I've been reviewing funding requests as part of Nonlinear's effort to help FTXF grantees. Many applications sound like this:
FTX Future Fund already paid me, so I have plenty of money. I can't spend any of it, since I'm worried about clawbacks. This leaves me practically destitute.
Imagine you could buy insurance against these clawbacks:
Amy has $20,000 in her bank account, but it's all from an FTX grant
Bill owns an insurance company. He believes the chance of a successful clawback is much less than 25%, and he charges Amy $5,000 for the insurance
Now Amy is comfortable spending her remaining $15,000. If a clawback happens, Bill pays her $20,000, and she's unharmed
Seems like a win-win for Amy and Bill. Is there a way to make it happen?
This is not an acceptable attitude to the clawbacks.
Grantees who are in possession of stolen funds need to commit to return the funds as soon as the appropriate recovery mechanism is in place. They should view the possibility of spending the funds as 0%, because they should endeavour sincerely to return them.
Let's say you're a grantee who's currently in possession of some funds from FTX that have not been spent yet. Presumably you'll readily agree with the statement, "I wish these funds had not been stolen". This is something I'd expect anybody to say. But this should also come with a consistent preference for the funds to be in the not-stolen state, rather than their current, stolen, state.
If you're happy with the funds to be in their current, stolen, state, and view the possibility of clawbacks as an unfortunate problem that might happen to you, then it's very difficult to take seriously the claim that you wish the funds had not been stolen.
Amy cannot spend any of the $20,000 in her bank account because it doesn't belong to her. There's nowhere currently for her to send it, so she just has to keep it safe. She should hope for an outcome where it can be returned to its owners.
If Amy instead took active steps to try to prevent the money from being returned to its owners, or even simply failed to assist in the recovery, her actions should be condemned. This would make her complicit in the theft.
In contrast, clawbacks against money that have already been spent are much less clear. I think there are lots of situations where you can view that as the law being discordant with fairness, and it's not inconsistent to hope that you don't have to go through that. But if the money hasn't been spent, it absolutely does need to be returned.
I disagree that we have to wait for a court ruling before making reasonable inferences. We can judge the situation on a balance of probabilities, and it seems overwhelmingly likely that yes he took user deposits and used them directly, including getting out a $1b personal loan.
It's not like he only lost hi... (read more)