After the collapse of FTX in early November, two senior managers of FTX and Alameda Research – Sam Bankman-Fried and Caroline Ellison – were included in the list of traders with the most trading losses in the world on Wikipedia. According to the Wiki page, Bankman-Fried’s and Ellison’s is at the top of the list for the highest amount of nominal funds lost due to trading, so-called “trading losses”, with a nominal US$51 billion.
Wiki article suggests premature FTX fiasco was $51 billion “trade loss” despite ongoing investigation
The FTX fiasco was a big deal and reportedly one of the biggest losses in the financial world in a while. In fact, according to Wikipedia’s “Trading Loss List” page, FTX co-founder Sam Bankman-Fried (SBF) and Alameda Research CEO Caroline Ellison have been added to the list of alleged losses of $51 billion. The so-called trade loss associated with SBF and Ellison surpassed the largest trade loss in 2021. Prior to FTX’s collapse, Archegos Capital Management reportedly lost $10 billion in total revenue, and Archegos founder Bill Hwang also lost. all in two days.
Below the FTX and Archegos trading losses were Morgan Stanley and bond trader Howie Hubler’s $9 billion loss in 2008 as the firm and trader lost money on credit default swaps. Four years later, JPMorgan Chase and Bruno Iksil also lost $9 billion on credit default swaps. This year, Chinese firm Tsingshan Holding Group tried to short the commodity nickel and lost $8 billion on bad bets. Below China’s Tsingshan, Société Générale and Jérôme Kerviel lost $6.12 billion in 2008. However, FTX’s losses far outnumber trade losses listed separately, and Wikipedia editors explain that the list includes “both fraudulent and non-fraudulent losses”.
Interestingly, the Wikipedia editors detail that funds linked to Bernie Madoff’s Ponzi scheme are not included. Madoff’s scheme reached the roughly $50 billion range, similar to FTX, but “Madoff didn’t lose much of that money trading,” the Wikipedia editors say. Recently, several people have drawn many similarities between Bernie Madoff and SBF. What’s interesting about the Wikipedia article is that the editors decided not to include the Madoff fall because it was a Ponzi scheme, but the FTX fiasco is listed. This is despite the fact that FTX investigations are still ongoing and the case has not been resolved in court.
Did FTX really lose $51 billion in bad trades?
There are many reports claiming that the executives of FTX and Alameda are “inexperienced and underdeveloped” and another report suggesting that Alameda Research CEO Caroline Ellison may be a terrible margin trader. Additionally, there is much speculation that the FTX and Alameda operations are Ponzi-like schemes. Some mentioned that Alameda really didn’t even trade cryptocurrencies, By contrast, it “invested $8 billion” in 448 venture-stage startups, most with ‘1-10’ employees and zero documentation. Furthermore, according to Yves Smith of nakedcapitalism.com, no one in the media has asked what happened to the $3.3 billion allegedly loaned by Alameda to SBF. Alameda Research’s alleged loans totaled $4.1 billion, most of which went to SBF, according to a report published by the Financial Times (FT).
According to the FT report, the SBF took out $1 billion in personal loans, and $2.3 billion was channeled to an SBF organization called Paper Bird. Mark Karpeles, former CEO of Mt Gox, created a list of FTX organizations, which shows that Paper Bird is one of the best companies under the wing of SBF. So far, nakedcapitalism.com’s Smith says, reporters interviewing SBF have not asked him where the $3.3 billion went. In addition, SBF never explains in its interviews why top FTX and Alameda executives were given such “huge personal lines of credit.” Instead, SBF described a strange margin trading process and claims top managers or “certain accounts” did not have to borrow money or provide collateral to participate in FTX’s single margin trading system.
With an ongoing investigation and the courts just getting involved in the FTX fiasco, it’s likely that Wikipedia’s decision to include FTX’s alleged “trading error” in its list of top trading losses may be wrong. Wikipedia editors are likely to have to reclassify the FTX case as applied to Madoff’s $50 billion blunder. The point is that there is currently not enough evidence to say that the FTX and Alameda fiasco was a legitimate “trading loss” or that most of the $51 billion shown in the Wikipedia article was lost as a result of trading errors.
What do you think about Wikipedia editors prematurely calling the FTX disaster a $51 billion trade loss? Let us know what you think about this topic in the comments section below.
Image credits: Shutterstock, Pixabay, Wiki Commons
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