This is not legal advice and I am not a lawyer and this may be entirely wrong, but it may be helpful to know that to the best of my current understanding FTX Philanthropy Inc is not one of the currently bankrupt entities.
This is not legal advice and I am not a lawyer and this may be entirely wrong, but it may be helpful to know that to the best of my current understanding I have not seen any evidence of a double entity clawback occurring before, of the kind that would be involved if grants were clawed back from FTX Philanthropy grantees despite FTX Philanthropy not being bankrupt. And I have been looking.
You’ll see there is a defense—the estate cannot go after a subsequent transferee “that takes for value, including satisfaction or securing of a present or antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided.” There is a different rule if the subsequent transferee gave partial, but not, value.
How to apply these principles in the charitable context is not obvious. However, if someone gets a transfer, and then they pay me for past or present legal services at market rate, then the bankrupt debtor can’t go after me. Likewise, I think it would be very very hard to go after any supplier or employee of a grantee because they provided value (supplies or labor) to the previous transferee in exchange for payment.
As Jason noted, this definitely happens and is allowed, see 11 U.S.C. 550(a)(2). Some cases where this has happened are In re Laines, 352 B.R. 397 (Bankr. E.D. Va. 2005); In re Lindley, 121 B.R. 81 (Bankr. N.D. Okla. 1990); In re Crabtree, 49 B.R. 806 (Bankr. E.D. Tenn. 1985).
I think you’re right that “FTX Philantrophy” was acting as a regrantor of FTX funds, and that doesn’t protect its grantees. However, the fact that FTX Philantrophy isn’t in the bankruptcy filing could be relevant. It might mean that the 90-day clock started when an entity in the bankruptcy transferred funds to FTX Philantrophy. I am unclear on whether a court would see FTX Philantrophy as an insider for purposes of 11 USC 547.
More generally, the exact origin/flow of funds could potentially be a total defense in some cases. For instance, the Future Fund announcement hinted that some funds might come through a FTX employee’s DAF. Payments to an employee for services rendered are often not recoverable in a preference action for several different reasons. And AFAIK no FTX employee has filed for bankruptcy. So hypothetically, if the chain were FTX → employee → DAF → EA grantee, the FTX → employee transfer might not be subject to clawback, which would render the EA grantee safe.
My grant agreement and the bank transfer both mention “FTX Philanthropy, Inc.”
This is not legal advice and I am not a lawyer and this may be entirely wrong, but it may be helpful to know that to the best of my current understanding FTX Philanthropy Inc is not one of the currently bankrupt entities.
I don’t think this matters FYI—all funds came directly or indirectly from a bankrupt entity or person
This is not legal advice and I am not a lawyer and this may be entirely wrong, but it may be helpful to know that to the best of my current understanding I have not seen any evidence of a double entity clawback occurring before, of the kind that would be involved if grants were clawed back from FTX Philanthropy grantees despite FTX Philanthropy not being bankrupt. And I have been looking.
Section 550 allows you to go after subsequent transferees in some cases, although the rules are stricter than for initial transferees.
Look at this, from a major US law firm: https://www.jonesday.com/en/insights/2021/11/case-update-second-circuit-breathes-new-life-into-madoff-trustees-efforts-to-recover-ponzi-scheme-payments
You’ll see there is a defense—the estate cannot go after a subsequent transferee “that takes for value, including satisfaction or securing of a present or antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided.” There is a different rule if the subsequent transferee gave partial, but not, value.
How to apply these principles in the charitable context is not obvious. However, if someone gets a transfer, and then they pay me for past or present legal services at market rate, then the bankrupt debtor can’t go after me. Likewise, I think it would be very very hard to go after any supplier or employee of a grantee because they provided value (supplies or labor) to the previous transferee in exchange for payment.
As Jason noted, this definitely happens and is allowed, see 11 U.S.C. 550(a)(2). Some cases where this has happened are In re Laines, 352 B.R. 397 (Bankr. E.D. Va. 2005); In re Lindley, 121 B.R. 81 (Bankr. N.D. Okla. 1990); In re Crabtree, 49 B.R. 806 (Bankr. E.D. Tenn. 1985).
I think you’re right that “FTX Philantrophy” was acting as a regrantor of FTX funds, and that doesn’t protect its grantees. However, the fact that FTX Philantrophy isn’t in the bankruptcy filing could be relevant. It might mean that the 90-day clock started when an entity in the bankruptcy transferred funds to FTX Philantrophy. I am unclear on whether a court would see FTX Philantrophy as an insider for purposes of 11 USC 547.
More generally, the exact origin/flow of funds could potentially be a total defense in some cases. For instance, the Future Fund announcement hinted that some funds might come through a FTX employee’s DAF. Payments to an employee for services rendered are often not recoverable in a preference action for several different reasons. And AFAIK no FTX employee has filed for bankruptcy. So hypothetically, if the chain were FTX → employee → DAF → EA grantee, the FTX → employee transfer might not be subject to clawback, which would render the EA grantee safe.