Under what conditions should FTX grantees voluntarily return their grants?

By sawyer🔸 @ 2022-11-11T16:52 (+52)

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.

Anthony Fleming @ 2022-11-11T17:48 (+23)

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).

Brad West @ 2022-11-11T20:48 (+5)

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.

nongiga @ 2022-11-11T22:31 (+7)

I'm sorry I just disagree. We are an applied ethics movement. Maybe the only one in the world. We should hold ourselves to the highest ethical standards. And yet we benefitted from a scheme that, legal or not, ruined a lot of people's lives. Utilitarianism or not, we need to do everything we can to atone. If we don't, it could ruin our psyches, our ethical standards, our perception and our trajectory.  

MichaelStJules @ 2022-11-12T18:53 (+19)

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.

MichaelStJules @ 2022-11-12T20:35 (+2)

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.

MichaelStJules @ 2022-11-12T23:38 (+2)

I guess it's more complicated than this, because FTX entering as a funder and disproportionately funding longtermism may have freed up funding for other cause areas. Still, I'd guess the counterfactual was disproportionately to the benefit of longtermism. We could try to simulate what would have happened without FTX and check where the extra money went. If only direct beneficiaries pay up, this is unfair to them, and indirect beneficies get away without paying.

EliezerYudkowsky @ 2022-11-12T05:36 (+18)

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.

MichaelStJules @ 2022-11-12T18:53 (+15)

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

  1. Pay out extra to account for the bad acting that isn't caught,
  2. Pay out as a community by cause to roughly approximate paying back each grant (since I don't think grantees should be responsible for paying back). If we pay out uniformly (or proportionally with respect to how non-FTX funding is being spent) across causes, FTX and associates will have been able to shift overall EA funding towards longtermism, which is still to their benefit on their worldviews. To prevent this shift, we would need to pay out disproportionately from the longtermist budget. (This doesn't necessarily mean the share of non-FTX EA funding towards longtermism should decrease overall, since there are other reasons to increase it, and I don't know how things will balance out.)

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.

Brad West @ 2022-11-11T19:39 (+14)

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.

Ruby @ 2022-11-11T22:18 (+6)

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.

Brad West @ 2022-11-11T22:26 (+2)

It is very different from the kind of reasoning that leads to fraud.

Fraud and many other kinds of other criminal behavior corrodes at the fabric of trust that enables our communities, large and small, to operate effectively. Thus, when you diminish the trust that members of society can place in each other, you do immense damage. Thus, in an EV calculation incorporating these kinds of activities, they are seldom justified because the harm risked is colossal.

A retention of a benefit in these circumstances where the grantee is not complicit and is not legally required to return it does not cause or risk the above harm in the least.

If a grant recipients'use of resources is extremely high EV, which it should be, the unnecessary defunding of it is obscenely immoral.

Jason @ 2022-11-11T23:47 (+7)

A individual who is in receipt of property that they know to have been stolen is complicit if they did not give reasonably equivalent value for it and do not return it. By knowingly retaining the stolen property, one becomes complicit in the continued deprivation of the victim's property.  This principle is widely accepted when it comes to someone who steals my car and then gives it to a friend for free.

The recipient is not culpable to the extent they already earned/spent the grant, or if the current owner of the car paid fair market value for it -- in both cases assuming they had no reason to believe the money/car was stolen.

Brad West @ 2022-11-11T23:54 (+1)

If that is the state of the law and they have a legal obligation to return it, they should. I just would not endorse returning if not legally obligated to.

Sharmake @ 2022-11-11T22:29 (+1)

More importantly though, we have a vast bias to have motivated reasoning in order to view ourselves as basically good and trustworthy, and we have no good reason to suspect anything else, so I really am not accepting that argument.

From Dann Luu here: https://danluu.com/wat/

most human beings perceive themselves as good and decent people, such that they can understand many of their rule violations as entirely rational and ethically acceptable responses to problematic situations. They understand themselves to be doing nothing wrong, and will be outraged and often fiercely defend themselves when confronted with evidence to the contrary.

Jason @ 2022-11-11T23:38 (+4)

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's still my car. The friend is not morally free to decide they would derive much more utility from the car than I would (or realistically, than my insurance company would from not having to pay the claim). Knowingly retaining my car without having provided appropriate value in exchange is just another form of theft.

In those scenarios, the conclusion that the victims should bear the loss leads to a conclusion that it's OK to retain knowingly stolen funds if the cause is good enough and/or that it is OK to force people to involuntarily donate if the cause is good enough. In my book, it is tantamount to theft -- the grantee is acting to continue the initial deprivation by the grantee's confederate of the victim's property 

If we think it is OK to reduce Joe Crypto's savings to 50K to avoid disrupting the work funded by FTX grants, have we all reduced our savings to 50K first? I can't figure out a world where it is morally appropriate for a grantee or EA community member to decide it is OK to involuntarily appropriate Joe's property on utilitarian grounds without having made an equivalent level of financial sacrifice themselves.

I am aware of the dangers of "you're not donating enough" type logic. But EA is supposed to be impartial; we are not entitled to demand Joe Crypto make sacrifices for the cause we are not willing ourselves to make. So I think it is an appropriate question to ask here because we are potentially talking about involuntarily taking the money of someone who is less well off than we are without making an equivalent sacrifice ourselves.

Again, there are a number of scenarios in which I don't think there is a moral obligation to return funds. In particular, if the grant was clean when made, any future bad acts by the grantor can't retroactively render it the equivalent of stolen property.

Brad West @ 2022-11-11T23:52 (+1)

Well argued.

For me, it comes down to whether the retention contributes to the social corrosion in a similar manner to the underlying fraud. My intuition is that it does not, and thus the question should be evaluated from the first order utility differences.

I do not think if there was some determination that a grantee had the right to retain the funds that(a) voluntarily relinquishing them to FTX victims would remedy much at all the social corrosion caused by the underlying fraud or (b) that exercising the right to retain would cause further social corrosion. I suppose if I am wrong on either of the points that I might be persuaded.

Geoffrey Miller @ 2022-11-11T19:11 (+9)

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.

Jaime Sevilla @ 2022-11-11T19:49 (+20)

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.

Jason @ 2022-11-11T23:54 (+1)

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 whether disgorging certain money is morally obligatory. I do not think grantees are morally on the hook for any future fraud FTX may have committed, but they are potentially on the hook to the extent their grants derived from fraud.

Geoffrey Miller @ 2022-11-12T02:44 (+15)

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:

  1. Insofar as we trust the relevant legal systems, it might be prudent to wait and see what the law obligates, rather than trying to front-run any legal judgments. The  criminal charges and civil suits are likely to take a long time to litigate -- precisely because they involve very complex issues that we can't yet anticipate, and will involve discovery of thousands of documents and bits of evidence that we haven't seen yet.
  2. I'm generally opposed to the view that money can be 'morally tainted' more than one entity away, along the chain of ownership and responsibility. If FTX did wrong, but gave money to Future Fund, and then Future Fund gave money to EA grant recipients, and then EA grant recipients gave money to their landlords and grocery stores, how far along the economic trail does the moral taint travel? Should EAs  pressure their landlords return their 'tainted' rent money, so we can return that money to Future Fund, so Future Fund can try to return that money to FTX depositors and investors? 
  3. I do take seriously the notion that returning some money might serve as some useful virtue signaling, PR management, costly commitment-signaling about our ethics, etc.; but I'm utterly baffled by how we could actually organize such a payback at the practical and legal levels. Who exactly would EAs wire-transfer the money to? What bank accounts, in what jurisdiction, overseen by what owners? How could such returns be documented in a legally credible way? What would be the tax implications for individuals and groups of voluntarily sending money to unknown entities that may or may not ever send it along to FTX investors or users (e.g. we might already be taxed on any income from Future Fund, even if we return all the money). How would we avoid sending money to pseudo-investors or pseudo-users who make fraudulent claims about losing money that they didn't actually lose? Finally, if there are any legal 'clawbacks' of money in the future, that would have to be done through official legal channels -- and they might not care that we've already sent money back somewhere for allegedly honorable reasons. So we might end up returning a bunch of money, and then being legally obligated to return the same amount again, and also being required to pay income tax on whatever we first received. None of these are unsolvable problems, perhaps, but we shouldn't pretend that 'returning the tainted money' would be in any way simple, straightforward, or effective.
Jason @ 2022-11-12T04:41 (+3)

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.

Geoffrey Miller @ 2022-11-12T16:33 (+2)

Jason - these are reasonable points. It's a very complicated situation with many unknowns, but perhaps things will become clearer in the next few weeks. 

sawyer @ 2022-11-11T17:02 (+9)

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"?

Vardev @ 2022-11-11T17:07 (+3)

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. 

Nils @ 2022-11-11T19:41 (+1)

Not sure if b) is correct. If FTXFF is in fact separate from FTX, giving the money back (to FTXFF) would not mean giving it back to the donor (FTX) but rather to the foundation managers / bank accounts. What this would then mean remains a big question, as the whole leadership resigned.

But still, yes, the money will most likely not end up in the wallets of traders.

sawyer @ 2022-11-11T17:13 (+1)

Yeah this seems super relevant, great point! To be honest I'm skeptical of how separate "FTX Foundation, Inc." is/was from the rest of the FTX conglomerate. Would be useful to see the Foundation's finances after this all shakes out.

Jason @ 2022-11-11T17:54 (+1)

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.

Pagw @ 2022-11-11T22:36 (+3)

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.

RavenclawPrefect @ 2022-11-11T22:48 (+4)

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 unrecoverable FTX deposits is made a fair bit worse off by that than the median person with a $10,000 Future Fund grant would be by returning it. 

Jason @ 2022-11-12T04:57 (+3)

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 that they can find another position in EA or a position doing the work they would like. The argument for providing severance is to avoid financial hardship to these individuals and would need to be strictly limited to the minimum necessary. If the community feels it important to give a longer off-ramp so that the individual can find another EA job and/or job that is a good fit, then the community needs to subside that rather than expecting depositors to do so.

t3tsubo @ 2022-11-11T17:38 (+3)

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

RavenclawPrefect @ 2022-11-11T17:08 (+3)

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!)

sawyer @ 2022-11-11T17:15 (+1)

Yep this is a great point and overlaps with Vardev's comment. If I thought that the money was gained immorally, it would be pretty bad to just return it to the people who did the immoral thing!

Jason @ 2022-11-11T17:39 (+2)

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.

Pablo @ 2022-11-11T17:43 (+5)

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.

Miguel @ 2022-11-11T17:13 (+2)

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. 

Roman Leventov @ 2022-11-12T04:05 (+1)

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.