I will add to what Habryka says by asking: what is the trade off here between what is best for EA (and the world) as a whole, and what is best for the individuals who have taken legal advice to stay silent? Obviously the lawyers are concerned with their own clients, and not what is overall best for the common good, the public interest, the EA movement, or the world as a whole. OP mentions other people:
People can even find themselves under a microscope not because of something they said, but because of something someone else said to or about them. This is just one of the ways that staying quiet is best even beyond self-interest. Communicating with others could lead to someone on the other end of the communication getting caught up in things more than they otherwise would have.
But this presumably is still only covering a small group of people (perhaps the vast majority of whom are already taking legal advice to stay silent anyway).
Regarding “discovery”, it sounds like everything from the past will be dragged out into the public eye eventually anyway. How much of what could be said now is going to be worse than that? My guess is not that much, especially given how careful people are being even when they are saying things now (as Peter Hartree says, maybe “>90% of the legal risk was incurred prior to the FTX blow-up”. I imagine most of what could be said now that is useful would be recounting, or publishing, previous conversations regarding SBF/FTX. Given these will come to light eventually, what is the opportunity cost—to the EA movement—of staying silent for ~5-7 years (or however long) first?
As Jason says, it sounds like certain key institutions in EA could effectively be crippled by people who were close to SBF/FTX not being able to operate due to conflict-of-interest with staying silent on legal advice. Does this mean, effectively, that people will have to resign from key roles in order for things to get done? I guess none of this (independent investigations) is happening if people aren’t even talking to each other privately!
And what is the worst that could happen for anyone that does speak publicly anyway? Time and money costs (perhaps not that large, as per Habryka’s estimate), sure. Stress (but how much more than what there is already?). Maybe some negative press or PR (seems to have happened already, how much worse could it be?). Perhaps, worst case, there could be some people who are disbarred from holding certain positions in industry or government due to not conducting proper due diligence or something. What I’m saying is that these seem less bad than possible further disasters in EA that happen because lessons aren’t learned here when they could be, and potentially a complete collapse of the movement and what it stands for (hyperbole, but I’m talking worst case).
It seems very unlikely that anyone apart from the people at the centre of the scandal (SBF, Ellison, Wang and Singh, and perhaps a few other people at FTX/Alameda) knew anything about the fraud, so no one else is likely to be fined or go to jail apart from them! (And even they will probably get off lightly, seeing what happened with the likes of Jordan Belfort—the “Wolf of Wall Street” who served only 22 months in jail, has got away with paying barely any restitution and is still a rich celebrity trading off his wrongdoings).
Seems like the only winners in the whole thing are the lawyers (the creditors will likely get barely anything given what’s left and legal expenses, and that only many years later, given the likely size and complexity of the proceedings). This whole situation is a mess; I’m sorry for all involved. I’m not a lawyer, none of this is legal advice, I could be wrong or missing other key things (crucial considerations).
I think these are good things to consider. The following model is simplified and somewhat generic, but might be helpful.
One can analogize the debtor’s litigation efforts as the mirror universe equivalent of EA’s efforts to research and prioritize new causes. With cause evaluation, the people who you are getting information from are cooperative and have somewhat of a bias toward you “choosing” them. In litigation, the other side is trying to make your life as difficult as possible and does not want to be “chosen.”
The debtor’s resources are limited, and investigating targets costs money. Investigating a target thoroughly costs lots of money. This means that, like in EA, the debtor does not maximally investigate all potential targets. Investigated / not-investigated is not a binary; the selected target also should hope that the debtor decides after a shallow investigation that it isn’t worth the resources to continue digging.
The classic first method is to demand documents in discovery—you have to demand a wide range of documents because doing otherwise gives the target too much room to slither out. That means you’ll get a lot—and the target is motivated to put as much hay in the haystack as possible to make it hard for you to find any needles.
So, as the party seeking discovery, you have to make informed decisions about how much discovery to push for (and may have to justify that to the judge). A target’s public statements can give you a clue about where in the haystack the needles might be found. They could be used to justify to the court that your discovery requests are reasonable and you’re not on an unsupported fishing expedition.
In short, I don’t think “everything will come out in discovery anyway” is a fair assumption. As far as the possible bad outcomes, it’s hard to predict from the outside but I expect most risks would be institutional rather than personal (e.g., employee Z of organization Y did something bad, and the court decides that organization Y is also liable because employee Z was acting in the scope of their employment). I don’t know the financial status of any EA leaders, but I expect many are not worth litigating against much in their personal capacities for any personal liabilities they have.
Interesting, thanks. Re litigation, what would be an example of a possible litigation against an EA org (or an individual working for them)? I can’t really think of anything much that would be potential for litigation. I mean, I don’t think “x warned that SBF was a bad character because he screwed over y; z didn’t take any significant action re SBF’s role in EA” (to paraphrase what might’ve happened around 2018 re Alameda, based on public claims), would be anything more than bad for PR/reputation for those involved (and by extension EA), but correct me if I’m wrong.
That’s a good question, which is impossible to answer without knowing the underlying facts.
The most obvious possibility to me is that the state of mind could be relevant to a clawback defense. The following is not intended as actual legal analysis, but only as illustrative of the type of potential issues that the lawyers could be pondering. Section 550 gives some protections to certain subsequent transferees if they meet certain requirements including that they acted “without knowledge of the voidability of the transfer avoided.” At least in the Madoff context, the court of appeals held that the trustee did not have to show the sbsequent transferee was willfully blind to obvious red flags. It was enough to show that the subsequent transferee was on inquiry notice (basically that they knew enough to know they should have investigated further).
I am having a hard time coming up with non-clawback exposures to the debtor on the facts known to me. That does not mean they don’t exist.
I guess there could be exposures to victims—similar to the lawsuit filed against Tom Brady et al. -- if someone was found to have affirmatively promoted FTX in violation of applicable law and/or with good reason to believe it was a fraud. That seems rather unlikely to me as to the organizations. Or let’s say someone knowingly facilitated SBF making an investment into a third-party company despite strong reason to believe FTX was a fraud, and the third-party company was harmed as a result. I’m not convinced the third-party company would have a successful cause of action against the facilitator without more. But in the facilitator’s shoes, I’d rather not advertise what information I may have known about FTX and when. When you get sued, you lose by incurring the cost and pain of defending yourself—the question is whether you also lose in other ways too.
I will add to what Habryka says by asking: what is the trade off here between what is best for EA (and the world) as a whole, and what is best for the individuals who have taken legal advice to stay silent? Obviously the lawyers are concerned with their own clients, and not what is overall best for the common good, the public interest, the EA movement, or the world as a whole. OP mentions other people:
But this presumably is still only covering a small group of people (perhaps the vast majority of whom are already taking legal advice to stay silent anyway).
Regarding “discovery”, it sounds like everything from the past will be dragged out into the public eye eventually anyway. How much of what could be said now is going to be worse than that? My guess is not that much, especially given how careful people are being even when they are saying things now (as Peter Hartree says, maybe “>90% of the legal risk was incurred prior to the FTX blow-up”. I imagine most of what could be said now that is useful would be recounting, or publishing, previous conversations regarding SBF/FTX. Given these will come to light eventually, what is the opportunity cost—to the EA movement—of staying silent for ~5-7 years (or however long) first?
As Jason says, it sounds like certain key institutions in EA could effectively be crippled by people who were close to SBF/FTX not being able to operate due to conflict-of-interest with staying silent on legal advice. Does this mean, effectively, that people will have to resign from key roles in order for things to get done? I guess none of this (independent investigations) is happening if people aren’t even talking to each other privately!
And what is the worst that could happen for anyone that does speak publicly anyway? Time and money costs (perhaps not that large, as per Habryka’s estimate), sure. Stress (but how much more than what there is already?). Maybe some negative press or PR (seems to have happened already, how much worse could it be?). Perhaps, worst case, there could be some people who are disbarred from holding certain positions in industry or government due to not conducting proper due diligence or something. What I’m saying is that these seem less bad than possible further disasters in EA that happen because lessons aren’t learned here when they could be, and potentially a complete collapse of the movement and what it stands for (hyperbole, but I’m talking worst case).
It seems very unlikely that anyone apart from the people at the centre of the scandal (SBF, Ellison, Wang and Singh, and perhaps a few other people at FTX/Alameda) knew anything about the fraud, so no one else is likely to be fined or go to jail apart from them! (And even they will probably get off lightly, seeing what happened with the likes of Jordan Belfort—the “Wolf of Wall Street” who served only 22 months in jail, has got away with paying barely any restitution and is still a rich celebrity trading off his wrongdoings).
Seems like the only winners in the whole thing are the lawyers (the creditors will likely get barely anything given what’s left and legal expenses, and that only many years later, given the likely size and complexity of the proceedings). This whole situation is a mess; I’m sorry for all involved. I’m not a lawyer, none of this is legal advice, I could be wrong or missing other key things (crucial considerations).
I think these are good things to consider. The following model is simplified and somewhat generic, but might be helpful.
One can analogize the debtor’s litigation efforts as the mirror universe equivalent of EA’s efforts to research and prioritize new causes. With cause evaluation, the people who you are getting information from are cooperative and have somewhat of a bias toward you “choosing” them. In litigation, the other side is trying to make your life as difficult as possible and does not want to be “chosen.”
The debtor’s resources are limited, and investigating targets costs money. Investigating a target thoroughly costs lots of money. This means that, like in EA, the debtor does not maximally investigate all potential targets. Investigated / not-investigated is not a binary; the selected target also should hope that the debtor decides after a shallow investigation that it isn’t worth the resources to continue digging.
The classic first method is to demand documents in discovery—you have to demand a wide range of documents because doing otherwise gives the target too much room to slither out. That means you’ll get a lot—and the target is motivated to put as much hay in the haystack as possible to make it hard for you to find any needles.
So, as the party seeking discovery, you have to make informed decisions about how much discovery to push for (and may have to justify that to the judge). A target’s public statements can give you a clue about where in the haystack the needles might be found. They could be used to justify to the court that your discovery requests are reasonable and you’re not on an unsupported fishing expedition.
In short, I don’t think “everything will come out in discovery anyway” is a fair assumption. As far as the possible bad outcomes, it’s hard to predict from the outside but I expect most risks would be institutional rather than personal (e.g., employee Z of organization Y did something bad, and the court decides that organization Y is also liable because employee Z was acting in the scope of their employment). I don’t know the financial status of any EA leaders, but I expect many are not worth litigating against much in their personal capacities for any personal liabilities they have.
Interesting, thanks. Re litigation, what would be an example of a possible litigation against an EA org (or an individual working for them)? I can’t really think of anything much that would be potential for litigation. I mean, I don’t think “x warned that SBF was a bad character because he screwed over y; z didn’t take any significant action re SBF’s role in EA” (to paraphrase what might’ve happened around 2018 re Alameda, based on public claims), would be anything more than bad for PR/reputation for those involved (and by extension EA), but correct me if I’m wrong.
That’s a good question, which is impossible to answer without knowing the underlying facts.
The most obvious possibility to me is that the state of mind could be relevant to a clawback defense. The following is not intended as actual legal analysis, but only as illustrative of the type of potential issues that the lawyers could be pondering. Section 550 gives some protections to certain subsequent transferees if they meet certain requirements including that they acted “without knowledge of the voidability of the transfer avoided.” At least in the Madoff context, the court of appeals held that the trustee did not have to show the sbsequent transferee was willfully blind to obvious red flags. It was enough to show that the subsequent transferee was on inquiry notice (basically that they knew enough to know they should have investigated further).
I am having a hard time coming up with non-clawback exposures to the debtor on the facts known to me. That does not mean they don’t exist.
I guess there could be exposures to victims—similar to the lawsuit filed against Tom Brady et al. -- if someone was found to have affirmatively promoted FTX in violation of applicable law and/or with good reason to believe it was a fraud. That seems rather unlikely to me as to the organizations. Or let’s say someone knowingly facilitated SBF making an investment into a third-party company despite strong reason to believe FTX was a fraud, and the third-party company was harmed as a result. I’m not convinced the third-party company would have a successful cause of action against the facilitator without more. But in the facilitator’s shoes, I’d rather not advertise what information I may have known about FTX and when. When you get sued, you lose by incurring the cost and pain of defending yourself—the question is whether you also lose in other ways too.