We must be very clear: fraud in the service of effective altruism is unacceptable

From CEA's guiding principles:

Integrity: Because we believe that trust, cooperation, and accurate information are essential to doing good, we strive to be honest and trustworthy. More broadly, we strive to follow those rules of good conduct that allow communities (and the people within them) to thrive. We also value the reputation of effective altruism, and recognize that our actions reflect on it.

Hey, crypto insider here.

sbf actions seem to be directly inspired by his effective altruism believes. He mentioned a few times on podcasts that his philosophy was:  Make the most money possible, whatever the way, and then donate it all in the best way to improve the world. He was only in crypto because he thought this was the place where he could make the most money.

sbf was first a trader for Alameda and then started FTX 

some actions that Alameda/FTX was known for:

*Using exchange data to trade against their own customers

 *Paying twitter users money to post tweets with the intention of promoting ftx, hurting competitors, and manipulating markets

*Creating ponzi coins with no usage with the only intention of selling these for the highest price possible to naive users. Entire ecosystems were created for this goal. 

The typical plan was: 

1.Fund a team to create a new useless token. 2% of coins to public, 98% to investors who get it year later. 2. Create manipulation story for why this project is useful. 3.Release news item: Alameda invested in x coin (because alameda had a good reputation at first). 4. pump up the price as high as they can using twitter influencers. 5. list the coin on FTX so investors can hedge position. 6. Alameda has another coin they can trade around and liquidate speculators based on the data they get from ftx.7. repeat x20

*Lying and predatory behavior

It seems like they took most actions based on a "expected value" approach, calculating which of possible options would on average make them more money.

including decisions like lying or telling the truth ,  breaking the law yes or no ,and building reputation for only goal of being more effective at manipulation later on.

I think this expected value approach made them super succesful traders. And they stayed with strictly the same approach when running the exchange. This is where things are going wrong.  In social interactions and situations when your actions impact other people you should also think about things like your reputation, or what would happen if everyone starts acting like you. 

Otherwise, you could rationalize pretending to be friends with your neighbours and then murdering them to give their money away to the poor.Maybe it seems like a good action on paper for a naive utilitarian but if everyone would act like this things would break down.

 I think another factor of this outcome with sbf is narcissistic personality. Something like Effective Altruism can feel emotionally attractive for people like this because it implies, they can do things "better", or "more effective". It feeds the need for superiority.  And then they rationalize everything with, its good for the world, i will be 10x as effective with the money than others etc. It could be true, but it could also not be true and it might not be the real reason why they are acting in this way.

I think effective altruism works better when blended with normal human behavior and moral principles like: "try generally to tell the truth", "dont steal from your users." 

I agree! As a founder, I promise to never engage in fraud, either personally or with my business, even if it seems like doing so would result in large amounts of money (or other benefits) to good things in the world. I also intend to discourage other people who ask my advice from making similar trade-offs.

This should obviously go without saying, and I already was operating this way, but it is worth writing down publicly that I think fraud is of course wrong, and is not in line with how I operate the philosophy of EA.

Earlier this year ARC received a grant for $1.25M from the FTX foundation. We now believe that this money morally (if not legally) belongs to FTX customers or creditors, so we intend to return $1.25M to them.

It may not be clear how to do this responsibly for some time depending on how bankruptcy proceedings evolve, and if unexpected revelations change the situation (e.g. if customers and creditors are unexpectedly made whole) then we may change our decision. We'll post an update here when we have a more concrete picture; in the meantime we will set aside the money and not spend it.

We feel this is a particularly straightforward decision for ARC because we haven't spent most of the money and have other supporters happy to fill our funding gap. I think the moral question is more complex for organizations that have already spent the money, especially on projects that they wouldn't have done if not for FTX, and who have less clear prospects for fundraising.

(Also posted on our website.)

I really appreciate the content and tone of this; I want us to have a lot of integrity in our responses, and keep cultivating it.

(Edited to add month later: I really liked the intensity and the connection to consequentialist reasons to care about deontological and virtue ethical considerations. I have updated that there was a sweepingness to this post I might not endorse and I suspect I got swept up in appreciation that the EA community had people who were going to stand strong and condemn bad behavior, over and above the specifics of the argument made).

Assuming fraud occured: the harder question is whether those who received funding have an obligation to return it, at least under some circumstances. Verbally condemning fraud is a rather low bar; presumably few would openly defend any fraudulent behavior that occured. But some people may be holding grants funded by fraud, and any future avoidable spending of those funds could be seen as condoning the fraud.

I think the Utilitarian arguments you presented are quite strong, such as precommiting to certain principles being very advantageous, but surely they're not infinitely advantageous right? A few billion is quite a lot.

I've been repeatedly astonished by the level of moral outrage amongst EAs and expressions of prior cluelessness over FTX 'fraud'. As an EA newcomer, I was assuming most everyone was aware and okay with it "because consequentialism". Ignoring the specific egregious act of asset misallocation that brought FTX down, I thought it's been more or less common knowledge that FTX has been engaged in, at a bare minimum, knowingly facilitating the purchase and sale of shares in Ponzi schemes, and that Alameda has been trading in the same, against counterparties made up in large part by a population of people who did not understand these assets and would have lacked the financial sophistication to be allowed into other, better regulated leveraged financial markets. I say 'knowingly' because SBF all but admitted this (with regard to 'yield farming') in an interview, and there's also an old video going around of the Alameda CEO expressing her initial discomfort with the schemes as well. I was aware of these schemes going on within maybe 1 week of first having heard of FTX & SBF back in May of this year. My immediate take was "Billionaire 'Robin Hood' figure is re-allocating wealth from crypto-bros to the global poor, animals, and the longterm future of humanity... eh, why not? But I sure hope he cashes out before the house of cards comes crashing down".

The few times I mentioned any of this at a gathering, it was always met by something along the lines of "Yeah, I guess... meh". It never seemed to be a particularly surprising or contentious take.

The other thing that's weird to me is the idea of taking this firm stance that the ponzi schemes we did know about weren't going over the line, but that 're-investing customer funds' was going over the line. This feels like a fairly arbitrary line from which to go, on one side, "eh, whatevs" to "this is an outrage!" on the other side. It's convenient that the title of this post uses the term 'fraud' rather than 'theft'; that makes this criticism much easier to levy because ponzi schemes are by definition 'fraud'. In both cases, people are being taken advantage of. They're both against norms, both involve misleading customers, both involve customers losing a lot of money, and they're both illegal within well-regulated financial markets (which I know crypto is not, but still).

All of this to say... I don't think now is the time for handwringing about this... that time was many months ago for anyone who had a principled stance on the matter and was aware of the DeFi schemes FTX was openly invovled in; handwringing now comes off sort of as lamenting getting caught, with an after-the-fact rationalization for the arbitrary placement of the line that was crossed.

To be fair, I can't moralize about this either; I don't get to say "I told you so" because I didn't tell many people so, and certainly not anyone in a position of authority to do anything about it. Personally, I didn't have a principled stance on the matter, and I would have needed a quite strong principled stance to justify going against the social incentives for keeping that opinion to myself.

On the other question of the day, whether to give the money back: if you're in the subset who were aware of the FTX DeFi shenanigans and weren't lobbying for giving back or rejecting the money 3-6 months ago, little has materially changed about the issue on a moral level since then.

EA Forum moderators: If you strongly believe this post is net-negative for EA, please delete it. 

We likely won't know for a long time exactly who was responsible for what, nor do I think it really matters—what's done is done, and what's important now is making very clear where EA stands with regards to fraudulent activity, not throwing any individual people under the bus.

I agree witch hunts are bad, I agree we should collectively be extremely unambiguous in condemning fraud, and I agree focusing on individuals can be unhealthy and not the most productive.

But I do think the community should do some reflection and have a postmortem process, part of which is developing a detailed understanding of how events unfolded, so we can develop strategies for avoiding similar situations in the future.

I doubt it's the clarity of EA's take on fraud that is the problem because there are real world consequences of committing fraud which includes a potential jail term which in most people's eyes is a bigger deterrent than EA's opinion on fraud. EA can be as clear as it wants on its normative positions but to the extent that senior folks in the EA community are able to convince people that the fate of humanity is on the line then there will be more norm breaking in the future. Think very hard of the entire distribution of things one can justify if they think that humanity is at risk of extinction. Most people will not try the extreme measures but you should take seriously the idea that some will try even the most extreme measures especially when the conventional tactics keeps failing and it seems like time is running out.

"Don't do fraud in service of EA because it's bad PR" (my read of what you said) is not, in fact, a condemnation of fraud. Nor is it good PR.

Hardcore utilitarians may not have a better condemnation to make, but that's not a problem, because only a minority of EAs are actually full utilitarians, rather than having one foot in common-sense morality or other moralities, or in uncertainty.

If hardcore utilitarians can't say something to unequivocally condemn fraud, they should leave it to those who have one foot in common-sense morality to do so.

It's easy to say that no one should do what SBF did. If the rumours were true, there are very few ethical systems that would justify the behavior. What's harder and more action relevant is to specify ahead of time very clearly the exact lines of you find acceptable 

• What is "fraud" and how much "fraud" do we allow? You can argue good advertisements always toe the line. at some point, you seriously screw over business opportunities. Now, not gambling with customer money is again an obvious case far exceeding this.
  • Lots of companies toe the line of honesty but we would never expect huge backlash, there is a level that is accepted by society. 
• What about anti-competitive practices and monopolistic behavior? Should we ask our founders to not profit max? Should we ask them to not lobby the government for tax breaks and favorable licensing, etc. ? 
  • If so, do we feel bad about taking money from bill gates? Microsoft has a history of anti-competitive behavior. 
• What about businesses that probably harm society overall?
  • Facebook has probably been net-bad for society in my view- though it is hard to imagine what would exist if it was gone - Should we feel bad about taking money from meta? 
• If I'm in a VC meeting trying to get funding for my startup, should I not significantly exaggerate my product? Isn't this what everyone does while in a VC meeting?
• What if we know for sure that we can lie to consumers, make a ton of money, and there won't be any backlash for it (yes this is probably not a real situation). Are we not doing that? if so we aren't utilitarians, which is fine but then why are we utilitarians in our cause prioritization? Seems arbitrary

etc.

When we, as humans, consider whether or not it makes sense to break the rules for our own benefit, we are running on corrupted hardware: we are very good at justifying to ourselves that seizing money and power for own benefit is really for the good of everyone. If I found myself in a situation where it seemed to me like seizing power for myself was net good, I would worry that in fact I was fooling myself—and even if I was pretty sure I wasn't fooling myself, I would still worry that I was falling prey to the unilateralist's curse if it wasn't very clearly a good idea to others as well.

Also, I would encourage people to read Elephant in the Brain, which backs up this paragraph.

Also, Goodhart's law would appear as soon as you actually try to optimize for seeming good, when it's not actually a good thing.

The situation at FTX is illustrative of a central flaw in utilitarianism. When you start thinking the ends justify the means, anything becomes justifiable.

Trust is so important. Doing the right thing is so important.

I don't really know what else to say.

Thanks for this post. Wondering if 'earning to give' advice should be updated to more clearly argue for going for (the most) ethical ways to earn instead of just the most ethical ways to give. To me it seems like a lot of the fastest ways to make money can be unethical (which should bother us as EA's more than usual) or outright fraudulent, so arguing for making as much money as possible can incentivize behaviour like this (in that sense I do think EA bears some responsibility for Sam's behaviour). I love giving what you earn, just not trying to maximize what you earn unless it is done by doing good.

Independent audits should be installed in EA organizations especially if it is handling tremendous amount of resources or funds, so fraud can be avoided in the future...

As far as I can tell there is no reason to condemn fraud, but not the stuff SBF openly endorsed, except that fraud happened and hit the "bad" outcome. 

From https://conversationswithtyler.com/episodes/sam-bankman-fried/

COWEN: Okay, but let’s say there’s a game: 51 percent, you double the Earth out somewhere else; 49 percent, it all disappears. Would you play that game? And would you keep on playing that, double or nothing? 
BANKMAN-FRIED: With one caveat. Let me give the caveat first, just to be a party pooper, which is, I’m assuming these are noninteracting universes. Is that right? Because to the extent they’re in the same universe, then maybe duplicating doesn’t actually double the value because maybe they would have colonized the other one anyway, eventually. 
COWEN: But holding all that constant, you’re actually getting two Earths, but you’re risking a 49 percent chance of it all disappearing. 
BANKMAN-FRIED: Again, I feel compelled to say caveats here, like, “How do you really know that’s what’s happening?” Blah, blah, blah, whatever. But that aside, take the pure hypothetical. 
COWEN: Then you keep on playing the game. So, what’s the chance we’re left with anything? Don’t I just St. Petersburg paradox you into nonexistence? 
BANKMAN-FRIED: Well, not necessarily. Maybe you St. Petersburg paradox into an enormously valuable existence. That’s the other option.

One of my friends literally withdrew everything from FTX after seeing this originally, haha. Pretty sure the EV on whatever scheme occurred was higher than 51/49, so it follows....

However, I think it is starting to look increasingly likely that, even if FTX's handling of its customer's money was not technically legally fraudulent, it seems likely to have been fraudulent in spirit.

Evan do we really have enough information to conclude this? The only real pieces of information I am aware of is that (1) binance declined to acquire, (2) Alameda owned a lot of FTT, (3) SBF's tweets from yesterday.

I don't think that merely lending out deposits is 'fraudulent in spirit'. That's standard operating procedure in ordinary banking. For example, in Vanguard terms of service:

> The Program Banks will use Your Sweep Deposits in the Omnibus Accounts to support their investment lending and other activities. [...] Program Banks will receive substantial deposits from the Bank Sweep at a price that may be less than alternative funding sources. Sweep Deposits in the Omnibus Accounts held at a Program Bank provide a stable source of funds for such bank.

FTX has been accused of much worse than merely lending out depositor's funds, but I'm not aware of any real information about these further claims.

I strongly agree with the spirit of this post, and strong upvoted it. However I would criticise this...

Additionally, if you're familiar with decision theory, you'll know that credibly pre-committing to follow certain principles—such as never engaging in fraud—is extremely advantageous, as it makes clear to other agents that you are a trustworthy actor who can be relied upon.

... as being too abstract, both in the sense that to a lay person it could sound manipulative, like we're only saying this for PR reasons, and in the theoretical sense that it's  a murky concept at best, and arguably nonsensical. Any con artist can assert 'precommitment' as a statement of intent  as easily as they can assert any other kind of intent - the only thing that could prove intent is making a physically inescapable commitment, which the EA community has no way of doing here.