Why is the escrow deposit still sitting somewhere? Some quick online research (so take it with a grain of salt) makes it sound like the escrow process usually takes 4 to 8 weeks in California—so this seems significantly long, in comparison.
Can you clarify when you received these grants and the escrow money? The complaint filed by FTX (documents here, for anyone interested) have the dates of transfers as March 3, July 8, July 13, August 18, September 20, and October 3, all in 2022—so well within the timeframe that might be subject to clawbacks, and well within the bankruptcy lookback period. (For a comparison point, EV US and EV UK paid the FTX estate an amount equal to all the funds the entities received in 2022.)
Why would you not proactively return this money or settle with the FTX estate, given the money came from FTX and could have been originally obtained in fraudulent ways? My prior is that you (Oliver Habryka) have written multiple times on the Forum about the harm EA may have caused related to FTX and wish it could have been prevented, so somehow it seems strange to me that you wouldn’t take the opportunity to return money that came from FTX, especially when it could have been obtained in harmful, unethical ways.
Did you in fact ignore FTX’s attempts to contact you in 2023, as the complaint says? And if so, why?
I also think it’s worth pointing out that in bankruptcy cases, especially regarding clawbacks, the question of whether you have a legal obligation to return the money isn’t a question of whether you currently have the $5M of FTX money sitting around or whether you’ve already allocated or used it. Demonstrating that you’ve spent the funds on legitimate charitable activities might strengthen your case, but that doesn’t guarantee protection from clawback attempts.
Why is the escrow deposit still sitting somewhere? Some quick online research (so take it with a grain of salt) makes it sound like the escrow process usually takes 4 to 8 weeks in California—so this seems significantly long, in comparison.
I am also confused (and very frustrated by this). The key thing to understand here is that the escrow was due to be returned right around the time when FTX went bankrupt (the sale was completed on the 4th of November, FTX filed for bankruptcy November 11), so this meant that none of my contacts at FTX were there to facilitate the return of the escrow, and there was presumably enough chaos for multiple weeks that the escrow’s company’s attempt to reach out to North Dimension Inc. at their usual address and contact information were unsuccessful. After a few weeks the escrow company asked Lightcone for advice on how to return the funds and we gave them the contact information we had.
Can you clarify when you received these grants and the escrow money? The complaint filed by FTX (documents here, for anyone interested) have the dates of transfers as March 3, July 8, July 13, August 18, September 20, and October 3, all in 2022—so well within the timeframe that might be subject to clawbacks, and well within the bankruptcy lookback period. (For a comparison point, EV US and EV UK paid the FTX estate an amount equal to all the funds the entities received in 2022.)
Yes, the rough timeline here is accurate (I didn’t double check the exact dates and am not confirming that in detail here). All the funds were received in 2022.
Why would you not proactively return this money or settle with the FTX estate, given the money came from FTX and could have been originally obtained in fraudulent ways? My prior is that you (Oliver Habryka) have written multiple times on the Forum about the harm EA may have caused related to FTX and wish it could have been prevented, so somehow it seems strange to me that you wouldn’t take the opportunity to return money that came from FTX, especially when it could have been obtained in harmful, unethical ways.
Well, the key problem was that by the time FTX went bankrupt, and it became clear there was a lot of fraud at FTX, the money had been spent or committed in contracts, there wasn’t much opportunity left to return the funds. Indeed, by early 2023 when the liabilities from our renovation project had cleared and everything was paid, Lightcone had completely ran out of money and indeed was financially in the red until around Q3 2023.
I did fundraise explicitly for money to return to the FTX creditors during our 2023 fundraising, from both the Open Philanthropy project and the Survival and Flourishing Fund, our two biggest funders. Open Philanthropy declined to give us any funds for settlement or return purposes. SFF didn’t explicitly tell us whether the money they gave us was for settlement or return purposes, but we only received barely enough money from them during the 2023 grant round to cover our existing liabilities (and the settlement we offered FTX in a settlement was greater than the amount I think one could conceivably say we fundraised for it).
If Lightcone had been in a position to return funds proactively I likely would have done it.
Did you in fact ignore FTX’s attempts to contact you in 2023, as the complaint says? And if so, why?
Yes, or like, some of them. The central reason here was just that everyone I talked to told me to get representation by a lawyer before talking to FTX, since given that the funds had already been spent, there was a quite high chance there would be some kind of suit or more complicated settlement.
I decided I would be very thorough in my choice of lawyer due to the high stakes, and so I took a long time (multiple months IIRC) interviewing different bankruptcy lawyers. During that time I asked every lawyer I interviewed about how we should respond to the FTX communications. I think literally every lawyer said that we should wait on responding, on the basis of there still being a huge amount of uncertainty and lack of clarity about whether the FTX estate is actually in a position to settle these claims, and that before that issue is cleared, there wouldn’t be much use in talking to them and all information I gave them would be used against me.
I now honestly think the lawyer’s advice to not respond was kind of a mistake (and more broadly think that the type of excuse of “my lawyer told me so” is a bad excuse for immoral behavior in-general, though I personally don’t feel that much guilt about my decision-making process here, since it is a very high-stakes situation, there was consensus among many lawyers I talked to about this, and I did not have any experience whatsoever in navigating legal situations like this).
I also think it’s worth pointing out that in bankruptcy cases, especially regarding clawbacks, the question of whether you have a legal obligation to return the money isn’t a question of whether you currently have the $5M of FTX money sitting around or whether you’ve already allocated or used it. Demonstrating that you’ve spent the funds on legitimate charitable activities might strengthen your case, but that doesn’t guarantee protection from clawback attempts.
Yep, I am well aware. My current take is that bankruptcy law is kind of broken here, and indeed, there are multiple judges who upon delivering judgements against nonprofits that seemed unfair even to them (but where the bankruptcy law gave them little choice) have called for bankruptcy law to be changed to be more protective of nonprofits here.
The legal situation for nonprofits is unfortunate, but I think the potentially workable patches wouldn’t help an org in Lightcone’s shoes very much. IIRC, one state shortened its look back period for charities after many of them got burnt in a fraud.
But all these transfers were within ~7 months. Most of us would prefer our monies go to charity rather than our creditors, so a superfast look back period would incentivize throwing tons of money to charity once the business or person realized the ship was gonna sink.
Protection based on a donor’s good faith wouldn’t help. Protection up to a percentage of profits wouldn’t help given FTX claimed tons of losses on its taxes. Protection based on consistency with a well-established pattern of giving from that donor wouldn’t help.
Equitably, my general take in these situations is that the charity got some value toward its charitable out of the expended donation (although perhaps not the full dollar value). The victims got $0 out of the transaction. So I’d be hesitant to endorse any reforms that didn’t produce some meaningful recoveries for victims in a case like this.
(I have lots of takes here, but my guess is I shouldn’t comment. Overall, agree with you that it’s a tricky situation of the law. I disagree that there aren’t small changes that would help. For example, I think if the Religious Liberty and Charitable Donation Protection Act of 1998 could have considered foundations or corporations as part of its definition of “natural person”, that would have been a substantial improvement. But again, I sadly can’t comment here much, which I find really annoying, also in parts because I find this part of the law quite fascinating and would love to talk about it)
We may not disagree: I had specific elements of Lightcone’s situation in mind when I said “help an org in Lightcone’s shoes very much.” That situation is unfortunately not rare, given the charities that ended up with Madoff-tainted money and Petters-tainted money.
So in that context, the RLCDAP amendments to 11 USC 548 won’t help a charity with a SBF/Madoff/Petters-type problem because they don’t protect charities where the debtor had an “actual intent to hinder, delay, or defraud” creditors under (a)(1)(A). Another reason a small fix might not help here: If Congress were to extend RLCDAP protections to corporations, it would need to decide how big the safe harbor should be. Although RLCDAP gives individuals some room to play bad-faith games, that room is usually fairly limited by the usual relationship between individual’s incomes and assets. I don’t think it would be reasonable to protect nearly as much as FTXFF was handing out under the circumstances. Whatever formula you choose, it has to work for low-margin, high-volume companies (think grocery stores) as well as tech-like companies.
I would have to think more about the extent to which—at least where large donations are involved—strong protection should be dependent on the existence of an acceptable comprehensive audit of the company-donor. Where that isn’t the case, and the donations are fairly large, I might focus relatively more on education of the nonprofit sector about the risks and relatively less about writing them an insurance policy on the creditors’ backs.
In part, I think I’m much more accepting of charitable donations by insolvent individuals than insolvent corporations. A decent number of individuals are insolvent; I certainly would not suggest that they should not donate to charity and instead have some sort of ethical duty to run their lives in a way that maximizes creditor recoveries. In contrast, I am more willing to assign an insolvent corporation has much more rigorous duties to creditors and so am considerably more willing to call out dissipation of assets away from creditors.
Yeah, I agree with that. Mainly, I think I want to signal to the audience that the situation in which orgs find themselves reflects thorny policy tradeoffs rather than a simple goof by Congress. Especially since the base rate of goofs is so high!
Why is the escrow deposit still sitting somewhere? Some quick online research (so take it with a grain of salt) makes it sound like the escrow process usually takes 4 to 8 weeks in California—so this seems significantly long, in comparison.
Can you clarify when you received these grants and the escrow money? The complaint filed by FTX (documents here, for anyone interested) have the dates of transfers as March 3, July 8, July 13, August 18, September 20, and October 3, all in 2022—so well within the timeframe that might be subject to clawbacks, and well within the bankruptcy lookback period. (For a comparison point, EV US and EV UK paid the FTX estate an amount equal to all the funds the entities received in 2022.)
Why would you not proactively return this money or settle with the FTX estate, given the money came from FTX and could have been originally obtained in fraudulent ways? My prior is that you (Oliver Habryka) have written multiple times on the Forum about the harm EA may have caused related to FTX and wish it could have been prevented, so somehow it seems strange to me that you wouldn’t take the opportunity to return money that came from FTX, especially when it could have been obtained in harmful, unethical ways.
Did you in fact ignore FTX’s attempts to contact you in 2023, as the complaint says? And if so, why?
I also think it’s worth pointing out that in bankruptcy cases, especially regarding clawbacks, the question of whether you have a legal obligation to return the money isn’t a question of whether you currently have the $5M of FTX money sitting around or whether you’ve already allocated or used it. Demonstrating that you’ve spent the funds on legitimate charitable activities might strengthen your case, but that doesn’t guarantee protection from clawback attempts.
I am also confused (and very frustrated by this). The key thing to understand here is that the escrow was due to be returned right around the time when FTX went bankrupt (the sale was completed on the 4th of November, FTX filed for bankruptcy November 11), so this meant that none of my contacts at FTX were there to facilitate the return of the escrow, and there was presumably enough chaos for multiple weeks that the escrow’s company’s attempt to reach out to North Dimension Inc. at their usual address and contact information were unsuccessful. After a few weeks the escrow company asked Lightcone for advice on how to return the funds and we gave them the contact information we had.
Yes, the rough timeline here is accurate (I didn’t double check the exact dates and am not confirming that in detail here). All the funds were received in 2022.
Well, the key problem was that by the time FTX went bankrupt, and it became clear there was a lot of fraud at FTX, the money had been spent or committed in contracts, there wasn’t much opportunity left to return the funds. Indeed, by early 2023 when the liabilities from our renovation project had cleared and everything was paid, Lightcone had completely ran out of money and indeed was financially in the red until around Q3 2023.
I did fundraise explicitly for money to return to the FTX creditors during our 2023 fundraising, from both the Open Philanthropy project and the Survival and Flourishing Fund, our two biggest funders. Open Philanthropy declined to give us any funds for settlement or return purposes. SFF didn’t explicitly tell us whether the money they gave us was for settlement or return purposes, but we only received barely enough money from them during the 2023 grant round to cover our existing liabilities (and the settlement we offered FTX in a settlement was greater than the amount I think one could conceivably say we fundraised for it).
If Lightcone had been in a position to return funds proactively I likely would have done it.
Yes, or like, some of them. The central reason here was just that everyone I talked to told me to get representation by a lawyer before talking to FTX, since given that the funds had already been spent, there was a quite high chance there would be some kind of suit or more complicated settlement.
I decided I would be very thorough in my choice of lawyer due to the high stakes, and so I took a long time (multiple months IIRC) interviewing different bankruptcy lawyers. During that time I asked every lawyer I interviewed about how we should respond to the FTX communications. I think literally every lawyer said that we should wait on responding, on the basis of there still being a huge amount of uncertainty and lack of clarity about whether the FTX estate is actually in a position to settle these claims, and that before that issue is cleared, there wouldn’t be much use in talking to them and all information I gave them would be used against me.
I now honestly think the lawyer’s advice to not respond was kind of a mistake (and more broadly think that the type of excuse of “my lawyer told me so” is a bad excuse for immoral behavior in-general, though I personally don’t feel that much guilt about my decision-making process here, since it is a very high-stakes situation, there was consensus among many lawyers I talked to about this, and I did not have any experience whatsoever in navigating legal situations like this).
Yep, I am well aware. My current take is that bankruptcy law is kind of broken here, and indeed, there are multiple judges who upon delivering judgements against nonprofits that seemed unfair even to them (but where the bankruptcy law gave them little choice) have called for bankruptcy law to be changed to be more protective of nonprofits here.
The legal situation for nonprofits is unfortunate, but I think the potentially workable patches wouldn’t help an org in Lightcone’s shoes very much. IIRC, one state shortened its look back period for charities after many of them got burnt in a fraud.
But all these transfers were within ~7 months. Most of us would prefer our monies go to charity rather than our creditors, so a superfast look back period would incentivize throwing tons of money to charity once the business or person realized the ship was gonna sink.
Protection based on a donor’s good faith wouldn’t help. Protection up to a percentage of profits wouldn’t help given FTX claimed tons of losses on its taxes. Protection based on consistency with a well-established pattern of giving from that donor wouldn’t help.
Equitably, my general take in these situations is that the charity got some value toward its charitable out of the expended donation (although perhaps not the full dollar value). The victims got $0 out of the transaction. So I’d be hesitant to endorse any reforms that didn’t produce some meaningful recoveries for victims in a case like this.
(I have lots of takes here, but my guess is I shouldn’t comment. Overall, agree with you that it’s a tricky situation of the law. I disagree that there aren’t small changes that would help. For example, I think if the Religious Liberty and Charitable Donation Protection Act of 1998 could have considered foundations or corporations as part of its definition of “natural person”, that would have been a substantial improvement. But again, I sadly can’t comment here much, which I find really annoying, also in parts because I find this part of the law quite fascinating and would love to talk about it)
We may not disagree: I had specific elements of Lightcone’s situation in mind when I said “help an org in Lightcone’s shoes very much.” That situation is unfortunately not rare, given the charities that ended up with Madoff-tainted money and Petters-tainted money.
So in that context, the RLCDAP amendments to 11 USC 548 won’t help a charity with a SBF/Madoff/Petters-type problem because they don’t protect charities where the debtor had an “actual intent to hinder, delay, or defraud” creditors under (a)(1)(A). Another reason a small fix might not help here: If Congress were to extend RLCDAP protections to corporations, it would need to decide how big the safe harbor should be. Although RLCDAP gives individuals some room to play bad-faith games, that room is usually fairly limited by the usual relationship between individual’s incomes and assets. I don’t think it would be reasonable to protect nearly as much as FTXFF was handing out under the circumstances. Whatever formula you choose, it has to work for low-margin, high-volume companies (think grocery stores) as well as tech-like companies.
I would have to think more about the extent to which—at least where large donations are involved—strong protection should be dependent on the existence of an acceptable comprehensive audit of the company-donor. Where that isn’t the case, and the donations are fairly large, I might focus relatively more on education of the nonprofit sector about the risks and relatively less about writing them an insurance policy on the creditors’ backs.
In part, I think I’m much more accepting of charitable donations by insolvent individuals than insolvent corporations. A decent number of individuals are insolvent; I certainly would not suggest that they should not donate to charity and instead have some sort of ethical duty to run their lives in a way that maximizes creditor recoveries. In contrast, I am more willing to assign an insolvent corporation has much more rigorous duties to creditors and so am considerably more willing to call out dissipation of assets away from creditors.
I mean, I would really love to discuss this stuff with you, but I think I can’t. Maybe in a year or so we can have a call and discuss bankruptcy law.
Yeah, I agree with that. Mainly, I think I want to signal to the audience that the situation in which orgs find themselves reflects thorny policy tradeoffs rather than a simple goof by Congress. Especially since the base rate of goofs is so high!