CNBC reported on 30/11/22 that the Centre for Effective Altruism had filed a '“serious incident report” tied to “the collapse of FTX”' with the Charity Commission for England and Wales. It says reasons for this could include 'the “loss of your charity’s money or assets” or “harm to your charity’s work or reputation”'. Here is more information about serious incident reporting.
I have not seen any comment about this from CEA or anywhere else. Whilst the FTX fallout is serious, I wasn't aware of clear direct implications for CEA, so this seems like new information. Readers of the Forum may be donors to CEA and CEA is still soliciting donations through its website, so I think it's important to get a clear public picture of any problems. Clarifying that there is no problem relevant for the public would also be helpful if that's the case. Does anybody have knowledge about this that they could share?
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No inside knowledge, but as the article states they received a rather large grant from FTXFF, plus other funding from FTX and/or Alameda going back several years. Much, up to potentially all, of that could have to be repaid depending on the facts and outcome of litigation. I think it likely the clawback risk is significant enough that the risk constitutes a serious incident under the UK charity rules. None of that relies on new information.
In other words, I don't think the fact of the report itself provides any useful information.
However, it is worth noting that RP and OP have released statements characterizing their FTX clawback exposure (or lack thereof for OP). Unless CEA can provide some clarity, I'd assume the worst-case scenario for CEA would be very, very bad.
One would need to see updated financials and a history of all FTX/Alameda contributions to assess whether insolvency could result from the worst-case scenario. Do they have enough unrestricted assets to cover the worst-case outcome?
Personally: I generally would not donate to an organization with potentially catastrophic FTX risk unless the organization had convinced me the risk didn't exist (or was sufficiently small to disregard), or that my donations were legally restricted in a way that protected them from creditors in the event of an insolvency.
Personally: I generally would not donate to an organization with potentially catastrophic FTX risk unless the organization had convinced me the risk didn't exist (or was sufficiently small to disregard), or that my donations were legally restricted in a way that protected them from creditors in the event of an insolvency.
Given that CEA writ large includes Giving What We Can, EA Funds and the Donor Lottery, this would be a pretty big deal in terms of people's giving this month. If I need to avoid donating through CEA, my life as a donor gets a lot harder.
Given this, and given how many members of the community will be making big charitable donations around this time of year, some clarification from CEA on this front seems pretty valuable.
Right -- and I totally get why organizations are hesitant to share certain information right now.
If CEA is in a precarious situation and/or cannot disclose enough information to reassure donors, it may at least be in a position to demonstrate that EA Funds and the Donor Lottery are either already safe from the claims of CEA's general creditors or will be made safe, at least on a going forward basis by Dec 31.
This is because, in many jurisdictions, certain donations can be restricted by the donor in ways neither the charity nor general creditors can breach. But it's possible for the charity to intend to provide this protection yet screw it up . . . and has happened in at least one non-EA case I can think of.
(all this is summarized from cell phone while out of town...I have some broader thoughts about risk containment in draft form on my home computer)
Hi Jason,
It has been a few days since this answer of yours (and other comments) have appeared. This has caused a little anxiety. This has appeared in several private discussions.
Below is an external, non-sympathetic take. Can you check this content over and give your perspective or reaction?
Here is some public information:
- If you look at the its entry on the forum wiki, it is clear that most of CEA's funding, excluding FTX, is from a major institution in EA.
- If you look at the new EV entity, you will find that the board members include people from that EA institution.
- If you visit the EA funds website and look at the funding managers, you will almost always find one person from the major EA institution, and that person is often the most senior person on that fund.
- Additionally, if you follow staff transitions, you will find that people have moved between CEA and that EA institution.
- Lastly, if you watch YouTube videos about EA funds, you will find information that suggests to me one explanation for the role of EA funds (e.g. allows smaller, speculative or exploratory grants, offloads operations costs).
I believe the above is good evidence that CEA serves important, irreplaceable ro... (read more)
I have no inside knowledge on what Unnamed Big-Money Organization (UBMO: I'll follow your lead and not name it) would do if CEA were actually insolvent.
While I'm not familiar with UK insolvency law, I assume the basic principles are similar to US bankruptcy law. Basically, you are correct that a white knight can come in and save the distressed organization -- at a high level, options include buying all its assets (name, etc.) out of bankruptcy or (perhaps more efficiently) by persuading the creditor that they are better off with a settlement funded by the third party that gives the creditor as much as they would get in bankruptcy/insolvency. It would probably be a bad idea to disclose any such plan publicly, so the absence of any public discussion of the plan should not influence your assessment of its likelihood.
None of that changes the bottom lines of my comment: being restructured in bankruptcy, or having a massive public bailout, is "very, very bad" for an organization. The idea that UBMO would bail out CEA/EVF supports the conclusion that "I generally would not donate to an organization with potentially catastrophic FTX risk" too. In a bailout situation, either the money... (read more)
My guess is that the main reason you are not seeing a lot of communication is that there is not a major problem.
However, if there was a problem, I think the EA institution cannot simply quickly backfill 8 figures of funding by making a formal legal promise, or by delivering a cash transfer in a week's time.
If there was a plan to implement this backfilling, I think there are a lot of steps upstream to seeing messaging:
- The ties mentioned above might create legal or risk management challenges.
- The nature of the FTX collapse presents issues with clawbacks, and this has unique legal characteristics.
- Separate from legal issues, this sort of commitment or backfilling has to be coordinated at the most senior levels, it probably involves meetings with the two boards, and other stakeholders.
- How this could be communicated has to be considered (the Wytham Abbey purchase is going poorly)
There are other possibilities or side actions: CEA probably has other sources of funding, and it might prefer to use those to show diversity.
All of the above should take weeks of time under normal conditions: there’s a legal dependency, an executive/leadership dependency, and then a media/communications dependency. All of these processes are slow, must be done in “serial’, and this is occurring one of the busiest times possible.
CEA has continued its operations, including proactively distributing new funding guidelines in a way that suggests a disciplined, thoughtful rollout.
Please see our update regarding this. The important section is:
Both of the legal entities involved with GWWC (Effective Ventures Foundation and Centre for Effective Altruism USA) are financially solvent. These entities have funding sources outside of the FTX Foundation and other FTX-related entities/individuals. The GWWC related entities would be solvent even without the funds received from the FTX-related entities. Accordingly, our plan is to continue to accept and regrant donations.
Hi! Thanks for asking. (And sorry for the slow response — trying not to work too much over the weekend...)
As per the Commission’s guidance, we’re supposed to file such a report in cases where we expect a reputational or financial impact from events. This is one of those cases, and we expect there might be an ongoing conversation with the Charity Commission as a result.
I've downvoted this, since it's basically a non-answer that doesn't address the OP's concerns / requests for information, and we haven't had any further info or reassurance from CEA since the question was asked.
Thanks for replying. Can you confirm for people that money donated to or through CEA is safe as far as CEA officials know (at least, as safe as it seemed before there was widespread knowledge of problems at FTX)?
Please see our update regarding this. The important section is:
Both of the legal entities involved with GWWC (Effective Ventures Foundation and Centre for Effective Altruism USA) are financially solvent. These entities have funding sources outside of the FTX Foundation and other FTX-related entities/individuals. The GWWC related entities would be solvent even without the funds received from the FTX-related entities. Accordingly, our plan is to continue to accept and regrant donations.
Yeah, getting some clear indications on this front (preferably with some solid evidence/argumentation behind them) seems quite important to me.
Just to support Shakeel on this - filing a report with the Commission doesn't necessarily imply a risk of insolvency. To quote the Commission:
"What is a serious incident?
A serious incident is an adverse event, whether actual or alleged, which results in or risks significant:
- harm to your charity’s beneficiaries, staff, volunteers or others who come into contact with your charity through its work (who are collectively referred to throughout this guidance as people who come into contact with your charity through its work)
- loss of your charity’s money or assets
- damage to your charity’s property
- harm to your charity’s work or reputation
For the purposes of this guidance, “significant” means significant in the context of your charity, taking account of its staff, operations, finances and/or reputation."
In my experience (~15 years on charitable trustee Boards or running charities, most of it in the UK), the FTX scandal would clearly qualify as a serious incident, with or without a risk of CEA becoming insolvent. There are clearly risks that fraud may have taken place which could harm people in contact with CEA; that significant reputational damage may occur or has occurred already etc..
Obviously I'm not in a position to rule out serious financial damage, but there are clearly conceivable reasons to submit this report even if CEA is in rude financial health.
Hi Jason,
It has been a few days since this answer of yours (and other comments) have appeared. This has caused a little anxiety. This has appeared in several private discussions.
Below is an external, non-sympathetic take. Can you check this content over and give your perspective or reaction?
Here is some public information:
I believe the above is good evidence that CEA serves important, irreplaceable roles for both EA and that EA institution. That EA institution has access to a large amount of funding.
The collapse of EA funds or other CEA entities would be destructive. From the above, I am certain this would not be allowed to happen if it was just required backfilling the $14M of FTX funding, which has additional value in averting harm to grantees and other projects.