Summary
The EA and AI Safety communities have broadly condemned the actions of SBF and FTX, and expressed regret that they find themselves in possession of funds that seem to have been misappropriated from FTX users. However, at the same time, messaging within the community about the need to return these funds is somewhat mixed. I argue that this mixed messaging fails to take the correct stance on this issue, and risks significant instrumental harm to the community.
I write as an outsider to the EA community, although I'm fairly familiar with the philosophical foundations (have read a lot of LW, GW, Peter Singer for the last ~15 years). I've never used FTX and have no financial stake in this.
Comment from Eliezer
Important notice to readers. Please vote up even though it is not very carefully argued here, because it may be important to some readers to read it immediately.
DO NOT FOLLOW THIS POST'S ADVICE. IT IS PROBABLY VERY BAD ADVICE FROM A LEGAL STANDPOINT. IF IT DOESN'T GET YOU IN TROUBLE IT WILL ONLY BE BECAUSE PEOPLE IGNORED YOUR LETTERS.
NEVER FOLLOW ADVICE LIKE THIS FROM PEOPLE WHO ARE NOT LAWYERS.
ONLY DO ANYTHING REMOTELY LIKE THIS IF YOU READ A POST FROM OPEN PHILANTHROPY'S LEGAL COUNSEL TELLING YOU TO DO IT.
I've edited this comment in as I can see he thinks it's important that people see this notice. I've also edited in a comment in the section that I think he's referring to.
Regarding Eliezer's November 12 post
Probably most of you have read this November 12 post by Eliezer on the subject of clawbacks: https://forum.effectivealtruism.org/posts/FKJ8yiF3KjFhAuivt/impco-don-t-injure-yourself-by-returning-ftxff-money-for
I would summarise this post as primarily addressing the question of FTX funds that have already been spent, with particular reference to the situation where the funding was "spent" as compensation for services the grantee has already rendered. The post argues that if you provided the services, you shouldn't view yourself as morally obligated to return the funding. It's clear this comes from a place of compassion, based on knowledge about the likely mindset of many blameless people who suddenly find themselves in a difficult position.
However, the post is a nuanced take on a nuanced set of circumstances. It's basically the "Level 2" reply to the "Level 1" conversation that Eliezer assumes people have already had with themselves. The problem is that I look around now and I don't see any clear statement or consensus about the much more basic case, addressing funds which haven't already been spent.
Clawbacks are good actually
It was bad that funds were misappropriated from FTX users, and it will be good for as much of that money to make its way back to its owners as possible. Any unspent money should be set aside until the relevant bankruptcy proceeding can request it. I suggest also writing to the new FTX CEO to let him know the funds are being set aside in this way. I think it would be especially welcome if this could be done in an organised, collective way. Edit: I agree that this part was worded poorly; it's definitely not a good suggestion to just go ahead and do that without any kind of advice or consultation. Rather what I'm hoping for is that the community can be proactive about cooperating with the bankruptcy proceedings, rather than taking the stance that the more money that can be retained, the better. I don't want to offer any specific advice about how that should be carried out.
Leaders of the EA community have repeatedly denied that their ethical philosophy entails an extreme act utilitarian "ends justify the means" position. For instance, William Macaskill was repeatedly clear on this before the FTX revelations, and he's been asked it almost incessantly ever since.
The basic argument is that attempting to define ethics strictly over individual actions ("act utilitarianism") leads to worse consequences than defining ethics over rules or policies ("rule utilitarianism") instead. There's an epistemic case against act utilitarianism (the temptation to fool ourselves) that I think is very compelling, but I think the strategic or game theoretic case applies especially well to these events. We all need to live in a society --- there's very little utility to be found in the state of nature. In order to live in a society we have to agree to cooperate with each other, and agree to withdraw our cooperation from, or even actively punish, defectors. Naive act utilitarianism simply isn't compatible with this. Individuals can't be expected to agree on individual act-based decisions, and you can't form a coalition with people who are making it up as they go along.
A basic respect for property rights is a good ethical rule, that we will all be much worse off without. Support for earning to give in no way entails support for stealing to give.
There are lots of situations, either constructed or actually occurring, where it's unclear how to reason about the priority of different rules or policies. The actions of SBF are not any sort of boundary case. You can't run a society where it's okay for your trading partner to abruptly decide it would be better for the world if your goods were sent elsewhere.
The need for the funds to be returned to their owners therefore completely overrides any considerations of what good those funds would be doing for the purposes SBF tried to allocate them. If it wasn't good to steal the money, it must be good to return it if you still have it. You can't just continue on with some prior plan to deploy the funds, that you had agreed with SBF or his delegees. That agreement was illegitimate.
Lack of consensus and leadership about returning funding
I view the ethical argument above as following fairly straightforwardly from the stated positions of EA's leadership. However, browsing the forum discussions, the attitude to the clawbacks seems much more mixed. For instance, here's what the FTX FAQ on the forum states about the clawbacks:
If you got money from FTX, should you give it back?
- You probably shouldn't, at least for the moment. If you gave the money back, there's the possibility that because it wasn't done through the proper legal channels you end up having to give the money back twice.
If you got money from FTX, should you spend it?
- Probably not. At least for the next few days. You may have to give it back.
I feel bad about having FTX money.
- Reading this may help.
- "It's fine to be somebody who sells utilons for money, just like utilities sell electricity for money."
- "You are not obligated to return funding that got to you ultimately by way of FTX; especially if it's been given for a service you already rendered, any more than the electrical utility ought to return FTX's money that's already been spent on electricity"
These answers also link repeatedly to Eliezer's post for reference to how people should view the question of the clawbacks. However, Eliezer's post is targeted to the specific situation where the funds have already been spent for services that have been rendered. It is not a general statement about how the community should view the need to return money to FTX. To me this is a good illustration of the lack of clarity in the community about this question.
I find the answers to If you got money from FTX, should you spend it? and If you got money from FTX, should you give it back? particularly inadequate. The answer to the should question interprets "giving it back" very narrowly. I certainly agree that nobody should just transfer the funds out right away. But I would expect the consensus position to be that it's straight-forwardly wrong to spend FTX money that could instead be preserved for its rightful owners.
The advantages of a clear public stance
This is more a question of strategy, so you can take it for whatever you think it's worth. It's an outsider's perspective.
There's obviously the risk of lasting reputational harm to the EA community from FTX. The first and most memorable thing many people will have heard about EA is that SBF stole a bunch of money and this is where some of it went.
Everyone can understand an innocent victim, but being an innocent beneficiary is a much more difficult position to explain. EA's role in unambiguously endorsing SBF and helping to open doors for him makes things doubly awkward.
The EA community will find it much easier to distance itself from SBF's crimes if you're able to say hey, we didn't want this. We worked proactively to get as much money back as we could. SBF gave out $X and we got $Y back --- everything that hadn't already been spent by the time the news broke. We gave it all back voluntarily, even if it would have been hard to track down or claw back.
As I argued above, I think this approach is the right thing to do. But even if you doubt my appeal to rules and principles, I think the instrumental case for this approach is pretty strong as well.
I know that the EA community believes very sincerely in the urgency of the problems it is working on. So I can imagine seeing this as some sort of key turning point. I can imagine seeing returning the funding as a setback that you just can't afford. However, there's no Solutions Store that you just have to make it into with the right amount of cash in your hand. The money is just one step in the long road of working towards solutions.
You can't make any progress on the problems you care about without strong, practical organisations full of people working together in predictable ways. And those organisations will need to be part of a wider coalition. You need to be trustworthy.
Thanks for such a thoughtful reply.
I think the right thing to do is to follow the official, legally authorized bankruptcy procedure (whichever that is --- I do hope it's the Delaware proceeding, but I guess we'll see).
I don't think it would be right for people who happen to be in possession of the funds to be making decisions that second guess things like the amount of legal fees. That's a pretty involved judgment call, and trying to set up some sort of alternative, direct solution will be difficult to implement and execute. You haven't been entrusted with any of that responsibility by the people who actually own the money, so I don't think it would be right for you to intervene in that way, even trying to do the right thing.
I can also say for sure that I don't think it would be right to invest the money in any way. It should just be kept in a deposit account. Investments come with risk of losing some of the principal, and nobody entrusted you with the authority to make that risk calculation.
This is just my outsiders guess, and in the end who knows, but...I predict that if the EA community did try to be sort of heroic, and tried to do some direct-for-depositors complicated thing that worked around the bankruptcy procedure, that would end up with a lot of people mad at EA, and some takes along the lines that this all confirms some of the initial criticisms.
Instead, I think the approach that's actually better, and I think also has much better optics, is to just work with the official process. There's a legal process for returning money to creditors and you're expected to just go along with it, rather than trying to invent your own alternative to try to get what in your view would be a better outcome.
And while I'm not a lawyer, I think you might be pleasantly surprised about how bankruptcy works. (This is all assuming it goes through the Delaware process -- maybe the Bahamas is odd or shady or outright corrupt.)
The basic idea is that the administrator lists out all the people who lent money to the company, which includes the depositors, but can also be other companies. Then they pool up the assets of the company, selling whatever they can for the best price they can manage, and try to pay it out to the creditors. If all the creditors can be paid back, congrats, the company is solvent! Now it can be returned to the shareholders, who might have something left that's worth more than $0. If creditors can't be made whole, they receive some fraction of what they're owed, and the company is wound down.
In practice there's almost always a seniority ordering of creditors, where you have some loan that was secured against some asset. So it's not necessarily the case that all the creditors will get the same fraction back out. Like, in the basic case, maybe a "creditor" is a bank who gave a mortgage for some property. They get to liquidate that property, so maybe that creditor gets all its money back out, while the others don't.
It's definitely weird and unideal that the depositors are just unsecured creditors. If it were a bank or a brokerage or something, it would be handled differently. Nobody knows what sort of deals FTX might have had, with what sort of creditors, secured against what.
On the other hand, definitely no loans would have been secured against user deposits! An no loans would be secured against like, money to grants. So it's not like you're returning assets that some institutional loan will be secured against. I think this does just mean whatever funds are returned will go into the pool for unsecured creditors. I'd definitely be happy to be corrected on this though.
The other thing to note is, a lot of the other unsecured creditors can be other crypto firms or other sorts of counter-parties. And maybe their holdings with FTX mean that they went broke and their own depositors are out of money. Who knows.
I don't think it's right or good to second guess any of this. There's a law and process for how assets are parcelled out to creditors in bankruptcy. You can trust that if more money is kicked back into that pot, creditors will get a slightly higher amount back.
I'll put it this way. Let's say there was some money that FTX didn't pay out in a grant, and it instead sat in its bank account like it was supposed to. That money will be swept up into the bankruptcy proceeding to be allocated to creditors. Now, consider your situation: instead of sitting in FTX's bank account, that money finds itself in your account. It shouldn't have been transferred to you; FTX wasn't solvent when it made that transaction, it needed to keep all of its money to try to pay back its creditors. So the right place for the money to go to is into the bankruptcy proceeding. That's where it would have be if FTX had never transferred it to you.
As for legal fees, yes they'll definitely make the pie smaller. On the other hand they don't scale linearly with the amount of money, and this is a lot of money -- so hopefully they don't take up that big a percent.
Assisting the process where possible will hopefully help reduce the fees too.