It seems like the problem with the proposed strategy for avoiding fraud is that lots of things that aren't technically fraud would also sound obviously bad. It seems like the "send all the refund-processing employees on training the week before the quarter ends" strategy would also run afoul of the "explain it to someone outside the company" test, for example.
Now, maybe you shouldn't be doing things that are obviously bad even if they're legal, but I think there's a reason people who think like that don't end up in the situation in the first place.
I'd also think that sounds like fraud. Like, you make your employees unavailable on purpose so they cannot fulfill a task that you're legally have to do, so you can avoid bad outcomes and overshadow how much money you had in that quarter? I mean, it's genius, but only because nobody thought to make it illegal. And that goes for a lot of those things right? They are technically not illegal because nobody thought of their use
Yeah but you're doing it in order to mislead people about your financial condition. I think it's pretty reasonable that otherwise-legal actions could become illegal when done specifically with the intent to deceive (on a topic that you're legally required to be honest about).
The thing that really struck me about that situation was that the perverse incentives that lead to the sketchy-to-fraudulent behavior were completely avoidable. From what I remember in my accounting classes in business school, if you're using accrual accounting, you spread out the revenue from multi-year contracts over the term of the contract and prorate partial periods, making your revenue smoother so the exact start and end dates of the contract don't matter as much.
> For what it’s worth, I read the chapter and I am also unclear on how a Ponzi scheme is a form of short selling.
Problem: Madoff gave his clients statements showing trades (mostly long, I guess) that never happened.
Solution: If Madoff's firm, which was a market maker, had made a matching short trade at the same time as the client's hypothetical long trade, they would net out and the firm wouldn't need to send either order to the market. (It would be legit for this to happen from time to time as long as the client got NBBO or better.)
Problem: Madoff has no record that his firm did any such matching short trades.
Solution: It's a "books and records" violation.
Problem (unmentioned): If he did record all these short trades, his books and records would have shown that his firm was wildly insolvent for decades.
Solution (unmentioned): ???
----
This is loosely similar to the "is fraud margin trading?" jokes about SBF's explanation of the FTX collapse. Madoff's explanation is loosely similar to SBF's "margin trading" explanation, except that FTX _did_ keep records showing that its customers' money was missing because Alameda had borrowed billions on margin (albeit $8 billion of that was recorded in a "hidden, poorly internally labeled" account in the name of some fake Korean, various flags prevented interest from accruing on the margin and removed all reasonable bounds on the size of the margin position, etc., etc.), whereas in Madoff's case it sounds more like a completely post hoc explanation.
Ziz cult. (Blue-collar crime counterpart to FTX.) And if you've been on rattumb for a while or were already in the comment section during the WordPress era of the blog (I was commenting under "leftrationalist" I think) you know who is who in that kind of situation.
That gendered hemisphere stuff was so nuts. I'm so curious what's really going on there and what it would be like to have them do their hemisphere thing on me.
I wouldn't call them a blue-collar counterpart to ftx... not really sure why they're committing those crimes.
Okay, I'm aware you were friends with worldoptimization because we were all three on rattumb together, but I'm morbidly curious about who the non-FTX ones are now.
Rationalist crime is both relatively common and extremely brazen. Two friends of mine conspired to exploit a protocol. they did this RIGHT IN FRONT OF ME despite the fact that I was friends with the people running the protocol. I was able to pass along their plot and get it foiled.
I wont name names, many people have not been prosecuted. Im not looking to get people in legal trouble even though I oppose fraud.
The devs rolled out some updates and the planned exploit was successfully prevented. In my personal opinion they did not patch it quite securely enough. But what they did blocked the plan.
In my opinion by FAR the most interesting part is not the technical details. It is the fact they thought it was a good idea to plan this RIGHT IN FRONT OF ME. When they knew I had personal connections to the devs between the protocol they were planning to exploit!
Im obviously not giving the full details. Though if you are skeptical we could probably Pay Ozy to confirm my account. Id be happy to give him proof and he can say my account is accurate without divulging all the details.
Yes. Avraham Eisenberg was a regular "Overcoming Bias NYC" member for years. As in he regularly attended the IRL meetups. He has been convicted. https://plasbit.com/blog/avraham-eisenberg-trial
There is also FTX. Not ure how many other examples of successful prosecution exist. Though there might be some time lag. Vast majority of cases I know of where not as large as Avraham so maybe they will get off. I hope they reflect upon the grace they received if so.
TBC I am not a fan of the "justice" system. Even if people are guilty they still deserve decent treatment. And the justice system is not decent or reasonable in how it treats people, even the guilty.
Oh, I thought you meant prosecuted in the specific case you were talking about, sorry.
(I concur on the US justice system, I'm struggling with my feelings about it regarding a certain ongoing (non-white-collar) rationalist crime case which roped in someone I deeply care about.)
>" The business model was working, Hoffenberg felt, but he just needed more time."
> If you ever find yourself thinking that sentence, save everyone some time and just turn yourself in to the FBI.
Why? Most legit businessmen think exactly that when their business isn't as successful as they want as quickly as they want. Why would "it's working but I need more time" indicate fraud?
>Richards said that he was being punished for not being clever enough in his earnings manipulation, which honestly strikes me as a reasonable complaint.
I've been reflecting on this, and I think it isn't a reasonable complain at all. If you're doing dubious but technically legal stuff, then you're dubious - but there's a limit to how dubious you can be. If you're beyond the law, then there is no limit. Richards has just demonstrated that, when confronted with a difficult situation, he wasn't smart enough to deal with it legally but immediately went to law-breaking. No one should ever trust him.
And many laws, even the seemingly stupid ones (hell, even the actually stupid ones) are there for a reason. The date that a contract was signed is very important for a whole host of reasons, for the parties to the contract and for outsiders (eg tax authorities, investors in either company, lawyers,...). Messing with that can have consequences, consequences that Richards has decided are not important for him to worry about.
>Many fraudsters start with normal practices, gradually escalate to dubious practices, and then gradually escalate to outright fraud.
The best place to stop is very honest normal practice. The second best place to stop is normal practices. The third best is dubious practices. But if you go for full illegal, then there is no stopping.
I disagree with the idea that there is a sliding scale from following the rules to breaking them. Backdating a contract is clearly fraudulent. Delaying cancellations is clearly not. It's not a matter of "not being clever enough" - it's about doing it in a non-fraudulent way.
there is sliding scale of lawfulness, and people generally set the zero point as the limit between lawful and fraudulent. but then there are people who say that the difference between 20 and 1 is surely greater then the difference between -1 and 1. and people who notice that actually, there is only 1% chance that -0.3 will be ruled unlawful. and that actually, there are a lot of things that are 0.1 and are lawful, unless you earned a lot of money using it, and then it suddenly unlawful.
sending workers to vacation in certain time so they will not be there to process refunds. i expect it to be considered unlawful if part of some FTX-like fraud, but in other circumstances people will say it fine.
also, i totally expect there are grey area things that some courts rule legal and some none in a lot of circumstances. our legal system lack consistency and give wildly different punishments for the same crime. it will be really weird if there is black and white line between judged legal and not, instead of grey area of 10% to be judged illegal that move gradually to 90% to judge illegal.
system that not actively trying to be coherent will be incoherent, and ours doesn't.
well, this not the example given here. and i expect that delaying the refunds will be illegal too! you can't just... decide you don't want to give person the money you owe then now, and prefer give it another month.
It seems like the problem with the proposed strategy for avoiding fraud is that lots of things that aren't technically fraud would also sound obviously bad. It seems like the "send all the refund-processing employees on training the week before the quarter ends" strategy would also run afoul of the "explain it to someone outside the company" test, for example.
Now, maybe you shouldn't be doing things that are obviously bad even if they're legal, but I think there's a reason people who think like that don't end up in the situation in the first place.
Not sure its "fraud" but that does sound illegal to me.
I'd also think that sounds like fraud. Like, you make your employees unavailable on purpose so they cannot fulfill a task that you're legally have to do, so you can avoid bad outcomes and overshadow how much money you had in that quarter? I mean, it's genius, but only because nobody thought to make it illegal. And that goes for a lot of those things right? They are technically not illegal because nobody thought of their use
Huh? All you're doing is delaying a refund. You could just as well instruct them to delay processing refunds.
And no, it's not a task that they "legally have to do."
How could that possibly be illegal? It is clearly not. All you're doing is delaying the processing of refunds.
Yeah but you're doing it in order to mislead people about your financial condition. I think it's pretty reasonable that otherwise-legal actions could become illegal when done specifically with the intent to deceive (on a topic that you're legally required to be honest about).
There's nothing misleading or deceptive about it. You're simply delaying a refund for accounting purposes.
No - no one would think that was fraud. You're just delaying cancellations.
I would
Really? Why?
seems sus
The thing that really struck me about that situation was that the perverse incentives that lead to the sketchy-to-fraudulent behavior were completely avoidable. From what I remember in my accounting classes in business school, if you're using accrual accounting, you spread out the revenue from multi-year contracts over the term of the contract and prorate partial periods, making your revenue smoother so the exact start and end dates of the contract don't matter as much.
> For what it’s worth, I read the chapter and I am also unclear on how a Ponzi scheme is a form of short selling.
Problem: Madoff gave his clients statements showing trades (mostly long, I guess) that never happened.
Solution: If Madoff's firm, which was a market maker, had made a matching short trade at the same time as the client's hypothetical long trade, they would net out and the firm wouldn't need to send either order to the market. (It would be legit for this to happen from time to time as long as the client got NBBO or better.)
Problem: Madoff has no record that his firm did any such matching short trades.
Solution: It's a "books and records" violation.
Problem (unmentioned): If he did record all these short trades, his books and records would have shown that his firm was wildly insolvent for decades.
Solution (unmentioned): ???
----
This is loosely similar to the "is fraud margin trading?" jokes about SBF's explanation of the FTX collapse. Madoff's explanation is loosely similar to SBF's "margin trading" explanation, except that FTX _did_ keep records showing that its customers' money was missing because Alameda had borrowed billions on margin (albeit $8 billion of that was recorded in a "hidden, poorly internally labeled" account in the name of some fake Korean, various flags prevented interest from accruing on the margin and removed all reasonable bounds on the size of the margin position, etc., etc.), whereas in Madoff's case it sounds more like a completely post hoc explanation.
Wait, what happened with the person who stopped??
I have to ask: are these posts written to anyone specific, or do you believe that your audience is particularly likely to commit white-collar crime?
Thing of Things readers have been involved in multiple cases of white-collar crime! (All crypto-related, not all FTX.)
Holy shit, really? How do you know?
That's nuts.
c'mon it's not even the worse Thing of Things reader crime with a Wikipedia article
What is?
And how do you know who Thing of Things readers are?
Ziz cult. (Blue-collar crime counterpart to FTX.) And if you've been on rattumb for a while or were already in the comment section during the WordPress era of the blog (I was commenting under "leftrationalist" I think) you know who is who in that kind of situation.
That gendered hemisphere stuff was so nuts. I'm so curious what's really going on there and what it would be like to have them do their hemisphere thing on me.
I wouldn't call them a blue-collar counterpart to ftx... not really sure why they're committing those crimes.
Ha, they just made the NYT again I saw.
I didn't realize the zizzies posted here though.
Okay, I'm aware you were friends with worldoptimization because we were all three on rattumb together, but I'm morbidly curious about who the non-FTX ones are now.
Rationalist crime is both relatively common and extremely brazen. Two friends of mine conspired to exploit a protocol. they did this RIGHT IN FRONT OF ME despite the fact that I was friends with the people running the protocol. I was able to pass along their plot and get it foiled.
I wont name names, many people have not been prosecuted. Im not looking to get people in legal trouble even though I oppose fraud.
What are you talking about? What kind of protocol? How is that a crime?
I can't tell if this is a subtle cryptography joke, trolling, or what.
By "protocol" I mean something like a smart contract or a crypto app. Example: uniswap on ethereum. Or Drift on Solana.
It was illegal for similar reasons Avraham Eisenberg was convicted of Fraud and market Manipulation - https://plasbit.com/blog/avraham-eisenberg-trial
Oh wow. So what happened?
The devs rolled out some updates and the planned exploit was successfully prevented. In my personal opinion they did not patch it quite securely enough. But what they did blocked the plan.
In my opinion by FAR the most interesting part is not the technical details. It is the fact they thought it was a good idea to plan this RIGHT IN FRONT OF ME. When they knew I had personal connections to the devs between the protocol they were planning to exploit!
Im obviously not giving the full details. Though if you are skeptical we could probably Pay Ozy to confirm my account. Id be happy to give him proof and he can say my account is accurate without divulging all the details.
Isn’t ozy she/her
"many people have not been prosecuted" wait so some people did???
Yes. Avraham Eisenberg was a regular "Overcoming Bias NYC" member for years. As in he regularly attended the IRL meetups. He has been convicted. https://plasbit.com/blog/avraham-eisenberg-trial
There is also FTX. Not ure how many other examples of successful prosecution exist. Though there might be some time lag. Vast majority of cases I know of where not as large as Avraham so maybe they will get off. I hope they reflect upon the grace they received if so.
TBC I am not a fan of the "justice" system. Even if people are guilty they still deserve decent treatment. And the justice system is not decent or reasonable in how it treats people, even the guilty.
Oh, I thought you meant prosecuted in the specific case you were talking about, sorry.
(I concur on the US justice system, I'm struggling with my feelings about it regarding a certain ongoing (non-white-collar) rationalist crime case which roped in someone I deeply care about.)
Involving ziz? Or what do you mean?
Yeah.
>" The business model was working, Hoffenberg felt, but he just needed more time."
> If you ever find yourself thinking that sentence, save everyone some time and just turn yourself in to the FBI.
Why? Most legit businessmen think exactly that when their business isn't as successful as they want as quickly as they want. Why would "it's working but I need more time" indicate fraud?
I think the idea is that you say this while not in fact *having* any more time, so your “only choice” is fraud.
>Richards said that he was being punished for not being clever enough in his earnings manipulation, which honestly strikes me as a reasonable complaint.
I've been reflecting on this, and I think it isn't a reasonable complain at all. If you're doing dubious but technically legal stuff, then you're dubious - but there's a limit to how dubious you can be. If you're beyond the law, then there is no limit. Richards has just demonstrated that, when confronted with a difficult situation, he wasn't smart enough to deal with it legally but immediately went to law-breaking. No one should ever trust him.
And many laws, even the seemingly stupid ones (hell, even the actually stupid ones) are there for a reason. The date that a contract was signed is very important for a whole host of reasons, for the parties to the contract and for outsiders (eg tax authorities, investors in either company, lawyers,...). Messing with that can have consequences, consequences that Richards has decided are not important for him to worry about.
>Many fraudsters start with normal practices, gradually escalate to dubious practices, and then gradually escalate to outright fraud.
The best place to stop is very honest normal practice. The second best place to stop is normal practices. The third best is dubious practices. But if you go for full illegal, then there is no stopping.
I disagree with the idea that there is a sliding scale from following the rules to breaking them. Backdating a contract is clearly fraudulent. Delaying cancellations is clearly not. It's not a matter of "not being clever enough" - it's about doing it in a non-fraudulent way.
there is sliding scale of lawfulness, and people generally set the zero point as the limit between lawful and fraudulent. but then there are people who say that the difference between 20 and 1 is surely greater then the difference between -1 and 1. and people who notice that actually, there is only 1% chance that -0.3 will be ruled unlawful. and that actually, there are a lot of things that are 0.1 and are lawful, unless you earned a lot of money using it, and then it suddenly unlawful.
and it turn out this limit is no so sharp.
I don't think any of that is true.
What are the things that are 0.1 and lawful unless exploited?
sending workers to vacation in certain time so they will not be there to process refunds. i expect it to be considered unlawful if part of some FTX-like fraud, but in other circumstances people will say it fine.
also, i totally expect there are grey area things that some courts rule legal and some none in a lot of circumstances. our legal system lack consistency and give wildly different punishments for the same crime. it will be really weird if there is black and white line between judged legal and not, instead of grey area of 10% to be judged illegal that move gradually to 90% to judge illegal.
system that not actively trying to be coherent will be incoherent, and ours doesn't.
They could just instruct them to delay the refunds - no need for vacation, and nothing illegal about that, even if there were other fraud.
well, this not the example given here. and i expect that delaying the refunds will be illegal too! you can't just... decide you don't want to give person the money you owe then now, and prefer give it another month.
You totally can do that! It's not a crime!
You might get sued for it once in a while, but it's absolutely something you can do.