A number of people have asked about what I heard and thought about the split at early Alameda. I talk about this on the Spencer podcast, but here’s a summary. I’ll emphasise that this is me speaking about my own experience; I’m not speaking for others.
In early 2018 there was a management dispute at Alameda Research. The company had started to lose money, and a number of people were unhappy with how Sam was running the company. They told Sam they wanted to buy him out and that they’d leave if he didn’t accept their offer; he refused and they left.
I wasn’t involved in the dispute; I heard about it only afterwards. There were claims being made on both sides and I didn’t have a view about who was more in the right, though I was more in touch with people who had left or reduced their investment. That included the investor who was most closely involved in the dispute, who I regarded as the most reliable source.
It’s true that a number of people, at the time, were very unhappy with Sam, and I spoke to them about that. They described him as reckless, uninterested in management, bad at managing conflict, and being unwilling to accept a lower return, instead wanting to double down. In hindsight, this was absolutely a foreshadowing of what was to come. At the time, I believed the view, held by those that left, that Aladema had been a folly project that was going to fail.[1]
As of late 2021, the early Alameda split made me aware that Sam might be difficult to work with. But there are a number of reasons why it didn’t make me think I shouldn’t advise his foundation, or that he might be engaging in fraud.
The main investor who was involved in the 2018 dispute and negotiations — and who I regarded as largely “on the side” of those who left (though since the collapse they’ve emphasised to me they didn’t regard themselves as “taking sides”) — continued to invest in Alameda, though at a lower amount, after the dispute. This made me think that what was at issue, in the dispute, was whether the company was being well-run and would be profitable, not whether Sam was someone one shouldn’t work with.
The view of those that left was that Alameda was going to fail. When, instead, it and FTX were enormously successful, and had received funding from leading VCs like Blackrock and Sequoia, this suggested that those earlier views had been mistaken, or that Sam had learned lessons and matured over the intervening years. I thought this view was held by a number of people who’d left Alameda; since the collapse I checked with several of those who left, who have confirmed that was their view.[2]
This picture was supported by actions taken by people who’d previously worked at Alameda. Over the course of 2022, former Alameda employees, investors or advisors with former grievances against Sam did things like: advise Future Fund, work as a Future Fund regranter, accept a grant from Future Fund, congratulate Nick on his new position, trade on FTX, or even hold a significant fraction of their net worth on FTX. People who left early Alameda, including very core people, were asked for advice prior to working for FTX Foundation by people who had offers to work there; as far as I know, none of them advised against working for Sam.
I was also in contact with a few former Alameda people over 2022: as far as I remember, none of them raised concerns to me. And shortly after the collapse, one of the very most core people who left early Alameda, with probably the most animosity towards Sam, messaged me to say that they were as surprised as anyone, that they thought it was reasonable to regard the early Alameda split as a typical cofounder fallout, and that even they had come to think that Alameda and FTX had overcome their early issues and so they had started to trade on FTX.[3][4]
I wish I’d been able to clear this up as soon as the TIME article was released, and I’m sorry that this means there’s been such a long period of people having question marks about this. There was a failure where at the time I thought I was going to be able to talk publicly about this just a few weeks later, but then that moment in time kept getting delayed.
Sam was on the board of CEA US at the time (early 2018). Around that time, after the dispute, I asked the investor that I was in touch with whether Sam should be removed from the board, and the investor said there was no need. A CEA employee (who wasn’t connected to Alameda) brought up the idea that Sam should transition off the board, because he didn’t help improve diversity of the board, didn’t provide unique skills or experience, and that CEA now employed former Alameda employees who were unhappy with him. Over the course of the year that followed, Sam was also becoming busier and less available. In mid-2019, we decided to start to reform the board, and Sam agreed to step down.
In addition, one former Alameda employee, who I was not particularly in touch with, made the following comment in March 2023. It was a comment on a private googledoc (written by someone other than me), but they gave me permission to share:
“If you’d asked me about Sam six months ago I probably would have said something like “He plays hardball and is kind of miserable to work under if you want to be treated as an equal, but not obviously more so than other successful business people.” (Think Elon Musk, etc.)
“Personally, I’m not willing to be an asshole in order to be successful, but he’s the one with the billions and he comprehensively won on our biggest concrete disagreements so shrug. Maybe he reformed, or maybe this is how you have to be.”
As far as I was concerned that impression was mostly relevant to people considering working with or for Sam directly, and I shared it pretty freely when that came up.
Saying anything more negative still feels like it would have been a tremendous failure to update after reality turned out not at all like I thought it would when I left Alameda in 2018 (I thought Alameda would blow up and that FTX was a bad idea which played to none of our strengths).
Basically I think this and other sections [of the googledoc] are acting like people had current knowledge of bad behaviour which they feared sharing, as opposed to historical knowledge of bad behaviour which tended to be accompanied by doomy predictions that seemed to have been comprehensively proven false. Certainly I had just conceded epistemic defeat on this issue.”
On an older draft of this comment (which was substantively similar) I asked several people who left Alameda in 2018 (or reduced their investment) to check the above six paragraphs, and they told me they thought the paragraphs were accurate.
I broadly agree with the picture and it matches my perception.
That said, I’m also aware of specific people who held significant reservations about SBF and FTX throughout the end of 2021 (though perhaps not in 2022 anymore), based on information that was distinct from the 2018 disputes. This involved things like:
predicting a 10% annual risk of FTX collapsing with FTX investors and the Future Fund (though not customers)FTX investors, the Future Fund, and possibly customers losing all of their money,
[edit: I checked my prediction logs and I actually did predict a 10% annual risk of loss of customer funds in November 2021, though I lowered that to 5% in March 2022. Note that I predicted hacks and investment losses, but not fraud.]
recommending in favor of ‘Future Fund’ and against ‘FTX Future Fund’ or ‘FTX Foundation’ branding, and against further affiliation with SBF,
warnings that FTX was spending its US dollar assets recklessly, including propping up the price of its own tokens by purchasing large amounts of them on open markets (separate from the official buy & burns),
concerns about Sam continuing to employ very risky and reckless business practices throughout 2021.
I think several people had pieces of the puzzle but failed to put them together or realize the significance of it all. E.g. I told a specific person about all of the above issues, but they didn’t have a ‘holy shit’ reaction, and when I later checked with them they had forgotten most of the information I had shared with them.
I also tried to make several further conversations about these concerns happen, but it was pretty hard because many people were often busy and not interested, or worried about the significant risks from sharing sensitive information. Also, with the benefit of hindsight, I clearly didn’t try hard enough.
I also think it was (and I think still is) pretty unclear what, if anything, should’ve been done at the time, so it’s unclear how action-relevant any of this would’ve been.
It’s possible that most of this didn’t reach Will (perhaps partly because many, including myself, perceived him as more of an SBF supporter). I certainly don’t think these worries were as widely disseminated as they should’ve been.
A meta thing that frustrates me here is I haven’t seen much talking about incentive structures. The obvious retort to negative anecdotal evidence is the anecdotal evidence Will cited about people who had previous expressed concerns who continued to affiliate with FTX and the FTXFF, but to me, this evidence is completely meaningless because continuing to affiliate with FTX and FTXFF meant a closer proximity to money. As a corollary, the people who refused to affiliate with them did so at significant personal & professional cost for that two-year period.
Of course you had a hard time voicing these concerns! Everyone’s salaries depended on them not knowing or disseminating this information! (I am not here to accuse anyone of a cover-up, these things usually happen much less perniciously and much more subconsciously)
predicting a 10% annual risk of FTX collapsing with FTX investors and the Future Fund (though not customers) losing all of their money,
Do you know if this person made any money off of this prediction? I know that shorting cryptocurrency is challenging, and maybe the annual fee from taking the short side of a perpetual future would be larger than 10%, not sure, but surely once the FTX balance sheet started circulating that should have increased the odds that the collapse would happen on a short time scale enough for this trade to be profitable?[1]
A 10–15% annual risk was predicted by a bunch of people up until late 2021, but I’m not aware of anyone believing that in late 2022, and Will points out that Metaculus was predicting ~1.3% at the time. I personally updated downwards on the risk because 1) crypto markets crashed, but FTX didn’t, which seems like a positive sign, 2) Sequoia invested, 3) they got a GAAP audit.
I don’t think there was a great implementation of the trade. Shorting FTT on Binance was probably a decent way to do it, but holding funds on Binance for that purpose is risky and costly in itself.
That said, I’m aware that some people (not including myself) closely monitored the balance sheet issue and subsequent FTT liquidations, and withdrew their full balances a couple days before the collapse.
Is a 10-15% annual risk of failure for a two-year-old startup alarming? I thought base rates were higher, which makes me think I’m misunderstanding your comment.
You also mention that the 10% was without loss of costumer funds, but the Metaculus 1.3% was about loss of costumer funds, which seems very different.
10% chance of yearly failure without loss of customer funds seems more than reasonable, even after Sequoia invested, in such a high-variance environment, and not necessarily a red flag.
A 10-15% annual risk of startup failure is not alarming, but a comparable risk of it losing customer funds is. Your comment prompted me to actually check my prediction logs, and I made the following edit to my original comment:
predicting a 10% annual risk of FTX collapsing with FTX investors and the Future Fund (though not customers)FTX investors, the Future Fund, and possibly customers losing all of their money,
[edit: I checked my prediction logs and I actually did predict a 10% annual risk of loss of customer funds in November 2021, though I lowered that to 5% in March 2022. Note that I predicted hacks and investment losses, but not fraud.]
Is the better reference class “two-year old startups” or “companies supposedly worth over $10B” or “startups with over a billion invested”? I assume a 100 percent investor loss would be rare, on an annualized basis, in the latter two—but was included in the original claim. Most two-year startups don’t have nearly the amount of investor money on board that FTX did.
Optics would be great on that one—an EA has insight that there’s a good chance of FTX collapse (based on not generally-known info / rumors?), goes out and shorts SamCoins to profit on the collapse! Recall that any FTX collapse would gut the FTT token at least, so there would still be big customer losses.
Gutting the FTT token is customers losing money because of their investing, not customer losses via FTX loss of custodial funds or token, though, isn’t it?
That’s correct. That being said, wasn’t part of the value proposition of FTT that it gave you discounts on FTX? To that extent, it was somewhat like a partial gift certificate for future services. That’s still not loss of deposited funds, of course.
In any event, the public would not look kindly on a charitable movement accepting nine figures in donations from a company despite having strong semi-inside-knowledge reasons to believe said company was about to collapse in this manner. I was somewhat surprised to see encouragement to disclose information about anyone who traded on that kind of semi-insider knowledge.
Based on some of the follow-up questions, I decided to share this specific example of my thinking at the time (which didn’t prevent me from losing some of my savings in the bankruptcy):
Do you recall what your conception of a possible customer loss resulting “from bankruptcy” was, and in particular whether it was (at least largely) limited to “monies lent out for margin trading”? Although I haven’t done any research, if user accounts had been appropriately segregated and safeguarded, FTX’s creditors (in a hypothetical “normal” bankruptcy scenario) shouldn’t have been able to make claims against them. There might have been an exception for those involved in margin trading
I recall feeling most worried about hacks resulting in loss of customer funds, including funds not lent out for margin trading. I was also worried about risky investments or trades resulting in depleting cash reservers that could be used to make up for hacking losses.
I don’t think I ever generated the thought “customer monies need to be segregated, and they might not be”, primarily because at the time I wasn’t familiar with financial regulations.
E.g. in 2023 I ran across an article written in ~2018 that commented an SIPC payout in a case of a broker co-mingling customer funds with an associated trading firm. If I had read that article in 2021, I would have probably suspected FTX of doing this.
Thanks for writing up these thoughts Will, it is great to see you weighing in on these topics.
I’m unclear on one point (related to Elizabeth’s comments) around what you heard from former Alameda employees when you were initially learning about the dispute. Did you hear any concerns specifically about Sam’s unethical behavior, and if so, did these concerns constitute a nontrivial share of the total concerns you heard?
I ask because in this comment and on Spencer’s podcast (at ~00:13:32), you characterize the concerns you heard about almost identically. In both cases, you mention a bunch of specific concerns you had heard (company was losing money, Sam’s too risky, he’s a bad manager, he wanted to double down rather than accept a lower return), but they all relate to Sam’s business acumen/competence and there’s no mention of ethical issues. So I’m hoping you can clarify why there’s a discrepancy with Time’s reporting, which specifically mentions that ethical concerns were a significant point of emphasis and that these were communicated directly to you:
[Alameda co-founders wrote a document that] “accuses Bankman-Fried of dismissing calls for stronger accounting and inflating the expected value of adding new exchanges, and said a majority of employees thought he was “negligent” and “unethical.” It also alleges he was “misreporting numbers” and “failing to update investors on poor performance.” The team “didn’t trust Sam to be in investor meetings alone,” colleagues wrote. “Sam will lie, and distort the truth for his own gain,” the document says.
…Mac Aulay and others warned MacAskill, Beckstead and Karnofsky about her co-founder’s alleged duplicity and unscrupulous business ethics, according to four people with knowledge of those discussions. Mac Aulay specifically flagged her concerns about Bankman-Fried’s honesty and trustworthiness, his maneuvering to control 100% of the company despite promising otherwise, his pattern of unethical behavior, and his inappropriate relationships with subordinates, sources say.
It seems there was a lot of information floating around but no one saw it as their responsibility to check whether SBF was fine and there was no central person for information to be given to. Is that correct?
Has anything been done to change this going forward?
From personal experience, I thought community health would be responsible, and approached them about some concerns I had, but they were under-resourced in several ways.
I normally think of community health as dealing with interpersonal stuff, and wouldn’t have expected them to be equipped to evaluate whether a business was being run responsibly. It seems closer to some of the stuff they’re doing now, but at the time the team was pretty constrained by available staff time (and finding it difficult to hire), so I wouldn’t expect them to have been doing anything outside of their core competency.
Maybe a lesson is that we should be / should have been clearer about scopes, so there’s more of an opportunity to notice when something doesn’t belong to anyone?
I think the fitness/suitability of major leaders (at least to the extent we are talking about a time when SBF was on the board) and major donor acceptability evaluation are inherently in scope for any charitable organization or movement.
Do most charitable organizations have in-house people to examine donors? I’m not saying we shouldn’t check, but rather that there shouldn’t be people in EA organizations whose job is to do this—rather than organizations just hiring auditors or whomever to do it for them.
Charitable organisations generally do due diligence on large donors and will most likely do this in-house in most cases (perhaps with some external support) - very large organisations (eg Universities) will usually have a specialised in-house team independent from the rest of the operations to do this. It is also likely that at least the larger EA organisations did do due diligence on donations from Sam/FTX, they just decided on balance that it’s fine to take the donation.
EV should have due diligence processes in place, instigated by EA’s first encounter with a disgraced crypto billionaire/major EA donor (Ben Delo).
In February 2021, CEA (the EV rebrand hadn’t happened yet) wrote:
Here’s an update from CEA’s operations team, which has been working on updating our practices for handling donations. This also applies to other organizations that are legally within CEA (80,000 Hours, Giving What We Can, Forethought Foundation, and EA Funds).
“We are working with our lawyers to devise and implement an overarching policy for due diligence on all of our donors and donations going forward.
We’ve engaged a third party who now conducts KYC (know your client) due diligence research on all major donors (>$20K a year).
We have established a working relationship with TRM who conduct compliance and back-tracing for all crypto donations.
It’s unclear from that whether the due diligence scaled appropriately with size of donation. I doubt ~anyone is batting an eye at charities that took 25K-50K from SBF, due diligence or no. The process at the tens of millions per year level needs to be bespoke, though.
Yeah, fully agree with this. I hope now that EV and/or EV-affiliated people are talking more about this matter that they’ll be willing to share what specific due diligence was done before accepting SBF’s gifts and what their due diligence policies look like more generally.
Unclear, although most nonprofits are attracting significantly less risky donors than crypto people. (SBF wasn’t even the first crypto scammer sentenced to a multidecade term in the Southern District of New York in the past twelve months....)
I’d suggest that even to the extent a non-profit is generally outsourcing that kind of work, it can’t just rely on standard third-party practices where significant information with some indicia of reliability is brought directly to it.
I don’t think the EA movement as a whole can sensibly be assigned a scope, really. But I think we should collectively be open to doing whatever reasonably practicable, ethical things seem most important, without restricting ourselves to only certain kinds of behaviour fitting that description.
This is who I thought would be responsible too, along with the CEO of CEA, that they report to, (and those working for the FTX Future Fund, although their conflictedness means they can’t give an unbiased evaluation). But since the FTX catastrophe, the community health team has apparently broadened their mandate to include “epistemic health” and “Special Projects”, rather than narrowing it to focus just on catastrophic risks to the community, which would seem to make EA less resilient in one regard, than it was before.
Of course I’m not necessarily saying that it was possible to put the pieces together ahead of time, just that if there was one group responsible for trying, they were it.
Surely one obvious person with this responsibility was Nick Beckstead, who became President of the FTX Foundation in November 2021. That was the key period where EA partnered with FTX. Beckstead had long experience in grantmaking, credibility, and presumably incentive/ability to do due diligence. Seems clear to me from these podcasts that MacAskill (and to a lesser extent the more junior employees who joined later) deferred to Beckstead.
My understanding is that this wasn’t a benign management dispute, it was an ethical dispute about whether to disclose to investors that Alameda had misplaced $4m. SBF’s refusal to do so sure seems of a piece with FTX’s later issues.
I do not remember being entirely or even primarily motivated by that issue. I’m not sure where Matt is getting this from, though in his defense he’s writing pretty flippantly.
Matt Levine is quoting from Going Infinite. I do not know who Michael Lewis’s source is. I’ve heard confirming bits and pieces privately, which makes me trust this public version more. Of course that doesn’t mean that was everyone’s motivation: I’d be very interested to hear whatever you’re able to share.
Thanks, that makes sense. I didn’t remember Going Infinite as having made such a strong claim, but maybe I was projecting my own knowledge into the book.
I looked back at the agenda for our resignation/buyout meeting and I don’t see anything like “didn’t disclose misplaced transfer money to investors”. Which doesn’t mean that no one had this concern, only that they didn’t add it to the agenda, but I do think it would be misleading to describe this as the central concern of the management team, given that we listed other things in the agenda instead of that.[1]
To preempt a question about what concerns I did have, if not the transfer thing: see my post from last year:
I thought Sam was a bad CEO. I think he literally never prepared for a single one-on-one we had, his habit of playing video games instead of talking to you was “quirky” when he was a billionaire but aggravating when he was my manager, and my recollection is that Alameda made less money in the time I was there than if it had just simply bought and held bitcoin.
I’m not sure if I would describe the above as a “benign management dispute” (it certainly didn’t feel benign to me at the time), but I think it’s even less accurate to describe it as being about the misplaced transfers
that makes sense, sounds like it wasn’t the concern for at least your group. He does describe it as “The rest of the management team was horrified and quit in a huff, loudly telling the investors that Bankman-Fried was dishonest and reckless”, so unless there were multiple waves of management quitting it sounds like the book conflated multiple stories.
Just to clarify, it seems that “The rest of the management team was horrified and quit in a huff, loudly telling the investors that Bankman-Fried was dishonest and reckless” is from Matt Levine, not from Michael Lewis.
I’m quickly skimming the relevant parts of Going Infinite, and it seems to me that Lewis highlights other issues as even more relevant than the missing $4M
I think this was an example of a disagreement they had, but not the whole disagreement. (Another alleged example was the thing where Tara didn’t want Sam to run some trading algorithm unattended, which he agreed to and then did anyway.)
There part where SBF committed to something important in his trading company and then broke the agreement also seems more predictive of fraud than suggested by the phrase “management dispute”.
People rarely leave over one thing and different people leave over different reasons. But I expect people hearing “left over ethics disputes” to walk away with a more accurate understanding than “left over a management dispute” (and more details to either sentence would be welcome).
Yeah sorry I didn’t intend to disagree with you on whether it was a management dispute or an ethics dispute, just that it wasn’t only the issue you explicitly named.
What I heard from former Alameda people
A number of people have asked about what I heard and thought about the split at early Alameda. I talk about this on the Spencer podcast, but here’s a summary. I’ll emphasise that this is me speaking about my own experience; I’m not speaking for others.
In early 2018 there was a management dispute at Alameda Research. The company had started to lose money, and a number of people were unhappy with how Sam was running the company. They told Sam they wanted to buy him out and that they’d leave if he didn’t accept their offer; he refused and they left.
I wasn’t involved in the dispute; I heard about it only afterwards. There were claims being made on both sides and I didn’t have a view about who was more in the right, though I was more in touch with people who had left or reduced their investment. That included the investor who was most closely involved in the dispute, who I regarded as the most reliable source.
It’s true that a number of people, at the time, were very unhappy with Sam, and I spoke to them about that. They described him as reckless, uninterested in management, bad at managing conflict, and being unwilling to accept a lower return, instead wanting to double down. In hindsight, this was absolutely a foreshadowing of what was to come. At the time, I believed the view, held by those that left, that Aladema had been a folly project that was going to fail.[1]
As of late 2021, the early Alameda split made me aware that Sam might be difficult to work with. But there are a number of reasons why it didn’t make me think I shouldn’t advise his foundation, or that he might be engaging in fraud.
The main investor who was involved in the 2018 dispute and negotiations — and who I regarded as largely “on the side” of those who left (though since the collapse they’ve emphasised to me they didn’t regard themselves as “taking sides”) — continued to invest in Alameda, though at a lower amount, after the dispute. This made me think that what was at issue, in the dispute, was whether the company was being well-run and would be profitable, not whether Sam was someone one shouldn’t work with.
The view of those that left was that Alameda was going to fail. When, instead, it and FTX were enormously successful, and had received funding from leading VCs like Blackrock and Sequoia, this suggested that those earlier views had been mistaken, or that Sam had learned lessons and matured over the intervening years. I thought this view was held by a number of people who’d left Alameda; since the collapse I checked with several of those who left, who have confirmed that was their view.[2]
This picture was supported by actions taken by people who’d previously worked at Alameda. Over the course of 2022, former Alameda employees, investors or advisors with former grievances against Sam did things like: advise Future Fund, work as a Future Fund regranter, accept a grant from Future Fund, congratulate Nick on his new position, trade on FTX, or even hold a significant fraction of their net worth on FTX. People who left early Alameda, including very core people, were asked for advice prior to working for FTX Foundation by people who had offers to work there; as far as I know, none of them advised against working for Sam.
I was also in contact with a few former Alameda people over 2022: as far as I remember, none of them raised concerns to me. And shortly after the collapse, one of the very most core people who left early Alameda, with probably the most animosity towards Sam, messaged me to say that they were as surprised as anyone, that they thought it was reasonable to regard the early Alameda split as a typical cofounder fallout, and that even they had come to think that Alameda and FTX had overcome their early issues and so they had started to trade on FTX.[3][4]
I wish I’d been able to clear this up as soon as the TIME article was released, and I’m sorry that this means there’s been such a long period of people having question marks about this. There was a failure where at the time I thought I was going to be able to talk publicly about this just a few weeks later, but then that moment in time kept getting delayed.
Sam was on the board of CEA US at the time (early 2018). Around that time, after the dispute, I asked the investor that I was in touch with whether Sam should be removed from the board, and the investor said there was no need. A CEA employee (who wasn’t connected to Alameda) brought up the idea that Sam should transition off the board, because he didn’t help improve diversity of the board, didn’t provide unique skills or experience, and that CEA now employed former Alameda employees who were unhappy with him. Over the course of the year that followed, Sam was also becoming busier and less available. In mid-2019, we decided to start to reform the board, and Sam agreed to step down.
In addition, one former Alameda employee, who I was not particularly in touch with, made the following comment in March 2023. It was a comment on a private googledoc (written by someone other than me), but they gave me permission to share:
“If you’d asked me about Sam six months ago I probably would have said something like “He plays hardball and is kind of miserable to work under if you want to be treated as an equal, but not obviously more so than other successful business people.” (Think Elon Musk, etc.)
“Personally, I’m not willing to be an asshole in order to be successful, but he’s the one with the billions and he comprehensively won on our biggest concrete disagreements so shrug. Maybe he reformed, or maybe this is how you have to be.”
As far as I was concerned that impression was mostly relevant to people considering working with or for Sam directly, and I shared it pretty freely when that came up.
Saying anything more negative still feels like it would have been a tremendous failure to update after reality turned out not at all like I thought it would when I left Alameda in 2018 (I thought Alameda would blow up and that FTX was a bad idea which played to none of our strengths).
Basically I think this and other sections [of the googledoc] are acting like people had current knowledge of bad behaviour which they feared sharing, as opposed to historical knowledge of bad behaviour which tended to be accompanied by doomy predictions that seemed to have been comprehensively proven false. Certainly I had just conceded epistemic defeat on this issue.”
They also thought, though, that the FTX collapse should warrant serious reflection about the culture in EA.
On an older draft of this comment (which was substantively similar) I asked several people who left Alameda in 2018 (or reduced their investment) to check the above six paragraphs, and they told me they thought the paragraphs were accurate.
I broadly agree with the picture and it matches my perception.
That said, I’m also aware of specific people who held significant reservations about SBF and FTX throughout the end of 2021 (though perhaps not in 2022 anymore), based on information that was distinct from the 2018 disputes. This involved things like:
predicting a 10% annual risk of FTX collapsing with
FTX investors and the Future Fund (though not customers)FTX investors, the Future Fund, and possibly customers losing all of their money,[edit: I checked my prediction logs and I actually did predict a 10% annual risk of loss of customer funds in November 2021, though I lowered that to 5% in March 2022. Note that I predicted hacks and investment losses, but not fraud.]
recommending in favor of ‘Future Fund’ and against ‘FTX Future Fund’ or ‘FTX Foundation’ branding, and against further affiliation with SBF,
warnings that FTX was spending its US dollar assets recklessly, including propping up the price of its own tokens by purchasing large amounts of them on open markets (separate from the official buy & burns),
concerns about Sam continuing to employ very risky and reckless business practices throughout 2021.
I think several people had pieces of the puzzle but failed to put them together or realize the significance of it all. E.g. I told a specific person about all of the above issues, but they didn’t have a ‘holy shit’ reaction, and when I later checked with them they had forgotten most of the information I had shared with them.
I also tried to make several further conversations about these concerns happen, but it was pretty hard because many people were often busy and not interested, or worried about the significant risks from sharing sensitive information. Also, with the benefit of hindsight, I clearly didn’t try hard enough.
I also think it was (and I think still is) pretty unclear what, if anything, should’ve been done at the time, so it’s unclear how action-relevant any of this would’ve been.
It’s possible that most of this didn’t reach Will (perhaps partly because many, including myself, perceived him as more of an SBF supporter). I certainly don’t think these worries were as widely disseminated as they should’ve been.
A meta thing that frustrates me here is I haven’t seen much talking about incentive structures. The obvious retort to negative anecdotal evidence is the anecdotal evidence Will cited about people who had previous expressed concerns who continued to affiliate with FTX and the FTXFF, but to me, this evidence is completely meaningless because continuing to affiliate with FTX and FTXFF meant a closer proximity to money. As a corollary, the people who refused to affiliate with them did so at significant personal & professional cost for that two-year period.
Of course you had a hard time voicing these concerns! Everyone’s salaries depended on them not knowing or disseminating this information! (I am not here to accuse anyone of a cover-up, these things usually happen much less perniciously and much more subconsciously)
Do you know if this person made any money off of this prediction? I know that shorting cryptocurrency is challenging, and maybe the annual fee from taking the short side of a perpetual future would be larger than 10%, not sure, but surely once the FTX balance sheet started circulating that should have increased the odds that the collapse would happen on a short time scale enough for this trade to be profitable?[1]
I feel like I asked you this before but I forgot the answer, sorry.
I don’t think so, because:
A 10–15% annual risk was predicted by a bunch of people up until late 2021, but I’m not aware of anyone believing that in late 2022, and Will points out that Metaculus was predicting ~1.3% at the time. I personally updated downwards on the risk because 1) crypto markets crashed, but FTX didn’t, which seems like a positive sign, 2) Sequoia invested, 3) they got a GAAP audit.
I don’t think there was a great implementation of the trade. Shorting FTT on Binance was probably a decent way to do it, but holding funds on Binance for that purpose is risky and costly in itself.
That said, I’m aware that some people (not including myself) closely monitored the balance sheet issue and subsequent FTT liquidations, and withdrew their full balances a couple days before the collapse.
Is a 10-15% annual risk of failure for a two-year-old startup alarming? I thought base rates were higher, which makes me think I’m misunderstanding your comment.
You also mention that the 10% was without loss of costumer funds, but the Metaculus 1.3% was about loss of costumer funds, which seems very different.
10% chance of yearly failure without loss of customer funds seems more than reasonable, even after Sequoia invested, in such a high-variance environment, and not necessarily a red flag.
A 10-15% annual risk of startup failure is not alarming, but a comparable risk of it losing customer funds is. Your comment prompted me to actually check my prediction logs, and I made the following edit to my original comment:
Is the better reference class “two-year old startups” or “companies supposedly worth over $10B” or “startups with over a billion invested”? I assume a 100 percent investor loss would be rare, on an annualized basis, in the latter two—but was included in the original claim. Most two-year startups don’t have nearly the amount of investor money on board that FTX did.
Thanks! That’s helpful. In particular, I wasn’t tracking the 2021 versus 2022 thing.
(See my edit)
Optics would be great on that one—an EA has insight that there’s a good chance of FTX collapse (based on not generally-known info / rumors?), goes out and shorts SamCoins to profit on the collapse! Recall that any FTX collapse would gut the FTT token at least, so there would still be big customer losses.
Gutting the FTT token is customers losing money because of their investing, not customer losses via FTX loss of custodial funds or token, though, isn’t it?
That’s correct. That being said, wasn’t part of the value proposition of FTT that it gave you discounts on FTX? To that extent, it was somewhat like a partial gift certificate for future services. That’s still not loss of deposited funds, of course.
In any event, the public would not look kindly on a charitable movement accepting nine figures in donations from a company despite having strong semi-inside-knowledge reasons to believe said company was about to collapse in this manner. I was somewhat surprised to see encouragement to disclose information about anyone who traded on that kind of semi-insider knowledge.
Based on some of the follow-up questions, I decided to share this specific example of my thinking at the time (which didn’t prevent me from losing some of my savings in the bankruptcy):
Do you recall what your conception of a possible customer loss resulting “from bankruptcy” was, and in particular whether it was (at least largely) limited to “monies lent out for margin trading”? Although I haven’t done any research, if user accounts had been appropriately segregated and safeguarded, FTX’s creditors (in a hypothetical “normal” bankruptcy scenario) shouldn’t have been able to make claims against them. There might have been an exception for those involved in margin trading
I recall feeling most worried about hacks resulting in loss of customer funds, including funds not lent out for margin trading. I was also worried about risky investments or trades resulting in depleting cash reservers that could be used to make up for hacking losses.
I don’t think I ever generated the thought “customer monies need to be segregated, and they might not be”, primarily because at the time I wasn’t familiar with financial regulations.
E.g. in 2023 I ran across an article written in ~2018 that commented an SIPC payout in a case of a broker co-mingling customer funds with an associated trading firm. If I had read that article in 2021, I would have probably suspected FTX of doing this.
Thanks for writing up these thoughts Will, it is great to see you weighing in on these topics.
I’m unclear on one point (related to Elizabeth’s comments) around what you heard from former Alameda employees when you were initially learning about the dispute. Did you hear any concerns specifically about Sam’s unethical behavior, and if so, did these concerns constitute a nontrivial share of the total concerns you heard?
I ask because in this comment and on Spencer’s podcast (at ~00:13:32), you characterize the concerns you heard about almost identically. In both cases, you mention a bunch of specific concerns you had heard (company was losing money, Sam’s too risky, he’s a bad manager, he wanted to double down rather than accept a lower return), but they all relate to Sam’s business acumen/competence and there’s no mention of ethical issues. So I’m hoping you can clarify why there’s a discrepancy with Time’s reporting, which specifically mentions that ethical concerns were a significant point of emphasis and that these were communicated directly to you:
It seems there was a lot of information floating around but no one saw it as their responsibility to check whether SBF was fine and there was no central person for information to be given to. Is that correct?
Has anything been done to change this going forward?
From personal experience, I thought community health would be responsible, and approached them about some concerns I had, but they were under-resourced in several ways.
I normally think of community health as dealing with interpersonal stuff, and wouldn’t have expected them to be equipped to evaluate whether a business was being run responsibly. It seems closer to some of the stuff they’re doing now, but at the time the team was pretty constrained by available staff time (and finding it difficult to hire), so I wouldn’t expect them to have been doing anything outside of their core competency.
Maybe a lesson is that we should be / should have been clearer about scopes, so there’s more of an opportunity to notice when something doesn’t belong to anyone?
I’d argue that “checking whether businesses are run responsibly” is out of scope for EA in general.
I think the fitness/suitability of major leaders (at least to the extent we are talking about a time when SBF was on the board) and major donor acceptability evaluation are inherently in scope for any charitable organization or movement.
Do most charitable organizations have in-house people to examine donors? I’m not saying we shouldn’t check, but rather that there shouldn’t be people in EA organizations whose job is to do this—rather than organizations just hiring auditors or whomever to do it for them.
Charitable organisations generally do due diligence on large donors and will most likely do this in-house in most cases (perhaps with some external support) - very large organisations (eg Universities) will usually have a specialised in-house team independent from the rest of the operations to do this. It is also likely that at least the larger EA organisations did do due diligence on donations from Sam/FTX, they just decided on balance that it’s fine to take the donation.
EV should have due diligence processes in place, instigated by EA’s first encounter with a disgraced crypto billionaire/major EA donor (Ben Delo).
In February 2021, CEA (the EV rebrand hadn’t happened yet) wrote:
It’s unclear from that whether the due diligence scaled appropriately with size of donation. I doubt ~anyone is batting an eye at charities that took 25K-50K from SBF, due diligence or no. The process at the tens of millions per year level needs to be bespoke, though.
Yeah, fully agree with this. I hope now that EV and/or EV-affiliated people are talking more about this matter that they’ll be willing to share what specific due diligence was done before accepting SBF’s gifts and what their due diligence policies look like more generally.
Unclear, although most nonprofits are attracting significantly less risky donors than crypto people. (SBF wasn’t even the first crypto scammer sentenced to a multidecade term in the Southern District of New York in the past twelve months....)
I’d suggest that even to the extent a non-profit is generally outsourcing that kind of work, it can’t just rely on standard third-party practices where significant information with some indicia of reliability is brought directly to it.
I don’t think the EA movement as a whole can sensibly be assigned a scope, really. But I think we should collectively be open to doing whatever reasonably practicable, ethical things seem most important, without restricting ourselves to only certain kinds of behaviour fitting that description.
I definitely agree. But I think we’re far from it being practically useful for dedicated EAs to do this themselves.
This is who I thought would be responsible too, along with the CEO of CEA, that they report to, (and those working for the FTX Future Fund, although their conflictedness means they can’t give an unbiased evaluation). But since the FTX catastrophe, the community health team has apparently broadened their mandate to include “epistemic health” and “Special Projects”, rather than narrowing it to focus just on catastrophic risks to the community, which would seem to make EA less resilient in one regard, than it was before.
Of course I’m not necessarily saying that it was possible to put the pieces together ahead of time, just that if there was one group responsible for trying, they were it.
Surely one obvious person with this responsibility was Nick Beckstead, who became President of the FTX Foundation in November 2021. That was the key period where EA partnered with FTX. Beckstead had long experience in grantmaking, credibility, and presumably incentive/ability to do due diligence. Seems clear to me from these podcasts that MacAskill (and to a lesser extent the more junior employees who joined later) deferred to Beckstead.
Yes, that’s who I meant when I said “those working for the FTX Future Fund”
My understanding is that this wasn’t a benign management dispute, it was an ethical dispute about whether to disclose to investors that Alameda had misplaced $4m. SBF’s refusal to do so sure seems of a piece with FTX’s later issues.
I do not remember being entirely or even primarily motivated by that issue. I’m not sure where Matt is getting this from, though in his defense he’s writing pretty flippantly.
Matt Levine is quoting from Going Infinite. I do not know who Michael Lewis’s source is. I’ve heard confirming bits and pieces privately, which makes me trust this public version more. Of course that doesn’t mean that was everyone’s motivation: I’d be very interested to hear whatever you’re able to share.
Thanks, that makes sense. I didn’t remember Going Infinite as having made such a strong claim, but maybe I was projecting my own knowledge into the book.
I looked back at the agenda for our resignation/buyout meeting and I don’t see anything like “didn’t disclose misplaced transfer money to investors”. Which doesn’t mean that no one had this concern, only that they didn’t add it to the agenda, but I do think it would be misleading to describe this as the central concern of the management team, given that we listed other things in the agenda instead of that.[1]
To preempt a question about what concerns I did have, if not the transfer thing: see my post from last year:
I’m not sure if I would describe the above as a “benign management dispute” (it certainly didn’t feel benign to me at the time), but I think it’s even less accurate to describe it as being about the misplaced transfers
that makes sense, sounds like it wasn’t the concern for at least your group. He does describe it as “The rest of the management team was horrified and quit in a huff, loudly telling the investors that Bankman-Fried was dishonest and reckless”, so unless there were multiple waves of management quitting it sounds like the book conflated multiple stories.
Just to clarify, it seems that “The rest of the management team was horrified and quit in a huff, loudly telling the investors that Bankman-Fried was dishonest and reckless” is from Matt Levine, not from Michael Lewis.
I’m quickly skimming the relevant parts of Going Infinite, and it seems to me that Lewis highlights other issues as even more relevant than the missing $4M
I think this was an example of a disagreement they had, but not the whole disagreement. (Another alleged example was the thing where Tara didn’t want Sam to run some trading algorithm unattended, which he agreed to and then did anyway.)
There part where SBF committed to something important in his trading company and then broke the agreement also seems more predictive of fraud than suggested by the phrase “management dispute”.
People rarely leave over one thing and different people leave over different reasons. But I expect people hearing “left over ethics disputes” to walk away with a more accurate understanding than “left over a management dispute” (and more details to either sentence would be welcome).
Yeah sorry I didn’t intend to disagree with you on whether it was a management dispute or an ethics dispute, just that it wasn’t only the issue you explicitly named.