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Comment by kpaxstaxes | Hacker News Reader

This is absolutely fraud.

FTX was not a bank, it was an exchange. People were not giving FTX money to lend out to others in exchange for interest (as they would a bank). People were buying products (cryptocurrencies) from FTX that FTX agreed to hold on their behalf. FTX doing anything with these assets other than holding them on behalf of customers is fraud.

FTX's own Terms of Service explicitly said it was not permitted to lend out customer funds.

SBF himself repeatedly stated that FTX did not lend out customer funds.

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> People were not giving FTX money to lend out to others in exchange for interest

Depending on state law, if you put down a deposit for e.g. flowers, the florist is free to spend the cash however they see fit, including loaning it out to someone. Lending customer funds per se does not prove fraud. Bankman-Fried lying about it does.

Sorry, was FTX a florist? I'm confused by your remark. Can you show some evidence that FTX was selling flowers, and that they had been using customer deposits for flowers on business expenses?

It’s an analogy. Lending out—or even spending on working capital—customer deposits isn’t necessarily illegal. The context is what makes it fraud or business as usual.

And the context is that FTX is not taking deposits for flowers, they are purchasing and holding assets on their customers' behalf, so your florist analogy makes absolutely no sense.

> they are purchasing and holding assets on their customers' behalf, so your florist analogy makes absolutely no sense

No, they were accepting customers' cash in exchange for something undefined. Crypto being unregulated, we can conclusively say that something was not "purchasing and holding assets on their customers' behalf."

FTX is, in many respects, more like a florist than a financial firm. Certainly for purposes of this case. (My florist's books are better organized.)

Nope, their TOS prohibited commingling. An LLC isn’t a license for fraud requiring government regulation.

> their TOS prohibited commingling

One, it's unclear if that's criminal commingling versus breach of contract by FTX.

Two, that's what I mean--absent additional representations, the lending out of customer deposits on its own does not constitute fraud or even anything illegal. That's the point of the comparison to a florist. In terms of consumer protections, my deposit with my florist is about (albeit not precisely) on par with customers' at FTX's. This is what you get when you stick your finger to the regulated system and put your money outside it.

Bankman-Fried lying about it does.

Which I understand as, it's gota be determined the extent of the lying to determine the extent of the fraud ; some you-didnt-read-the-contract-well-enough responsability may incumb on the customer(s).

holding assets on their customers' behalf

Who said he was, him?

Of course Im playing devil's advocate here to illustrate the logic of the law as presented by our friend here.

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