EV updates: FTX settlement and the future of EV

1. It's unclear what the legal status of EV will be at the end of the process. If it does exist, I expect it would be in a minimalist fashion and I wouldn't expect it to resemble what it has historically looked like (e.g. I don't expect it to be a fiscal sponsor for multiple projects).

2. No specific timeline. It's in a queue with other pieces of public communications I expect to do after I transition into a new role at CEA, and I'm not planning on it being the first piece.

Related to (1) is the question: which sponsored projects are definitely being spun out?

FWIW I’m pretty surprised and disappointed that my question about whether EV will continue to exist after the spinoffs never got a response. It’s a key piece of information about one of the most important EA orgs, and it’s clear that others are curious about it from the karma of my question, the comments replying to it, and the same question being raised in another thread. Even if the answer is “we don’t know yet”, that would be valuable to communicate. And if the answer is known, giving clarity to the rest of the community feels like extraordinarily low hanging fruit.

Dear Stephen and the EA community:  

Shortly after the early November 2022 collapse of FTX, EV asked me and my law firm, Mintz, to conduct an independent investigation into the relationship between FTX/Alameda and EV.  I led our team’s investigation, which involved reviewing tens of thousands of documents and conducting dozens of witness interviews with people who had knowledge about EV’s relationship with FTX and Alameda.  As background, I spent 11 years serving as a federal prosecutor in the United States Attorney’s Office for the Southern District of New York, the same USAO that prosecuted Sam Bankman-Fried and the other FTX/Alameda executives.  

I can confirm that the statements in Zach Robinson’s post from yesterday, December 13, 2023, about the results of the investigation are 100% true and accurate.   

Mintz’s independent investigation found no evidence that anyone at EV knew about the alleged fraudulent criminal conduct at FTX and Alameda.  This conclusion was later reinforced by the evidence at this fall’s trial of United States v. Sam Bankman-Fried, where the three cooperating witnesses who had all pled guilty (Caroline Ellison, Gary Wang, and Nishad Singh) testified that only four people knew about the alleged criminal fraud – those three people plus SBF.  Accordingly, the testimony at the SBF trial was consistent with our conclusion that there is no evidence that anyone at EV knew about the alleged criminal fraud.  

Finally, I want to add this point.  Over the last year, my team and I had the chance to meet dozens of people affiliated with the various EV projects.  We were consistently impressed by everyone’s genuine commitment and dedication to the EA mission, particularly during a very challenging year.  I wish you all the best in your future endeavors.  

-- Jason P.W. Halperin

There's no inherent contradiction between the current sponsorship program isn't a good fit for this sponsor and these sponsored orgs and fiscal sponsorship is often a good thing.

There are a number of specific reasons I could see that this wasn't a good fit:

• EV's reputation took damage due to the FTX scandal, particularly with the Charity Commission
• We don't know what action the CC will take, but -- either by CC mandate or "voluntary" action -- EV's board will likely have to be significantly more involved in monitoring sponsored orgs than another sponsor would be, given that the CC appears to be concerned about lack of control issues
• There's no reason for sponsored orgs to be linked to a corporation that is seen as the flagship corporation of effective altruism. Under that structure, bad stuff that happens at a sponsored org can disproportionately affect EA as a whole (and bad stuff that happens with EA senior leadership can have a disproportionate negative effect on sponsored orgs).
• EA Funds and GWWC may be relatively legal-risk-intolerant in that they regrant large amounts of donor monies
• CEA is relatively legal-risk-creating, especially the Community Health / Special Projects team
• Certain sponsored orgs may create reputational risk for other sponsored orgs (e.g., GWWC seems relatively sensitive to reputational risk given its purpose and target audience)

In my view, fiscal sponsorship is a good thing for the right sponsored orgs. But that function should be placed in a corporation whose primary role is to be a fiscal sponsor. Its board should consist mainly of people who have the time and talents to guide sponsored orgs, not some of the most prominent people in EA. Their role would be more to make the trains run on time than trying to lead the effective altruism movement.

My take is basically that (a) the projects have been run so independently that there was minimal benefit from being within the same legal entity, (b) organizations with very different legal risk profiles sharing a legal entity requires either excessive caution from some or excessive risk to others, and (c) board oversight is important for nonprofits and overseeing so many independent projects with their own CEOs didn't make sense for part-time volunteer board members.

(Also seconding Elizabeth's post.)

The Charity commission didn’t encourage us to offboard projects, and we aren’t off-boarding projects because of anything that we anticipate the Charity Commission might do.

I think a key detail here is they gave back all the 2022 money (90% of total) and kept all pre-2022 money (10% of total).

https://restructuring.ra.kroll.com/FTX/Home-DownloadPDF?id1=MjU5MTQzNg==&id2=-1

I haven't seen anything to update my initial reaction here. I'm cautious about applying to any other organization because I can't be giving anyone legal advice.

I'd add that almost all other potential clawbacks are metaphorically classified as relatively small potatoes (using the threshold amount at which the proposed settlement must be publicly filed on the open docket as the dividing line for small vs. midsize potatoes). Many are at least an order of magnitude under the small-potatoes threshold. I expect the estate's willingness to litigate those cases with its $2000-per-hour lawyers, or even junior associates billing more like $750-$1000 per hour, will be significantly lower than it would have been with EV, and that might be reflected in the deals that were offered. I have no inside info, though.

Although I directionally agree with this idea, I'd note the tension between it and some other goals implied by this and other announcements. In a decentralized ecosystem, there are lots of orgs. In my view, the target board size for a smaller org is five, 7-9 for a medium-sized org, and 9-11 for larger size ones. Resignations and recusals are going to be a reality in EA (and elsewhere, really), so a 3-person board doesn't have enough redundancy to ensure effective operations when that happens. So you're looking at several hundred board spots. 

• In many orgs, some of those slots should be filled by those with specialized skill and/or experience that is not in wide supply within EA (e.g., legal, accounting, senior managerial).
• Although I'm all for deepening the bench, I'm not yet convinced that there are several hundred people at the moment with the skillset and bandwidth to serve on boards.

So I'd suggest something more like a point system, under which (e.g.) being on the board of RP, or spun-off CEA, etc. would consume most/all of your points. However, being on the board of a smaller org would consume fewer points. Someone being on five small-org boards whose organizations have a combined 10 FTE & $2MM budget is fairly low on my concerns list at the present juncture.