A comment on the economic & political context of possible FTX clawbacks:
Molly, thanks very much for this; it’s clear and helpful. I imagine that many EAs who received any money, directly or indirectly, from an FTX-related organizations or people, are feeling very stressed, angry, and/or depressed about this clawback issue.
I imagine that if clawbacks become an issue in the FTX-et-al bankruptcy, that there would be a wide range of organizations and people affected, in dozens of countries, who have provided all kinds of goods and services to FTX since Aug 11. This could include not just EA organizations, but FTX employees who received salary and benefits, contractors and subcontractors, landlords, utilities providers, lawyers, consultants, web hosting companies, tech support people, caterers, travel agents, airlines, ad agencies, and everybody else who was necessary to run the FTX companies everywhere that they operated. It seems likely to take a very long time (several months to years) to untangle all of those financial relationships.
In that context, some EA organizations might look like moderately big recipients of FTX funds—or might look like relatively small potatoes. Hard to know at this point.
Also, could potential targets for clawbacks include politicians and PACs who received SBF’s campaign contributions? SBF and FTX colleagues seem to have donated about $69 million for the midterm elections (mostly to Democrats). I have no idea if political campaign contributions are immune to bankruptcy clawbacks. But if they’re not immune, I predict there would be a big partisan fight over that issue, with a (probably) Republican-controlled Congress calling for hearings about SBF’s political contributions, and a (possibly) Democrat-controlled Senate trying to fight to avoid campaign contribution clawbacks. Such a fight could turn very nasty very quickly—and EA would probably look like a minor sideshow in comparison.
Epistemic status: I’m not a lawyer, know almost nothing about bankruptcy law, hadn’t heard of clawbacks until yesterday, and have very low confidence in most of what I’m talking about here. I’m just trying to raise some questions others (such as Molly) might be better able to answer.
The decisions about clawbacks will occur in bankruptcy court. Legislation that has an effect on pending court litigation in this manner is uncommon (although it does happen). If the Democrats controlled both houses and retroactively passed legislation protecting political donations received from SBF, that would be a massive political gift.
Most ordinary employees, contractors, utilities providers, etc. off FTX have low exposure in my opinion because they have a stronger argument for one of the exceptions in 11 USC 547. For example, payments to the power company were pretty obviously in the ordinary course of business, and the power company provided new value around and after the transfers.
Any insider with significant criminal exposure but with enough other assets to fund a vigorous criminal defense would probably be well-advised not to fight a clawback. Trying to keep ill-gotten gains, especially from retail depositors, does not good to an Article III judge who has the power to give a convicted defendant a lifetime membership to a Club Fed non-resort. All that is to say that public clawback fights from insiders might attract less publicity than one might think.
If the estate tries to clawback from people who made withdrawals during some or all of the 90 day period, that will be a massive source of publicity.
PS: Folks who disagree-voted on my post here, I’m curious whether you disagree with the range of organizations that might be affected by clawbacks, or the political angle, or something else?
A comment on the economic & political context of possible FTX clawbacks:
Molly, thanks very much for this; it’s clear and helpful. I imagine that many EAs who received any money, directly or indirectly, from an FTX-related organizations or people, are feeling very stressed, angry, and/or depressed about this clawback issue.
I imagine that if clawbacks become an issue in the FTX-et-al bankruptcy, that there would be a wide range of organizations and people affected, in dozens of countries, who have provided all kinds of goods and services to FTX since Aug 11. This could include not just EA organizations, but FTX employees who received salary and benefits, contractors and subcontractors, landlords, utilities providers, lawyers, consultants, web hosting companies, tech support people, caterers, travel agents, airlines, ad agencies, and everybody else who was necessary to run the FTX companies everywhere that they operated. It seems likely to take a very long time (several months to years) to untangle all of those financial relationships.
In that context, some EA organizations might look like moderately big recipients of FTX funds—or might look like relatively small potatoes. Hard to know at this point.
Also, could potential targets for clawbacks include politicians and PACs who received SBF’s campaign contributions? SBF and FTX colleagues seem to have donated about $69 million for the midterm elections (mostly to Democrats). I have no idea if political campaign contributions are immune to bankruptcy clawbacks. But if they’re not immune, I predict there would be a big partisan fight over that issue, with a (probably) Republican-controlled Congress calling for hearings about SBF’s political contributions, and a (possibly) Democrat-controlled Senate trying to fight to avoid campaign contribution clawbacks. Such a fight could turn very nasty very quickly—and EA would probably look like a minor sideshow in comparison.
Epistemic status: I’m not a lawyer, know almost nothing about bankruptcy law, hadn’t heard of clawbacks until yesterday, and have very low confidence in most of what I’m talking about here. I’m just trying to raise some questions others (such as Molly) might be better able to answer.
The decisions about clawbacks will occur in bankruptcy court. Legislation that has an effect on pending court litigation in this manner is uncommon (although it does happen). If the Democrats controlled both houses and retroactively passed legislation protecting political donations received from SBF, that would be a massive political gift.
Most ordinary employees, contractors, utilities providers, etc. off FTX have low exposure in my opinion because they have a stronger argument for one of the exceptions in 11 USC 547. For example, payments to the power company were pretty obviously in the ordinary course of business, and the power company provided new value around and after the transfers.
Any insider with significant criminal exposure but with enough other assets to fund a vigorous criminal defense would probably be well-advised not to fight a clawback. Trying to keep ill-gotten gains, especially from retail depositors, does not good to an Article III judge who has the power to give a convicted defendant a lifetime membership to a Club Fed non-resort. All that is to say that public clawback fights from insiders might attract less publicity than one might think.
If the estate tries to clawback from people who made withdrawals during some or all of the 90 day period, that will be a massive source of publicity.
Jason—thanks for this reply. Makes sense to me, with the caveat that I know virtually nothing about bankruptcy law.
PS: Folks who disagree-voted on my post here, I’m curious whether you disagree with the range of organizations that might be affected by clawbacks, or the political angle, or something else?
I’d appreciate any specific feedback.