Saturday, December 3, 2022

Bankman-Fried's FTX Was An Actual Bucket Shop

In the bad old days the bucket shops would literally take the customer's order to buy 'XYZ' and throw it in the "bucket.":

...“Bucket shops” arose in the late nineteenth century. Customers “bought” securities or
commodities on these unauthorized exchanges, but in reality the bucket shop was simply
booking the customer’s order without executing on an exchange. In fact, they were
simply throwing the trade ticket in the bucket, which is where the name comes from, and
tearing it up when an opposite trade came in. The bucket shop would agree to take the
other side of the customer’s “bet” on the performance of the security or commodity.
Bucket shops sometimes survived for a time by balancing their books, but were wiped
out by extreme bull or bear markets. When their books failed, the bucketeers simply
closed up shop and left town, leaving the “investors” holding worthless tickets....

—U.S, Senate testimony of Eric Dinallo, then-Superintendent of the New York State Insurance Department on October 14, 2008 (8 page PDF).

And here is Bankman-Fried being interviewed:

"You were just letting us buy notional tokens that didn't actually really exist."
"Yeah. Or another way of phrasing that would be there is a negative balance balancing with that, right?
Yeah, yeah, I I believe that what you're saying is in fact part of what happened."

 

Earlier: 

Arnold Rothstein, The Great Gatsby and The Liberty Bond Thefts—the downside [or upside] of bearer bonds (and crypto)

 

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