I don’t know your organization, of course, but I don’t see how some of this stuff would impact the average EA CC grantee very much (at least in expectancy). The presence of allegedly weak internal controls and governance would be of much more concern to me as a potential donor to Manifund than it would be as a potential grantee.
I want to be very clear that I have not done my own due diligence on Manifund because I am not planning to donate to or seek money through them. I’m jumping to some extreme examples here merely to illustrate that the risk of certain things depends on what one’s relationship to the charity in question is.
In extreme cases, IRS can strip an organization of its recognition under IRC 501(c)(3), or another paragraph of subsection (c). This certainly has adverse consequences for the organization and its donors, the most notable of which include that donors can’t take tax deductions for donations to the ex-501(c)(3) going forward and that the nonprofit will have to pay taxes on any revenues realized as a for-profit. However, I am not coming up with any significant consequences for organizations that had received grants from the non-profit in the past, at least not off the top of my head. States can also sue to take over nonprofits, but it takes a lot—usually significant self-dealing like at the Trump Foundation or the National Rifle Association—to trigger such a suit. They aren’t quick, and the state still has to spend the monies consistent with the charity’s objectives and/or donor intent. So consequences that sound really bad in the abstract may not be on a grantee’s radar at all, because the consequences would not actually hit the grantee.
I think Manifund ’s internal affairs would have some relevance to the risk that a grantee organization might not get money it was expecting. But to the extent that an organization would be seriously affected by non-receipt of an anticipated $5-$10K, the correct answer is usually going to be just not counting on the money before it hits the org’s bank account. Maybe there’s an edge case in which investing resources to better quantify that risk would be worthwhile, though. It seems unlikely here, where the time between application and expected payment is a few months.
As far as the risk of a FTX-style clawback . . . yeah, it’s possible that some donations to Manifund could be fraudulent conveyances (which don’t, contrary to the name, have to involve actual fraud). Since we don’t know who the major donors are, that’s hard to assess. However, under a certain dollar amount, litigation just isn’t financially viable for the estate. That being said, many of us (including myself) would feel an ethical obligation to return donations in some cases involving actual capital-F Fraud. So that would be a relevant consideration, but the base rate is low enough that it’s hard to justify spending a lot of time on this at moderate donation levels.
It sounds like “D” is anonymous in the sense that Manifund isn’t going to tell the world who they are, but not in the sense that their identity is unknown to Manifund (or IRS, which would receive the information on a non-public schedule to Form 990). Although extreme reliance on a single non-disclosed donor is still a yellow flag, that would be an important difference.
All that is to say that I expect that the significant majority of organizations would not find those yellow flags enough to preclude participation at the funding level at play here. (Whether they would find the connection between Manifund and Manifest a barrier is not considered here.) Nor would I expect most orgs to have done more than a cursory check at the $5-10K level. But again, you’re the expert on your organization and I don’t want to imply you are making the wrong decision for your own org!
Thank you for that assessment! I agree that the legal risk is low, and for this reason, I wouldn’t refrain from participating in the project.
On the reputation side, I might have updated too much from FTX. As an EA meta organisation, I want a higher bar for taking donations than a charity working on the object level. This would be especially the case if I took part in a project that is EA branded and asked me to promote the project to get funding. Suppose Manifund collapses or the anonymous donor is exposed as someone whose reputation would keep people from joining the community. In that case, I think it would reflect poorly on the ability of the community overall to learn from FTX and install better mechanisms to identify unprofessional behaviour.
Perhaps the crux is whether I would actually lose people in our target groups in one of the scenario cases or if the reputational damage would be only outside of the target group. In the last Community Health Survey, 46% of participants at least somewhat agreed with having a desire for changes post-FTX. Leadership and scandals were two of the top areas mentioned, which I interpret as community members wanting fewer scandals and better management of organisations. Vetting donors is one way that leaders can learn from FTX and reduce risk. But there is also the risk of losing out to donations.
I don’t know your organization, of course, but I don’t see how some of this stuff would impact the average EA CC grantee very much (at least in expectancy). The presence of allegedly weak internal controls and governance would be of much more concern to me as a potential donor to Manifund than it would be as a potential grantee.
I want to be very clear that I have not done my own due diligence on Manifund because I am not planning to donate to or seek money through them. I’m jumping to some extreme examples here merely to illustrate that the risk of certain things depends on what one’s relationship to the charity in question is.
In extreme cases, IRS can strip an organization of its recognition under IRC 501(c)(3), or another paragraph of subsection (c). This certainly has adverse consequences for the organization and its donors, the most notable of which include that donors can’t take tax deductions for donations to the ex-501(c)(3) going forward and that the nonprofit will have to pay taxes on any revenues realized as a for-profit. However, I am not coming up with any significant consequences for organizations that had received grants from the non-profit in the past, at least not off the top of my head. States can also sue to take over nonprofits, but it takes a lot—usually significant self-dealing like at the Trump Foundation or the National Rifle Association—to trigger such a suit. They aren’t quick, and the state still has to spend the monies consistent with the charity’s objectives and/or donor intent. So consequences that sound really bad in the abstract may not be on a grantee’s radar at all, because the consequences would not actually hit the grantee.
I think Manifund ’s internal affairs would have some relevance to the risk that a grantee organization might not get money it was expecting. But to the extent that an organization would be seriously affected by non-receipt of an anticipated $5-$10K, the correct answer is usually going to be just not counting on the money before it hits the org’s bank account. Maybe there’s an edge case in which investing resources to better quantify that risk would be worthwhile, though. It seems unlikely here, where the time between application and expected payment is a few months.
As far as the risk of a FTX-style clawback . . . yeah, it’s possible that some donations to Manifund could be fraudulent conveyances (which don’t, contrary to the name, have to involve actual fraud). Since we don’t know who the major donors are, that’s hard to assess. However, under a certain dollar amount, litigation just isn’t financially viable for the estate. That being said, many of us (including myself) would feel an ethical obligation to return donations in some cases involving actual capital-F Fraud. So that would be a relevant consideration, but the base rate is low enough that it’s hard to justify spending a lot of time on this at moderate donation levels.
It sounds like “D” is anonymous in the sense that Manifund isn’t going to tell the world who they are, but not in the sense that their identity is unknown to Manifund (or IRS, which would receive the information on a non-public schedule to Form 990). Although extreme reliance on a single non-disclosed donor is still a yellow flag, that would be an important difference.
All that is to say that I expect that the significant majority of organizations would not find those yellow flags enough to preclude participation at the funding level at play here. (Whether they would find the connection between Manifund and Manifest a barrier is not considered here.) Nor would I expect most orgs to have done more than a cursory check at the $5-10K level. But again, you’re the expert on your organization and I don’t want to imply you are making the wrong decision for your own org!
Thank you for that assessment! I agree that the legal risk is low, and for this reason, I wouldn’t refrain from participating in the project.
On the reputation side, I might have updated too much from FTX. As an EA meta organisation, I want a higher bar for taking donations than a charity working on the object level. This would be especially the case if I took part in a project that is EA branded and asked me to promote the project to get funding. Suppose Manifund collapses or the anonymous donor is exposed as someone whose reputation would keep people from joining the community. In that case, I think it would reflect poorly on the ability of the community overall to learn from FTX and install better mechanisms to identify unprofessional behaviour.
Perhaps the crux is whether I would actually lose people in our target groups in one of the scenario cases or if the reputational damage would be only outside of the target group. In the last Community Health Survey, 46% of participants at least somewhat agreed with having a desire for changes post-FTX. Leadership and scandals were two of the top areas mentioned, which I interpret as community members wanting fewer scandals and better management of organisations. Vetting donors is one way that leaders can learn from FTX and reduce risk. But there is also the risk of losing out to donations.