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SBF's Personal Notes: 'Accounting in June 2022'
Sam Bankman-Fried claims he was not aware of Alameda's $8 billion liability to FTX prior to June 13, 2022.
Sam Bankman-Fried’s college roommate and former FTX developer, Adam Yedidia, took the stand yesterday. Yedidia described a “bug” in FTX’s code, which exaggerated Alameda’s liability to FTX customers in an account called “fiat@FTX.” Alameda’s liability in the account was initially recorded as $16 billion, but after Yedidia fixed the bug in June 2022, the account reflected an $8 billion liability to FTX.
In January 2023, SBF shared nearly 300 pages of his personal writings with me while on house arrest. In a document titled ‘Accounting in June 2022’, SBF attempts to explain the bug and *claims* he was not aware of Alameda Research’s $8 billion liability to FTX prior to June 13th, 2022.
To be clear, I am not endorsing SBF’s statements as true. I approach Sam’s claims with skepticism, but figure that if I have access to several of Sam’s personal writings, I should make some public as they become relevant. If you don’t want to read this idk why you clicked it. Feel free to scroll away.
Accounting in June 2022
1) Around June 13th, 2022, a bunch of FTX developers determined that Alameda had an ~$8b liability to FTX through the fiat@ account.
2) Sidebar: fiat@
3) First: was anyone aware of that $8b liability prior to June 13th, 2022? I’m not sure they were. I certainly wasn’t.
And for what it’s worth, my very vague memory is that, in June 13th, developers expressed surprise that it was $8b, and that last they had checked (at the end of 2021?) it had been less than $1b.
4) Second: did this impact FTX’s finances, the way we calculated them? I don’t think so.
FTX’s corporate finances essentially did the following:
a) calculate total customer balances (Bal)
b) calculate total assets under custody (Cus)
c) calculate corporate surplus Corp = Cus - Bal
d) calculate revenue (Rev)
e) calculate expenses (Exp)
f) as a checksum, confirm that Corp is roughly equal to Rev - Exp
5) When a client wired money to Alameda:
Bob’s bank: -$100
Bob’s FTX account: +$100
Alameda’s bank: +$100
email@example.com FTX account: -$100
fiat@ and Bob’s FTX account are both customer balances, but they cancel out (it’s just a transfer between those accounts).
And because it doesn’t use any FTX bank accounts or crypto, it doesn’t change Cus.
6) So I don’t think it impact FTX’s corporate cash/financials
(And, in fact, FTX did successfully get audited financials at the end of 2020 and 2021, and to my knowledge they were essentially accurate)
7) Third question: if one wanted to accurately calculate ‘Alameda’s total account balance/position/etc. on FTX’, how would you do that?
I’m probably going to forget some piece of this, because I never confidently knew all of it, and don’t have access to data to figure it out now, but I think the following is probably most of it:
8) a) add up all balances in the following accounts, and all of their subaccounts:
–firstname.lastname@example.org (this may have had other names at various points, I’m not 100% sure, and not sure whether the account ‘moved’ or was ‘replaced’ or what when developers split it out into different stub accounts for different payment processors)
–any other Alameda-related accounts, not sure how many there were
b) Lines of credit: I’m not 100% sure how these show up, but look into whether or not you have to subtract them out
c) for email@example.com, make sure you’re getting the right value for it (see above)
d) be aware that some of the accounts – e.g. firstname.lastname@example.org – might not appear on any GUIs because they’re stub accounts; so you may have to be a developer to determine this
9) Fourth question: who was correctly calculating Alameda’s total position on FTX, and when?
My guess is that, at some point in 2022–and that point may have been around June 13th–Alameda became aware, possibly for the first time ever, of its true account balances on FTX. My weak guess is that, prior to June 13th or so, it was probably miscounting by the size of the fiat@ account; and that after then, I don’t know of any ways in which it was miscounting.
10) In terms of FTX employees:
There are no FTX employees who I am confident were aware of the size of Alameda’s aggregate position on FTX by June 14th, 2022; but there are some who plausibly may have been.
I am skeptical that any were prior to June 13th, 2022.
11) And in terms of who understood fiat@’s behavior after June 14th, 2022–I think there were probably 5 or so people at each of FTX International, FTX US, and Alameda who did.
12) In terms of what I knew at the time–I think my knowledge was roughly the following:
“It’s complicated. The fiat@ account is relevant, and probably you add it to the other accounts. I think fiat@ is probably 0, $8b, or $16b, or possibly the negative of one of those. I think Alameda’s main account on FTX probably has a few billion dollar position. I’m not sure whether other accounts, like ventures, are significant.
Devs are on top of whatever has to be done to clarify the fiat@ system.
If Alameda lost $8b, it would be extremely bad. As is, Caroline/Gary/etc. are handling it, and they seem to think it’s basically ok.
Also, I am going to want to have a long talk with Caroline about hedging. It seems like Alameda probably still hasn’t sufficiently hedged, and that seems really bad.”
13) So, what does this mean for Alameda’s account on FTX?
Well, as an example–here are two versions of it, both representing mid June, 2022, right after the 3AC crash when BTC hit $20k.
The first correctly includes the fiat@ contribution. The second is what you would have seen if you’d just looked for Alameda on the admin portal; it is, in fact, what I did see.
14) So until late 2022, I think most people–including me–were substantially underestimating the size of Alameda’s position on FTX because of the fiat@ account.
Note: I am not employed by anyone. I do not have a boss, an editor, a team etc. I hardly know wtf I’m doing, but I’m in NYC to cover Sam Bankman-Fried’s trial in-person. If you feel inclined to donate it’s very appreciated!
& please send me a message if you do donate so I can personally thank you!
I’ll likely share more coverage here as well as on my social media pages:
Here’s my recap of Day 3: YouTube
I’ve already shared some other excerpts from documents & clips of my IRL conversations with SBF with paid Twitter subscribers.
ANYWAY, LOVE YOU TALK TO YOU SOON.