a new area that I’m looking into, whether that be crypto or something else - AB

I see it a similar way - I studied public policy and international affairs in the United States, and have focused largely on business and finance during my career at Reuters. I view it as my job to speak with numerous knowledgeable, informed sources and do extensive research to understand a given subject. -LC

Do you think the FTX scandal will dampen enthusiasm the general public has for crypto?

Yes, the collapse of FTX, which portrayed itself as one of the “most regulated” crypto exchanges, has led to a wave of distrust about how exchanges hold and protect customer funds. Other major exchanges, such as Binance, the largest, also offer little transparency about their finances. The ripple effects from FTX’s collapse have been seen recently when customers rushed to withdraw billions of dollars in funds from Binance, and a crypt-focused bank called Silvergate - AB

IMO mainstream media overlooked many major issues with crypto because they were financially incentivized to do so. Issues like the inefficiency of proof of work mining and constantly fluctuating token price that made it cumbersome to use as currency. What procedures are in place at Reuters to ensure there is as little bias as possible when reporting? Are journalists writing about crypto allowed to trade crypto and if yes how does Reuters justify that possible conflict of interest?

Reuters reporters strictly follow our company’s Trust Principles which require us to act with “integrity, independence, and freedom from bias.” We have rigorously covered the crypto industry, including FTX. Over the past year, my colleague Tom Wilson and I have produced a series of investigative articles on the Binance crypto exchange, revealing its troubled history with financial crime compliance and its strategy of evading regulators. You can see a full list of these stories in this recent Twitter thread of mine: https://twitter.com/AABerwick/status/1605220842115420160 - AB

What do you see as likely outcomes for SBF and do you see any reprieve for those who were scammed?

Bankman-Fried last week pleaded not guilty to the charges against him, and a judge set his trial date for October 2023. He is not barred from changing his plea to guilty before trial, though there is no indication he is planning to do that. If convicted at trial, he could face decades in prison - the statutory maximum for all eight counts he faces totals 115 years, though any sentence would ultimately be determined by a judge based on a range of factors. As for the alleged fraud victims, prosecutors may seek restitution as part of the sentencing process. Prosecutors last week launched a website for people who believe they are victims to register to help determine whether they are eligible for any eventual restitution. -LC

Given Bankman-Fried's parents' level of education and knowledge. Did Bankman-Fried's parents go along with his criminal enterprise? It sure looks like they are on the hook for laundering proceeds of fraud.

Are these high-education types simply all criminals in waiting, just waiting for someone to drop millions into their laps?

Neither of Bankman-Fried’s parents have been charged with any crimes. Both are professors at Stanford Law School, and were involved to varying degrees in their son’s businesses. When time came for Bankman-Fried to be released on a $250 million bond, prosecutors proposed that he be released to house arrest at his parents’ home under their supervision, and had them co-sign their son’s bond. The two also pledged their Palo Alto, California home as collateral to ensure their son’s return to court. -LC

What type of legislature should be implemented that wouldn’t hurt the crypto space, but still hold exchanges accountable?

Regulation of cryptocurrency trading is the subject of much debate in the United States. The Securities and Exchange Commission (SEC) has argued most crypto tokens are securities, while the head of another regulator, the Commodity Futures Trading Commission (CFTC) has urged U.S. lawmakers to expand the agency’s authority to oversee crypto markets. The U.S. Congress is weighing proposals to bolster cryptocurrency regulation. However, it should be noted that the charges against Bankman-Fried have little to do with the nature of the digital assets traded on the FTX platform, as I reported in an analysis published earlier today. -LC

Do you think the bail agreement/amount for Sam was appropriate? Too high? Too low?

The purpose of bail in the U.S. federal court system is to ensure a defendant’s return to court, and to protect the public from any ongoing danger that the defendant could commit another crime. Bail is not itself intended to be a form of punishment, as defendants are presumed innocent before trial. Prosecutors supported the bail agreement in part because they believed Bankman-Fried had gained sufficient notoriety that it would be impossible for him to perpetuate more alleged financial fraud. They also thought that having him live under his parents’ supervision would mitigate the potential risk of flight. It should be noted that if Bankman-Fried attempts to flee, he only adds to his potential criminal liability. -LC

Do you think that this case could potentially lead to anyone else’s arrest, who are not SBF-adjacents such as Ellison, but bigger players?

Prosecutors have insisted that their investigation remains ongoing even after the arrest of Sam Bankman-Fried and the guilty pleas of Caroline Ellison and Gary Wang. It is not yet clear whether anyone else will be arrested. -LC

How were people like Sam Bankman-Fried and his friends able to take advantage of trading bitcoin in South Korea? Why wasnt everyone doing it if it was so simple?

Do you think Binance will eventually go the way of FTX?

Binance is many times larger than FTX, but it discloses even less information about its finances, according to an article we published recently on the “black box” nature of its books. Binance doesn't publish basic financial information such as revenue, profit and cash reserves; it doesn't reveal what role BNB plays on its balance sheet or how exposed it is to its customers’ bets; and it doesn't say where the binance.com platform is located. As a result, it is difficult to know what Binance’s true financial situation is. Binance also faces future hurdles, such as the possible resolution of an ongoing U.S. Department of Justice investigation. However, in December, Binance said it dealt with $6 billion in customer withdrawals over a few days “without breaking stride.” - AB

How much do you factor in the political bribes made by SBF to democrats and by the other CEO to republicans when analyzing the facts of the story?

And a request, before you publish the story can you please check that you are not attributing the malicious actions of a centralized opaque corporation as the failings of decentralized public blockchain network? Everyone gets that wrong. Thanks.

Bankman-Fried contributed nearly $40 million to campaigns in the 2022 election cycle, according to OpenSecrets. Those donations are now under scrutiny by prosecutors, who say he funded tens of millions of dollars in contributions to campaigns with FTX customer money. One of the eight counts Bankman-Fried faces is for conspiracy to violate U.S. campaign finance laws, but prosecutors have until now given little indication publicly of which actions they are looking into. Further details of what exactly prosecutors are looking into here is certainly a promising area of further inquiry for reporters. -LC

While SBF and his colleagues and companies donated to a greater degree to Democrats in Congress (roughly two-thirds of $70 million in donations in total) do you think the fact that Republicans received about $23 million will prevent House leadership from holding hearings on the issue of his donations?

While the House has certainly proven itself to be unpredictable so far this year, I’m not aware of any indications that they plan to wind down their scrutiny of FTX. -LC

We are signing off now, thank you for all the questions! - Luc and Angus