There is a possibility of clawbacks, in which case orgs could be legally obligated to return funds. But in cases in which we're not legally required to return a grant, could it still be morally good to do so?
I think it could be useful to discuss this before even the basic details of the case have been settled, since there will be a high potential for motivated reasoning in favor of keeping the grants.
In principle, I think giving this money back would be a very good thing if it means getting money back to those who are owed it. However, this is very complicated if either A: you've already spent the money, or B: you need the money to survive. For instance, I'm an FTX grantee, and I'm using the money to pay rent and other living expenses (I don't have a job otherwise at the moment, so the loss of income would be a big problem for me).
Strong disagree. If you are doing high EV work enabled by funding, were not complicit in fraud or other wrongdoing, and are not legally required to, you should not return the funds.
Counterfactually, the funds might have gone to another high EV organization, so you would probably be doing harm by having received the funds and not using it for your high EV purpose.
If you are doing important work, please do not keep that from being done for want of funding where you are not legally required to. EA grantees empowered by funds do incredibly important work and should not defund themselves unnecessarily.
If we're paying back, I think it makes more sense for this to become primarily the responsibility of major funders instead of individual grantees, for practical reasons. I don't think individual EAs need to take on hardship to pay it back, and we can consider large funders paying on their behalf to be community support work or grants that they would have made anyway. Also, having major funders pay is more efficient than having individual grantees each worry about this.
Still, it might make more sense for this to come from cause-specific budgets, so that longtermist funding from FTX and associates is paid back from the longtermist EA budget, and global health and development funding from FTX and associates is paid back from the GHD EA budget, and so on. You shouldn't be able to shift EA funding between causes by committing fraud.
My full answer is here: https://forum.effectivealtruism.org/posts/FKJ8yiF3KjFhAuivt/impco-don-t-injure-yourself-by-returning-ftxff-money-for
I summarize as follows: It's okay to consider yourself somebody who sold utilons for money, and while you shouldn't deal with FTX money in the future now that you know, it's fine to consider yourself analogous to an electricity company that sold them electricity and does not have to give the money back, having already given over the electricity. If you've not already paid costs, and you cannot now do the work you were paid to perform, it may then make sense to give back some or all of the money - though even then, I'd say to wait until FTX money isn't like running out like water to people who are selling NFTs to Bahamian accounts that are allowed to withdraw money. Like, you'd want to have any knowledge that money was reaching actual injured FTX customers.
I think there's a case for paying back all of what we benefited from FTX and associates (and perhaps more to account for fraud not caught) to internalize the damage of bad acting. See this post by tailcalled. (However, I think it makes more sense for this to become the responsibility of major funders, not grantees.)
If we also want to ensure that "crime doesn't pay" and internalize the benefits of bad acting, i.e. bad acting doesn't counterfactually benefit actors according to their views, so we can appropriately deter such acts in the future, we may want to
Benefiting from fraud or other instrumental harm is plausibly wrong according to many moral views, and this could be the right response on them. Even on consequentialist views, if we’re perceived as benefiting from fraud and too accepting of instrumental harm, we may push away many people who might otherwise contribute to our community and projects, and could be looked at more skeptically when engaging politically and with institutions. We'll lose some public trust, and perhaps rightfully so, since we'll be less worthy of it. Negating the benefits fully means we won't have benefited from fraud, and lets us honestly say so.
I think that Fund recipients should return the funds only if legally required. The utility derived from money in the hands of recipients (assuming the Fund is competent in its deployments) far exceeds that of the average FTX victim. Fund recipients are not morally responsible for the wrongdoing of FTX, and should continue to use resources in the high EV way that ostensibly provided the bases for the grants.
The couple arguments against this do not likely hold up against the vast utility discrepancies from resource allocations...
One would be that EA has better press because it intentionally deprives fund recipients who are not legally obligated to lose funding. I don't think it reflects well on EA if we encourage defunding programs we deem extremely high value to pay debts without legal basis.
Another would be that by not disgorging the entirety of a fraudulent actor's benefits (by it being sheltered by grants) we potentially incentivize future fraud by EAs. I think given the endless recriminations and loss, it is hard to think that a silver lining of some ill-gotten gains being put to good use would encourage future bad behaviors.
The dedication of resources to the Fund recipients is likely very high EV and I think we should encourage these recipients to retain these resources for their purpose if legally permitted.
The couple arguments against this do not likely hold up against the vast utility discrepancies from resource allocations...
This kind of utilitarian reasoning seems not too different from the kind that would get one to commit fraud to begin within. I don't think whether it's legally required to return or not makes the difference – morality does not depend on laws. If someone else steals money from a bank and gives it to me, I won't feel good about using that money even if I don't have to give it back and will use it much better.
This critique applies only to unspent funds that have not been irretreviably committed and only applies to certain factual scenarios.
I don't think we have enough information to evaluate this position. In some plausible narratives, the grant funds were straight up stolen from the depositors and given to the grantees. In other words, most or all of the "profits" could just be misappropriated client funds. The fact that FTX handed over the money to grantees doesn't change that.
If someone steals my car and gives it to their friend for free . . . it... (read more)
Sawyer - I think it's useful to raise this issue as a thought exercise. But I'm not at all convinced that there would be an ethical or practical imperative to return funding, e.g. from Future Fund.
One issue is scope -- if something on the order of $10-20 billion (??) have been lost by FTX investors and users, and EAs returned a few hundred thousand or million $ (at most), we'd be offsetting maybe 1/1000th of the total losses. A drop in the bucket. And there's no guarantee at all that this money would actually go to the people who lost their money.
It would, however, send a credible signal that the EA community does not benefit from fraud, and create an incentive to 1) scrutinize better future donors and 2) to not engage in fraud for the sake of the community.
People have stated that the Future Fund gave out $200MM, but I haven't independently confirmed that number.
That would likely be enough to offer significant compensation to smaller depositors who could demonstrate financial hardship. Since in this hypothetical, there is no legal obligation to return the money, grantees or the community would be free to set up a process that selects who will be compensated and how much using fair and non-biased criteria.
My own view is that we do not yet have enough information about the nature of what happened at FTX to know... (read more)
Jason -- I agree that we don't have enough information yet to make informed judgments about the moral obligations (if any) of Future Fund grant recipients. I'd just add a few points:
Good points. I think you're absolutely right that everyone will have to wait for the legal system to play out before doing any additional returns that are morally required (to the extent that legal clawbacks have not addressed the extent of funds that need to be returned).
However, I think we will probably have enough information to discern what is morally obligatory well in advance of when the legal system sorts out what is legally obligatory -- Madoff litigation is still proceeding over a decade after the Madoff scam imploded. If we know that returning $X... (read more)
Put very vaguely: If it turned out that the money BERI received was made through means which I consider to be immoral, then I think I would return the money, even if that meant cancelling the projects it funded.
But of course I don't know how where my bar for "immoral" is in this case. Also it's probably not the case that all of FTX's profits were immoral. So how do I determine (even in theory) if the money BERI received was part of the "good profits" or the "bad profits"?
I also would think, how would returning of that money change the situation that FTX is in and those that have experienced losses from this? It would take a significant amount of money, and without more knowledge on how the situation is it could be that (a) FTX finds better solutions, (b) FTXFF accepts the return of that money, but because it is a separate entity from FTX, it is not returned to those who faced losses from FTX in the first place but into the wallets of the donor.
Just adding more questions/ food for thought, as I guess the things I am saying are more practical than moral but may affect whether there are any moral obligations.
It's likely temporal. Once FTX turned to deeply unethical business practices and depositors suffered real losses (even without knowing it), then any "profits" were morally owed to reimburse the depositors. If there were fraud against non-depositors as well, that would complicate things.
In any event, I think you could ethically keep any money that would otherwise go to equity holders, although it is unlikely this exists. Equity holders accept the risk of their agents (corporate management) going haywire in a way no other stakeholder does.
My gut feeling is that people who were expecting to live on any granted money for the next few months should be able to do so until they've had time to sort out another income stream - it doesn't seem good for people to face hardship as a result of this. Using other funding sources to pay back money from FTX that has already been spent also does not seem good. I'm not sure about funding beyond that.
it doesn't seem good for people to face hardship as a result of this
I agree, but the tradeoff is not between "someone with a grant faces hardship" and "no one faces hardship", it's between "someone with a grant faces hardship" and "someone with deposits at FTX faces hardship".
I expect that the person with the grant is likely to put that money to much better uses for the world, and that's a valid reason not to do it! But in terms of the direct harms experienced by the person being deprived of money, I'd guess the median person who lost $10,000 to unre... (read more)
I have mixed feelings on this one for reasons RavenclawPrefect noted. At a minimum, you would need a narrow definition of "hardship" for the grant recipient. Because keeping the money imposes costs on innocent victims, a recipient being unemployed for a time would not necessarily rise to the level of "hardship." If the consequence is -- e.g., a moderate reduction in savings, that isn't enough in my book to potentially override the depositors' moral interest.
Also, it would not be potentially appropriate in my book to give the individuals extra time so... (read more)
If it was granted within 90 days of the bankruptcy filing it very well could be clawed back legally:
https://www.nixonpeabody.com/insights/alerts/2022/05/18/hold-on-for-dear-life-how-a-bankruptcy-of-a-cryptocurrency-exchange-may-affect-holders
See: "Claims of the exchange estate against customers" heading
I believe it is morally good to return the grants but very difficult to do as the complex situation cannot be diluted to a simplified mode of action/s.
It could be morally good to return some grants if there is a good theory on how this will lead to better results for the people involved and their families, for the communities they are part of (primarily, the EA community), for society, and for the civilisation.
Some deontological motives and considerations could be a part of such a theory. For example, as other people already mentioned in this discussion, returning grants could send a valuable signal to the EA community and to society.
However, it seems to me, the framing of the question "Under what conditions should FTX grantees voluntarily return their grants?" hints at the possibility of some hard-and-fast deontological algorithm for deciding when grants should be returned. I don't think such an algorithm exists. The theories for why returning funds would be good should be far more nuanced, and applicable to very narrow strata of grantees and victims respectively (perhaps even down to individual grantees and individual victims), rather than large strata such as "all grantees" and "all victims", or even "1% of victims who were affected the most in terms of the portion of their net worth that was destroyed".
Considering the above, I think just returning money to FTXFF (or another pool of money) would be ineffective. And even creating a short-lived organisation to administer claims for returns from the victims will be ineffective, too (especially considering the opportunity cost for people who can quickly create locally-effective organisations of this sort: I believe such people have much more valuable things to organise, from the EA perspective).
I think a solution that could be low-investment and also relatively effective is organising a forum where individual victims share their stories and ask for help, and individual grantees can come and respond, assessing their own situation and the situation of the victim, that is, building "a good theory". And then publicising this forum among both the victims and the grantees. This also doesn't mean grantees should return their entire grants, they may help a little, according to their situation and the situation of the particular victim. However, one complication with this solution might be: how could the stories of the victims be verified?
In this setup, grantees should also consider the implications of their decisions for the community and society, not just themselves and the victim. While the latter are highly individual, the former are mostly shared. So it would make sense for some people who are experts in community strategy, sociology, and ethics to write a few essays on this topic that grantees would be advised to read before visiting the forum. (I'm not such an expert.) Of course, individual grantees would still be free to form their own sub-theory regarding these "high-level implications", according to their own understanding of the community strategy and ethics.
I assume you mean something like “return the money to FTX such that it gets used to pay out customer balances”, but I don’t actually know how I’d go about doing this as an individual. It seems like if this was a thing lots of people wished to do, we’d need some infrastructure to make it happen, and doing so in a way that led to the funds having the correct legal status to be transferred back to customers in that fashion might be nontrivial.
(Or not; I’m definitely not an expert here. Happy to hear from someone with more knowledge!)
FTX and 133 related entities have filed for bankruptcy in US court, so distribution of corporate assets will follow applicable law. Equity holders like SBF are last in line. However, if it's really bad there might not be enough to pay more than the costs of bankruptcy administration -- this is unlikely based on the petition that was filed.
There is a Manifold Market on the fraction of deposits expected to be recovered by FTX retail investors.
Here is an informative thread on the implications of the recent FTX Chapter 11 filing.
Good points. I think you're absolutely right that everyone will have to wait for the legal system to play out before doing any additional returns that are morally required (to the extent that legal clawbacks have not addressed the extent of funds that need to be returned).
However, I think we will probably have enough information to discern what is morally obligatory well in advance of when the legal system sorts out what is legally obligatory -- Madoff litigation is still proceeding over a decade after the Madoff scam imploded. If we know that returning $X is morally obligatory, then we know what the floor is. That awareness allows for a head start on how to deal with the situation. Early engagement with moral demands also shows that the community is attempting to grapple with the complexities of this situation rather than seeking to do the bare legal minimum.
I am not convinced that "Future Fund" is really that distinct an entity from FTX for taint purposes, since it seems to be a broad term compromising the FTX Foundation (whose board members were all senior FTX / Alameda people), DAFs linked to senior FTX people, etc. It is likely these entities had knowledge of the sheningans -- I am not suggesting that the Future Fund staff did, but the entities did know.
I think that taint is broken not by the number of entities, but by the recipient providing reasonably equivalent value in exchange for what was received, without reason to believe the money was tainted. Removal of taint requires not just clean hands but also action to the recipient's detriment that makes reversing the transaction substantially unfair. So, if FTX gave money to the FTX Foundation who gave it to a subgrantor who gave it yesterday to a charity for a project for which funds have not yet been irrevocably committed, I think all the money is still tainted. Likewise, if someone stole a car who gave it to my grandmother, who gave it to me, who gave it to my sister . . . it's still stolen property no matter how many times it changes hands.
However, if FTX gave money for a certain conference, and the grantee has held or irretreviably committed that funding to the conference, the taint has been broken as long as the grantee had no reason to know of the taint. It is no longer possible for the grantee to reverse the grant without causing a concrete loss to itself (as opposed to a loss of expectancy). Likewise, if the original thief sells the car for a fair price to someone who had no reason to believe the car was stolen, it is morally OK for them to keep the car. Someone has to bear the concrete loss.