[I wrote this back in November 2022. Now that Bankman-Fried has been sentenced to 25 years, there have been several related updates and calls for more reflection. I went back to my google doc, made some minor cosmetic updates such as changing tenses, and am now sharing it anonymously to contribute to that debate.]

Like many others in November 2022, I was glued to the FTX crisis, unhealthily consuming as many Forum posts/comments, tweets and articles as I could. In this post I want to focus on what I thought then and think now is the key problem, and gather together thoughts on a key next step that has not yet happened. This is all based on public, not private, information.

In summary, the crucial issue was fraud/financial crime - not bankruptcy, risky bets, bad financial management or the loss of donations. A key next step that seems not to have happened yet is a large, long reckoning of how and to what extent the EA community may have indirectly contributed to this crime, and what EA can do to prevent any such contribution in the future.

As Samo Burja noted: “FTX is insolvent because it lent assets including customer deposits to Alameda, which then lost money in a series of cryptocurrency deals earlier in the year [...] FTX is responsible for one of the larger illicit losses of customer funds in financial history, with the size of the lost funds currently estimated at around $8-10 billion.”

The FTX leadership, who were major donors and high-profile supporters of effective altruism, committed one of the most high-profile financial crimes of the century. In the words of a former SEC official "This is worse than Theranos, this is worse than Madoff”. We need to work out what contributed to that crime, and how to prevent contributing to any other again. This is not for PR reasons - this is for basic reasons of integrity and accountability.

Three next steps - one not done

The first priority was and is of course for everyone to cooperate fully with formal regulatory, law enforcement and legal action. The SEC and DoJ investigated, there are civil lawsuits, and Bankman-Fried was sentenced to jail. 

We cannot get to the bottom of this all by ourselves. Nevertheless, the EA community can take two steps itself. The first step (investigation) is one that most organisations, such as businesses or political parties etc, would do themselves alongside cooperation with regulatory, law enforcement and legal actions. If they found anyone did know, they could pass that information along to those bodies, which could help the formal investigations. An independent investigation was carried out by the law firm Mintz for Effective Ventures.

The second step (review of indirect contribution and recommendations) is more of an ethical reflection and assessment of EA's indirect moral responsibility for the crimes, and figuring out what changes EA itself needs to make. That won't and can't be done by e.g. the SEC, DoJ or lawsuits - it's something we have to do ourselves. It’s an add-on to the formal processes. My understanding is that after almost a year and a half, and Bankman-Fried’s sentencing, this has not yet occurred. The rest of this post is a contribution to that process.

Review of how and to what extent the EA community may have indirectly contributed to this crime, and what EA can do to prevent any such contribution in the future

Ryan Carey suggested that we need “an investigation more broadly into how this was allowed to happen. We need to ask:

• How did EA ideology play into SBF/FTX's decisions?
• Could we have seen this coming, or at least known to place less trust in SBF/FTX?
• Can we do anything to mitigate the large harms that have come about?
• How can we remove whatever conditions that allowed this to happen, and that might allow other large-scale harms to occur, if they are not remedied?”

Ultimately the FTX leadership took these decisions. As Rob Wiblin said, whatever the pressures, one always has the choice to act with integrity. Nevertheless, there were clearly contributing factors that enabled this to occur. 

I don’t think EA was the main contributing factor to these crimes. For me, the main contributing factor was the unregulated nature of crypto exchanges. That provided the ‘means’ and ‘opportunity’ for this crime. Financial institutions can’t just rely on their managers’ moral character. They need to be regulated and audited. The main thing that would prevent this crime from happening again is proper regulation.

Nevertheless, amongst other factors and other groups, EA may have indirectly contributed to this crime. We need to look at how and to what extent EA did, and what EA can do to prevent that.

Other groups that may also have indirectly contributed to this crime won’t be doing any soul-searching or lessons learnt. The CEO of Binance who made the initial investment was happy to see off a rival. The big VC funds who invested $2bn in FTX when it was a tech darling shrugged it off as one of 19 losses that will get evened out by one big win. The crypto market continues to oppose regulation. The lawyers, auditors and regulators who failed to spot this crime attempted to avoid responsibility. However as a community of people trying to do good in the world, EA has to hold itself to higher standards than that. EA has to look squarely at this crime and work out to what extent the community contributed to it. Bankman-Fried was “one of our own” - EA took his money and held him up, we now need to take responsibility and accountability for whatever our contribution to this financial crime was. Again, this is not for PR reasons, this for basic reasons of accountability.

This began to happen in November 2022, for example Nathan Young’s “How could we have avoided this?” question or burner on which lessons to draw. I liked Eric Neyman’s suggestion in “What should members of the EA community have done differently, given the information they had at the time?” that answers should have “a somewhat detailed, plausible story of how the proposal could have led to a significantly better outcome with regard to the FTX collapse.” 

However, where I would differ is by arguing that the main focus should be on the financial crimes. The questions should be  “how could we have avoided … contributing indirectly to this crime?” and/or “What should members of the EA community have done differently, given the information they had at the time … in order to not contribute indirectly to this crime?”. That should be the focus of this review.

There are other worthwhile questions which don't bear on that issue, which are reasonable to ask but shouldn't be the focus. This would include e.g. Should some charities not have relied on future donations from the Future Fund in their financial planning, or should more people be involved with the final distribution of charitable funds? Neither of these would have affected the crime, so are outside of scope. 

Key topics that such a review could touch on would likely include:

0. The criminal decisions themselves 

I discussed the ‘means’ and ‘opportunity’ earlier. What about the ‘motive’?

The crucial decisions seem to have been taken in mid to late June 2022. The Wall Street Journal reports “Alameda faced a barrage of demands from lenders after crypto hedge fund Three Arrows Capital collapsed in June, creating losses for crypto brokers such as Voyager Digital Ltd., the people said. In a video meeting with Alameda employees late Wednesday Hong Kong time, Alameda CEO Caroline Ellison said that she, Mr. Bankman-Fried and two other FTX executives, Nishad Singh and Gary Wang, were aware of the decision to send customer funds to Alameda, according to people familiar with the video.”

What philosophy guided Bankman-Fried’s actions?

It is hard to work out Bankman-Fried’s ideology and philosophy, especially for a self-confessed repeated liar. Was there a philosophy guiding his criminal decisions, and if so which, and what would it recommend? We know Bankman-Fried was strongly influenced by EA. He was also influenced by his strong “naive utilitarianism”. 

Bankman-Fried tweeted about his mother Professor Fried: “some of her best work has been in philosophy, and in particular on consequentialism, which is at the root of Effective Altruism and has guided all four of our lives”. He linked to her February 2020 book Facing Up to Scarcity: The Logic and Limits of Nonconsequentialist Thought which argues against Rawlsianism, Kantianism, libertarianism, and social contractarianism. In it, Fried critiques the “lay moral” intuitions of non-consequentialism as ‘irrational, manipulable and non-generalisable’; suggests they potentially reflect “psychological or emotional” reasons rather than moral ones; and argues that “however appealing in the abstract, cannot provide solutions to hard policy questions”. In the acknowledgements Fried notes that the rest of her family are even more committed than her: “both Sam and Gabe have become take-no-prisoners utilitarians, joining their father in that hardy band. I am not (yet?) a card-carrying member myself”.

Bankman-Fried is described by his mother as a “take-no-prisoners utilitarian”. Bankman-Fried seems like the kind of bullet-biter that would kill 1 person to save 5 in Philippa Foot’s famous ‘transplant surgeon/organ donor’ thought experiment. He seems remarkably committed to “ends justify the means” thinking: what's been discussed as “naive utilitarianism”. He extensively defended “aggregate, classical, act-, one-level utilitarianism” in a series of blog posts around 2012.

This is one interpretation of what Bankman-Fried may be saying in a key part of the Kelsey Piper interview - that he thinks that non-consequentialist “lay moral intuitions” are nonsense and untrue:

• Should you do “unethical shit for the greater good”? Bankman-Fried previously said no, and now says “man all the dumb shit I said / it’s not true, not really”
• Was “the ethics stuff - mostly a front?” Bankman-Fried replies “yeah / I mean that’s not *all* of it / but it’s a lot”
• When told “you were really good at talking about ethics, for someone who kind of saw it all as a game”, Bankman-Fried replies “ya / hehe / I had to be / it’s what reputations are made of, to some extent [...] this dumb game we woke westerners play where we say all the right shiboleths [sic] and so everyone likes us”
• He later tweeted: “in the future, I'm going to care less about the dumb, contentless, "good actor" framework. What matters is what you do--is *actually* doing good or bad, not just *talking* about doing good or *using ESG language*.”

By contrast, mainstream effective altruism emphasises side-constraints, epistemic modesty, not acting unilaterally, worldview diversification and moral uncertainty, and acting with integrity. As Will MacAskill noted: “For years, the EA community has emphasised the importance of integrity, honesty, and the respect of common-sense moral constraints. If customer funds were misused, then Sam did not listen; he must have thought he was above such considerations. A clear-thinking EA should strongly oppose “ends justify the means” reasoning.”

Imagine a thought experiment - you run 2 companies. One is facing a liquidity squeeze, due to some mistakes a third company made. You can temporarily loan some funds from the customer accounts of your company A to your company B. If you do so both companies will be fine, no customer would be harmed or even know anything, and you can keep on making lots of money to donate. Should you loan those funds? An effective altruist wouldn't. Would a “naive utilitarian”?

Can we know why they did what they did?

It was inevitable that there would be a lot of EA focus on the moment of the crimes themselves - that is to say, what lay behind FTX leadership’s decisions in June 2022. This is very understandable. However, as Cullen O’Keefe suggests, 

“we probably won’t ever find an “ends justify the means” smoking gun [...] More likely,  systemic weaknesses in FTX’s compliance and risk management practices failed to prevent aggressive risk-taking, unethical profit-seeking and self-preserving business decisions that were motivated by some complicated but unstated mix of misguided pseduo-altruism, self-preservation instincts, hubris, and perceived business/shareholder demands.”

As Dustin Moskovitz adds, 

“I see a gambler repeatedly doubling down to try to save his reputation and wealth, and that of those close to him [...] like the classic case of the rogue trader doubling down rather than admitting mistakes”

We can and should ask questions about to what extent effective altruism - or “naive utilitarianism” - may have contributed to these decisions, for example, a sense of not wanting to let people down, and to continue to give to important causes. However, we can’t get in SBF and the rest of the FTX leadership’s heads. I too doubt whether we will find a ‘smoking gun’. 

***
However, the EA community may have contributed indirectly in other ways. In the rest of this section I’ll suggest a framework for how that broader review might be conducted: for each topic the review could:

• Establish the details of EA involvement, 
• Indicate a mechanism for how this could have indirectly contributed to the eventual financial crime, 
• Provide some assessment of to what extent that mechanism may have indirectly contributed, and 
• Provide a concrete recommendation for what the EA community could do differently to prevent any recurrence.

I’ll also provide some preliminary thoughts below, as an indication of what could be done in the full review. One way to approach a review is chronological, covering eight touchstone or 'gate' moments:

1. Bankman-Fried starts earning to give
2. Alameda founding 
3. FTX founding
4. Early political donations through Bankman-Fried’s family
5. FTX Foundation and Future Fund founding
6. Bankman-Fried becomes a public face of EA
7. Whistleblowing

This may be too exhaustive or “self-flagellating” for some, but I think it can identify areas to improve and fix. As will become clear, I think that step 5, the founding of the FTX Foundation and Future Fund, is where the biggest questions are raised and where I make the most recommendations.

1. EA encouragement to earn to give

In his third year at MIT (2013), MacAskill introduced Bankman-Fried to effective altruism and the concept of earning to give. According to the Sequoia piece, MacAskill “suggest[ed] that SBF get an internship at Jane Street that summer.” Bankman-Fried went to work at Jane Street, like several other EAs. 

There has been and continues to be a debate on earning to give. To my mind, the problem here wasn’t encouraging earning to give in general. There are plenty of people earning to give without committing financial crime. 

How it may have contributed

This may have encouraged Bankman-Fried, who was already very committed to utilitarianism, to pursue a career in finance. However, as a very quantitatively-minded student, he may have ended up in finance anyway. At high school he attended Canada/USA Mathcamp, a summer program for mathematically talented youth (source). At MIT he was a physics major and “math nerd” (source).

One crucial consideration is that ex post, as EA did encourage Bankman-Fried into this career, EA does now share some moral responsibility for setting him along that path. But ex ante, could anyone have known that this seemingly strongly-altruistically-motivated student would become a fraudster?

Specific recommendation: more explicit warnings

Perhaps we did not emphasise enough the simple point "never commit a crime". As I said in the previous point, there have been extensive warnings against naive “ends justify the means” thinking from many leaders (MacAskill, Ord, Karnofsky, CEA Guiding Principles, 80,000 Hours career advice, etc).

Nevertheless, we could do even more, for example in 80,000 Hours resources or career/student groups, to emphasise this point. There didn’t seem to be much explicit “don’t ever commit a crime” warnings (I assume because this should have been so blindingly obvious to any reasonable or moral person). I think even more explicit warnings should be included.
 

2. EA encouragement and support of specific earning-to-give career path of crypto trading

After a stint as director of business development at the Centre for Effective Altruism, Bankman-Fried then set up the Alameda crypto trading firm in late 2017 with other EAs. People in the EA community contributed some of his network and initial investment. The infamously pulled Sequoia puff-piece notes that “Jaan Tallinn, the cofounder of Skype, put up a good chunk of that initial $50 million”, and in it Nishad Singh says “All the employees, all the funding—everything was EA to start with.” Tara Mac Aulay notes that “I started Alameda Research with Sam in 2017.” 

However, this period ended soon after: “In April 2018, I and a group of others all quit, in part due to concerns over risk management and business ethics. We have never had any connection to Sam, FTX, or Alameda, except for recently starting to trade on FTX with small size. I have not even spoken to Sam since 2018.” Naia Bouscal adds that “My understanding was that a group of senior leadership offered Sam to buy him out, he declined, and he bought them out instead. My further understanding is that his negotiating position was far stronger than it should have been due to him having sole legal ownership (which I was told he obtained in a way I think it is more than fair to describe as backstabbing).”

How it may have contributed

This support from the EA community contributed to Bankman-Fried pursuing a career in crypto trading, giving him his first start - and the capital and credibility he would put into launching FTX. 

However, it is tricky to draw a generalisable recommendation here: these were individuals starting a business together, and other individuals deciding to back them because they (accurately) believed it would produce a good return. Ex ante, when Alameda was being set up in late 2017, could anyone have known that this seemingly strongly-altruistically-motivated person would become a fraudster five years later? Up to this point, Bankman-Fried had been a competent trader and not demonstrated unethical business practices. There seems to have been little evidence when Alameda was being set up of unethical or possibly criminal behaviour. And when there were concerns over business ethics, Mac Aulay and others left - perhaps after becoming the first victims of Bankman-Fried. 

Nevertheless, similar to the previous point, as EA did support Bankman-Fried into crypto trading, EA does now share some moral responsibility for setting him along that path.

3. Building a crypto exchange

In early 2019, the FTX leadership launched the crypto trading exchange FTX. It is unclear to what extent EAs may have contributed through investment, support or employment. The biggest investor seems to have been their competitor Binance. I imagine significant new information about this period will come to light through lawsuits. For now, I will therefore not offer a mechanism for how it may have contributed or a specific recommendation.

4. Early political donations through Bankman-Fried family

Sam Bankman-Fried’s mother, Barbara Fried, and his father, Joseph Bankman, are both Stanford professors, both very committed consquentialists and also very involved in politics. Bankman has campaigned on tax reform for decades. Fried led the donor group Mind the Gap, which directed millions of donations in the 2018 and 2020 cycles.

In October 2020, Bankman-Fried donated $5m to the Future Forward super PAC, alongside $22m from Moskovitz and Tuna, $6m from Jeff Lawson, and $2.5m Eric Schmidt. Despite Moskovitz and Tuna being large donors, this was more a Democratic group than an EA one. 

Bankman-Fried started to be featured in media articles in early 2021 - take for example this Vox Recode article from March 20.

Guarding Against Pandemics, an NGO run by his brother Gabe, launched in July 2021 (when it also tweeted for the first time, though it joined Twitter in July 2020). It probably spent less than $1m adverts in 2021. For more, see this Forum post from Sep 2021.

In February 2022, Building a Stronger Future pledged $5m to ProPublica to report on biosecurity and pandemic preparedness. Building a Stronger Future was a family foundation run by Sam and Gabe Bankman-Fried. It also gave to Vox’s Future Perfect in August 2022, but is difficult to find more information publicly.

In January-April 2022 Bankman-Fried gave $32m to various PACs, especially Protect Our Future PAC according to OpenSecrets. Protect Our Future seems to have been controlled by the brothers as well.

Due to the involvement of family members and political nature, these donations seem tied more (and attributable more) to the Bankman-Fried family than EA more generally. I will therefore not offer a mechanism for how EA may have contributed or a specific recommendation.

5. EA support for launching the FTX Foundation and Future Fund

In November 2021, Nick Beckstead became CEO of the newly launched FTX Foundation (press release). It gave across several cause areas: global health & welfare, communities and climate. The Foundation publicly launched its subsidiary Future Fund on 28th February 2022, bringing in Leopold Aschenbrenner, Will MacAskill, and Ketan Ramakrishnan (later employing Avital Balwit - who was Carrick Flynn’s campaign manager - after the primary in May). The Future Fund committed to $132m worth of grants on 1 July 2022  - and paid out some fraction of that.

How it may have contributed

This philanthropy (and it being very high profile) helped the FTX leadership get positive press coverage. It seems likely that this positive coverage helped the leadership garner investment, political influence and customers. We can call this ‘reputation laundering’.

For example, in Elon Musk’s texts, Will MacAskill links to this profile of Bankman-Fried, which mentions EA in the second bullet point. When Michael Grimes (Musk’s banker from Morgan Stanley) is trying to interest Musk in Bankman-Fried’s investment, he links to this Recode article (which mentions EA) and then twice mentions that Bankman-Fried is a “Major Democratic donor” and “Second to Bloomberg in donations to Biden campaign”.

Consider again the Sequoia piece: “The FTX competitive advantage? Ethical behavior. SBF is a Peter Singer–inspired utilitarian in a sea of Robert Nozick–inspired libertarians. He’s an ethical maximalist in an industry that’s overwhelmingly populated with ethical minimalists. I’m a Nozick man myself, but I know who I’d rather trust my money with: SBF, hands-down.”

This demonstrates how Bankman-Fried’s philanthropy could help ‘vouch’ for FTX leadership - and therefore attract investment and customers. This may have contributed to the FTX leadership being in a position to defraud their customers.

This is highly ironic, as one of the starting points of EA in the late 2000s was precisely a criticism of charity as purchasing legitimacy and status. For example, paying for a building with your name on it at your alma mater rather than donating to something that actually produced some value in the world. EA committed one of the sins it aimed to correct in traditional philanthropy.

It's important not to overstate the role of reputation laundering here. The main reason investors invested and customers used FTX was to make money for themselves. Investors saw that Alameda and FTX were highly profitable, could become more so if they were regulated and could attract US customers directly, and thought there was some chance FTX could grow to be a major financial institution - Sequoia: “the possibility that FTX could join—or even eclipse—the big four of American banking (JPMorgan Chase, Bank of America, Wells Fargo and Citibank)”. Customers thought FTX had a nice, usable interface and that it offered more leverage and sophisticated trades than other exchanges, and they had witnessed phenomenal increases in some crypto assets over the last decade. However, the perception that FTX was a safe-enough place to invest or trade on was influenced in part by reputation-laundering.

The FTX leadership are not the first rich businesspeople to launder their reputation through high-profile philanthropy. Also, the FTX leadership were publicly committed to philanthropy and so always likely to engage in reputation laundering - they would have found some way to make donations and buy legitimacy, and someone to administer those donations. It is important to note that much of the reputation-laundering had already been done by his political and family giving: Grimes’ texts refer to the Biden donation, as does much of the media coverage. Moreover, Bankman-Fried was improving his public image in 2022 in several ways, through his family donations, active Twitter feed, seeking out publicity, his engagement with regulators and law-makers, and his role as the “J. P. Morgan of crypto” bailing out other crypto companies. The EA-specific philanthropy was one part of that.

Nevertheless, there are two important points. First, the patsies that they did get were EAs. Second, EAs had certain claims to moral authority and philanthropic competence that were extended - lent - to the FTX leadership with the establishment of the FTX Foundation and Future Fund. That’s the main mechanism for how EA’s part in founding the FTX Foundation and Future Fund may have contributed to putting FTX leadership in a position to steal their customer’s money. Reputation-laundering by the EA community was a small part, but it likely played some role.

I will look at two main failures and specific recommendations: due diligence failures and more general concerns about EA culture.

Due diligence failures

Should the EA community not have helped launch the FTX Foundation and Future Fund? Should the EA community have spotted there was some higher-than-random chance that FTX leadership might commit financial crime?

In February 2021, CEA brought in a new due diligence process following the Ben Delo charges. There will likely be extensive questions and debate about the due diligence carried out on the FTX leadership. Consider Milan Griffes’ questions (for MacAskill but relevant more widely):

• “What diligence did your team do on FTX before agreeing to join the Future Fund as an advisor? 
• Were you aware of the 2018 dispute at Alameda  re: SBF's leadership? If so, how did this context factor into your decision to join the Future Fund?
• Did you have visibility into where money earmarked for Future Fund grants was being held? [...]
• What were your responsibilities at the Future Fund? How often were you in contact with SBF and other members of FTX leadership in your role as an advisor?"

It is unclear how much due diligence into FTX was done by the EA community in autumn 2021 before the launch of the FTX Foundation, or in early 2022 before the launch of the Future Fund. The due diligence here should have been more intense than that which a charity would carry out for a new donor. One wasn’t simply accepting a donation but agreeing to be employed to guide someone’s philanthropy on a long term basis.

Again to be blindingly clear, the point isn’t “is this a nice person?” or “how will this affect our reputation/PR?” its “what is the risk that we will be reputation laundering for a fraud, and therefore indirectly contributing to financial crime?”

There are reasonable questions to ask about the quality of the due diligence carried out at three levels: 

• A. the industry (crypto), 
• B. the specifics of the corporate governance and culture of the particular business (FTX), and 
• C. the character of the donor (Bankman-Fried) themselves. 

A. The industry in general: is all crypto a “ponzi scheme”/scam?

Maybe EA should never have got involved with crypto.

Crypto seems to have little or unclear benefits. Maybe it really is all just a scam or a huge ponzi scheme. It certainly seems volatile, speculative and unmoored from the real economy: like a casino, betting or (at best) day-trading. Beyond speculation, it seems to have few other applications at the moment, apart from buying/selling drugs, ransomware or illegal gambling. The one current positive is that it does seem useful for getting money in or out of autocracies. On the other hand, I am far from a crypto expert, and some people argue it will prove useful in the future.

Debating the moral merits of crypto as an asset class in general feels a bit unspecified. We can make three distinctions. First, crypto trading (like Alameda 1.0). As Scott Aaronson notes, that seems morally similar to any financial trading job. Second, a crypto exchange. At the beginning, I understand that FTX was focussed on trading firms. Who was risking their capital, and who were Alameda and FTX making money off? Other companies that were trying to make money off them, and customer fees. How morally bad is it to run a casino, or a horse-racing betting business? Third, however, is a crypto exchange (FTX in 2022) that encourages ordinary people to speculate in a volatile asset. That is different again. Who are you making money off? Maybe unsophisticated retail investors who could lose everything. There is likely to be significant debate about this last one.

More specifically relevant to our question, it could be that fraud and financial crime are much more likely in the unregulated and novel market of crypto exchanges. In particular, crypto has three crucial factors that create the means and opportunity for financial crime: it is offshore, unregulated, and therefore ordinary customer deposits are not protected by government deposit guarantees/insurance.

B. Specifics of the business: corporate governance and culture

FTX’s bankruptcy filing makes for stunning reading. The new CEO notes:

•  “I have over 40 years of legal and restructuring experience. I have been the Chief Restructuring Officer or Chief Executive Officer in several of the largest corporate failures in history [including Enron ...] Nearly every situation in which I have been involved has been characterized by defects of some sort in internal controls, regulatory compliance, human resources and systems integrity. Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
• “One of the most pervasive failures of the FTX.com business in particular is the absence of lasting records of decision-making. Mr. Bankman-Fried often communicated by using applications that were set to auto-delete after a short period of time, and encouraged employees to do the same.”
• “Many of the companies in the FTX Group, especially those organized in Antigua and the Bahamas, did not have appropriate corporate governance. I understand that many entities, for example, never had board meetings”
• The balance sheets are laughably bad, and the new CEO says several times “because this balance sheet was unaudited and produced while the Debtors were controlled by Mr. Bankman-Fried, I do not have confidence in it and the information therein may not be correct”
• “The Debtors did not have the type of disbursement controls that I believe are appropriate for a business enterprise. For example, employees of the FTX Group submitted payment requests through an on-line ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis”
• “The FTX Group’s approach to human resources combined employees of various entities and outside contractors, with unclear records and lines of responsibility. At this time, the Debtors have been unable to prepare a complete list of who worked for the FTX Group as of the Petition Date, or the terms of their employment. Repeated attempts to locate certain presumed employees to confirm their status have been unsuccessful to date.”

It is clear now that FTX was catastrophically badly managed, and that the leadership demonstrated deep incompetence and a failure of risk management and business ethics.

Aspects of corporate governance and culture may have come up during due diligence. Certain structural or behavioural aspects of the business might have raised concerns, for example the lack of board meetings, the self-deleting messages or the quality of the auditing of the balance sheets. One might expect a rough map of corporate ownership, though perhaps not a full org chart of all employees.

Again, I want to make two points. First, the crucial question is not “were they competent or not?” or “does this reflect poorly on EA’s competence?”. The question is: were there warning signs of a higher-than-average possibility of fraud? Second, FTX was vetted by sophisticated investors like Sequoia, Blackrock and Temasek who have now collectively lost ~$2bn. These investors were much better placed than foundation grant managers to spot flaws in corporate governance or culture that could increase the risk of fraud. They nevertheless missed this in their vetting. This should temper the extent to which we could have expected these concerns to arise in EA due diligence.

C. Assessment of character

Due diligence at the level of an industry or business could have been done by any person starting a foundation with the FTX leadership. However, the EA community may have had additional privileged information.

By 2022, the EA community had known Bankman-Fried for about a decade. In particular, they knew the circumstances of the Alameda break-up in 2018. Reportedly, there was a meeting in which “trustees considered allegations that Bankman-Fried had engaged in unethical business practices at his crypto trading firm, Alameda Research, but ultimately took no action, according to a person with knowledge of the discussions.”

This presumably allowed them to make a better-than-average assessment of Bankman-Fried’s moral character - whether he was the type of person who could break the law, steal customer’s money and commit financial crime. However, it is currently unclear to what extent he hid his “naive utilitarianism” from the EA community.

Specific recommendation: better vetting of potential large-scale donors

Reflecting on these three levels above, leads me to think that better governance around accountability, consideration of stakeholders, avoidance of conflicts of interest, decision-making procedures and power dynamics - as suggested by Fods13 - clearly has to be part of the answer.

A specific recommendation is more and better vetting of potential large-scale donors: due diligence on their industry, the corporate governance and behaviour of their company, and an assessment of their character. This is particularly important when there will be a large-scale long term relationship, such as running a donor’s foundation. This is especially incumbent on those directly going to work for the donor - but perhaps they might be assisted by volunteers or consultants. The EA community prides itself on rigorously vetting and evaluating causes and donation opportunities. More of that scrutiny should be turned on donors themselves.

This may be an obvious point - I’m sure going forward many will be chastened if not traumatised by this experience, and carry out more scrutiny. Nevertheless, I think it is useful to make explicit the lessons to be learnt.

Specific recommendation: more extensive discussion of potential large-scale donors

One thing that could have happened in autumn 2021 is for there to have been a community discussion and debate about the founding of the FTX Foundation and Future Fund. There may have been some behind-closed doors consultation - I wasn’t part of that or heard about that. This could have been private or public. A private consultation could have, for example, surveyed or checked-in with ‘community leaders’ (for example, the heads of various EA charities). A more public consultation could have been a post on the Forum from Bankman-Fried or Beckstead: “we’re considering launching a ‘Future Fund’ - what do people think?”.

A more extensive due diligence process could have surfaced concerns and considerations around the industry, corporate governance or Bankman-Fried’s character. It would have drawn on a wider set of perspectives and information, and also simply drawn on more ‘man-power’: more people considering the issue.

Going forward, there should be more discussion, especially when there will be a large-scale long term relationship, such as running a donor’s foundation.

More general concern about EA culture

A more general concern is related to certain cultural aspects of the EA community. These include the value placed on people’s ingroupness and ‘value alignment’; centralisation and insiders; and the importance of reputation & trust; and privileging certain individuals (‘hero worship).

First, EA tends to strongly value ingroupness and “value alignment”. This has previously been criticised, by eg Zoe Cremer. In practice, this can often rely on heuristics, such as vegetarianism/veganism; or familiarity with EA jargon and concepts and willingness to express oneself using that jargon and concepts.

Second, EA is fairly centralised and has a set of insiders. This has also previously been criticised, by eg Joshua Monrad. Insider status comes in tiers/gradations rather than being binary. It is tied to length of participation, employment at various organisations (especially CEA, FHI and OpenPhil), intellectual status and friendship groups.

Third, EA relies quite strongly on reputation and trust. One can see this in charitable funding decisions, business decisions, and decisions to collaborate on projects. It can be seen clearly in Alameda’s ability to execute the ‘Japanese arbitrage’, which relied almost entirely on trust networks between EAs who didn’t know one another personally.

Fourth, some individuals have such a reputation and trust that they are strongly deferred to. This has been criticised as hero worship, by eg Sigal Samuel.

Two caveats may be worth noting. These aspects of EA culture are not solely negatives, they may have positives such as facilitating collaboration. Nevertheless, they are liable to produce blind spots, as I go on to argue. Also, these aspects don’t just characterise the EA community. For example, academia, charities, social movements and political parties (and factions and charismatic individuals within them all) are also strongly shaped by ingroupness and jargon; insiders; and reputation, trust and deference. Nevertheless, the degree to which EAs rely on trust and trusting goodwill and good intentions from others is pretty remarkable.

How it may have contributed

Surely at least part of the reason some individual EAs decided to support the founding of the FTX Foundation and Future Fund - and therefore possibly contribute to reputation-laundering - was Bankman-Fried’s position in that culture.

Bankman-Fried was clearly in the ingroup, and seemed strongly value-aligned. He was fluent in all the jargon and concepts. Moreover he’d been an EA insider for around a decade. He was an early earn-to-giver and had worked at CEA. He was at the Leader’s/Coordination Forum. He had friends and contacts throughout EA. In the Musk texts, when asked “You vouch for him?” MacAskill responds “Very much so! Very dedicated to making the long-run future of humanity go well.” This is a classic example of a “yes they’re value-aligned” answer. He was able to trade on his reputation and trust.

It seems likely that this was all also influenced by the demographics of many EAs - and many of the most prominent EAs. Bankman-Fried fit into a disproportionately young, male, white, educated, privileged, quantitatively-minded, techy crowd.

This culture may have had two effects. First, Bankman-Fried may have been able to rely on his reputation and trust to skirt a more stringent due diligence process. I do not know, as details of the due diligence are unclear. Second, when that decision was made, many EAs more broadly likely deferred to that. He was ingroup, an insider, and had built up trust. Moreover, some high-profile EAs with strong reputations vouched for him. So rather than a more extensive debate about partnering with Bankman-Fried, more people individually checking him out, or transparent due diligence about his industry, corporate governance and character, people deferred to others and to his reputation.

Specific recommendation: debate and discussion about these cultural factors

I found writing this section incredibly awkward. I believe the EA community more generally finds discussing these factors quite awkward. Nevertheless, these aspects have some notable downsides (in relation to our focus on avoiding contributing to malfeasance) by making the EA community more vulnerable to not doing sufficient due diligence. I don’t have specific recommendations on how to address ingroupness, insiders, reliance on reputation/trust or ‘hero worship’ - but I think we need to discuss them more.

6. Bankman-Fried becomes a prominent 'face' of EA

Over the course of 2022, Bankman-Fried became a prominent face of effective altruism. He was on many podcasts and newspaper articles which touted his philanthropy. This video titled “The Most Generous Billionaire” is about earning to give and features the now infamous Toyota Corolla. There was an FTX billboard with a picture of Bankman-Fried with the text “I’m in on crypto to make a global impact for good”. 

How it may have contributed

Again the main concern is reputation-laundering. This is likely to be more acute the more attention one receives for it. This may have contributed to the financial crime by further extending the reputation laundering, and thereby tricking more customers into using FTX.

Note that again I am explicitly leaving aside the separate and less important point that this close public association has also increased the reputational damage for EA.

Specific recommendation: don’t allow a billionaire to become a ‘face’ of EA

Moskovitz and Tuna are large donors to good causes (that EAs especially would recommend) and have a public platform on e.g. Twitter, but are not the “face” of EA. Vitalik Buterin is a large donor to good causes (that EAs especially would recommend) and has a public platform e.g. Twitter, but isn’t a “face” of EA. We should never allow a billionaire to become the face of a large community mainly made up of normally-paid people.

7. Whistleblowing

A leak to CoinDesk of Alameda’s balance sheet, published on 2 November, was key in unravelling FTX. This may have been an internal whistleblower or it may have been an adversarial hack and leak. Assuming it was a whistleblower, we owe that whistleblower a great deal of thanks. Note I don’t think crypto exchanges can rely on whistleblowers alone, and believe they should be regulated.

How it may have contributed

Had there been a trusted, within the community place that one could whistleblow to, perhaps the news about Alameda and FTX’s mutual vulnerability could have come out much earlier (say in July or August), saving months of new customers from losing their deposits.

Specific recommendation: consider an EA whistleblowing function 

Zoe Cremer made a list of EA structural reform ideas several months ago, which we should revisit. One of which is: “Set up whistleblower protection schemes for members of EA organisations. Legal, financial and social support for those who want to come forward to make information public that is in the public interest”

EA has a great community health team which has built a lot of trust for its excellent work on, for example, interpersonal issues. It seems reasonable to consider setting up a subset of that team or a parallel team for other kinds of concerns, such as unethical business practices. This could have been a place that an FTX employee or someone else with access to evidence of potentially illicit activities could have passed on that information.

Conclusion

The FTX leadership, who were major donors and high-profile supporters of effective altruism, committed one of the most high-profile financial crimes of the century. This is the crucial thing we need to focus on - not the lost donations, not risk management failures, not the PR of a big failure. 

There has been an immediate independent investigation of whether anyone at EV had any knowledge of that fraud, and the answer was no. However, we also need to do a wider accounting and assessment of to what extent and how the EA community may have indirectly contributed to creating the conditions for that crime. I have suggested a framework for how that broader review might be conducted: in chronological stages establishing the details of EA involvement, proposing a mechanism for how this could have indirectly contributed to the eventual financial crime, some assessment of to what extent that mechanism may have indirectly contributed, and a concrete recommendation for what the EA community could do differently to prevent any recurrence. 

I have begun an indicative, initial stab at such a review, and was somewhat surprised by my preliminary findings. For example, I did not expect “naive utilitarianism” to loom so large. For me the crucial moment that the EA community may have indirectly contributed was late 2021 and the decision to support the FTX Foundation and Future Fund. 

EA needs to assess its indirect contribution to these crimes, and take steps to prevent any such contribution in the future. This project is long overdue.