I saw this in a Financial Times article about FTX today:
‘[L]egal experts argue that even if these funds were proven to be linked to wrongdoing, there probably would be no legal basis for clawbacks. James Cox, professor of corporate and securities law at Duke University, said this was due to the “bona fide” principle, which protects individuals who accept money with no knowledge it derives from illicit activity.’ https://www.ft.com/content/428c7800-c72d-4c59-9940-4376fea6e263 (paywalled)
Thanks! It’s still difficult to assess—my guess is that the professors provided a more nuanced 5-10 minute discussion including rationale and sources of uncertainty, and then FT compressed that into a bottom-line conclusion and a fragment of analysis. It is a very lossy compression to me; i.e., I cannot extract much of what the professors said (or were thinking). That isn’t a criticism of FT, as its purpose was not to provide information for recipients (much less legal advice for them).
Without the ability to undo FT’s compression, we can’t discern whether the professors were giving a quick take or had conducted a detailed analysis. We also can’t discern the extent to which the professors’ answer might apply to different circumstances.
For example, one possible factual distinction lies in the nature of US political organizations. In many cases, “Jones for Congress” is never intended to have life after the election and is often in the red at that point. If Jones runs again, they can create a new organization: “People for Jones” or something. In that scenario, whether “Jones for Congress” is subject to clawback is pretty much irrelevant because there is nothing to claw back. And clawing back from employees, electric companies, vendors, etc. who provided value to “Jones for Congress” without knowledge of the potential clawback is going to be very difficult under section 550.
I’m not suggesting that was the professors’ rationale. I’m only noting it as an example of a rationale that could justify the statements printed by FT but would not lead to the conclusion that grantee organizations more generally are immune from clawback.
I just wanted to say I think your comments responding to a lot of the questions about the legal fallout are very helpful. They balance emphasizing the uncertainty of the situation with being informative very well.
I saw this in a Financial Times article about FTX today:
‘[L]egal experts argue that even if these funds were proven to be linked to wrongdoing, there probably would be no legal basis for clawbacks. James Cox, professor of corporate and securities law at Duke University, said this was due to the “bona fide” principle, which protects individuals who accept money with no knowledge it derives from illicit activity.’ https://www.ft.com/content/428c7800-c72d-4c59-9940-4376fea6e263 (paywalled)
Any thoughts on this?
Not enough context from that snippet, but be cautious about relying on anything not written with grantees specifically in mind.
The article is mainly about SBF’s political donations—here’s a paywall-free link: https://archive.ph/8FX5V
Thanks! It’s still difficult to assess—my guess is that the professors provided a more nuanced 5-10 minute discussion including rationale and sources of uncertainty, and then FT compressed that into a bottom-line conclusion and a fragment of analysis. It is a very lossy compression to me; i.e., I cannot extract much of what the professors said (or were thinking). That isn’t a criticism of FT, as its purpose was not to provide information for recipients (much less legal advice for them).
Without the ability to undo FT’s compression, we can’t discern whether the professors were giving a quick take or had conducted a detailed analysis. We also can’t discern the extent to which the professors’ answer might apply to different circumstances.
For example, one possible factual distinction lies in the nature of US political organizations. In many cases, “Jones for Congress” is never intended to have life after the election and is often in the red at that point. If Jones runs again, they can create a new organization: “People for Jones” or something. In that scenario, whether “Jones for Congress” is subject to clawback is pretty much irrelevant because there is nothing to claw back. And clawing back from employees, electric companies, vendors, etc. who provided value to “Jones for Congress” without knowledge of the potential clawback is going to be very difficult under section 550.
I’m not suggesting that was the professors’ rationale. I’m only noting it as an example of a rationale that could justify the statements printed by FT but would not lead to the conclusion that grantee organizations more generally are immune from clawback.
I just wanted to say I think your comments responding to a lot of the questions about the legal fallout are very helpful. They balance emphasizing the uncertainty of the situation with being informative very well.