Now, consider your situation: instead of sitting in FTXās bank account, that money finds itself in your account. It shouldnāt have been transferred to you; FTX wasnāt solvent when it made that transaction, it needed to keep all of its money to try to pay back its creditors.
Is that true of grants made back in JanāFeb? I read somewhere (Forbes, I think) that this was when the big grants to EA orgs were made, whereas it seems maybe the solvency issues didnāt arise until after the Luna crash in May?
For a neater, hypothetical version of the question: consider some honest profits FTX made several years ago. If still in their accounts now, it would need to be used to pay back the creditors. But suppose instead that they immediately granted out those profits (several years ago), which seemed an intrinsically legit transaction given the circumstances at a time, and the recipient org for some reason hasnāt gotten around to spending those funds (not sure exactly what that means, in accounting terms, since money is fungible and the org would surely have had some expenses during this time; but maybe it was earmarked for a specific purpose that hasnāt yet eventuated). Do you think the org is obligated to return the funds in this case?
While none of know exactly what went on or what the state was at any time, my mental model is basically that there was never a time where FTX genuinely had āhonest profitsā it was free to disperse as it wanted.
It sounds like they intermixed user deposits with operating capital from day 1, and never accounted for anything well enough to have a responsible estimate of whether they had money to donate.
It could be that if you went back to some particular snapshot in time, you could find various points where yes their actual assets exceeded their liabilities (which doesnāt count having as āassetsā a bunch of shitcoins marked to market). But even at that point, I think if you go back a further theyāll have passed through points where they werenāt solventāwhere they traded on user funds. This is basically what Shkreli went to jail for: he dipped into one fund to rescue another. The trades happened to work so everyone was in the black, but this still isnāt legit.
However, letās grant the premise of your hypothetical, and imagine a world where FTX circa 2020 had always been in the black, and it granted out some of its rightly gained profits. The recipient of that grant shouldnāt need to give anything back. In that transaction FTX did have the right to give the grant, so thereās no issue.
But I really donāt think this hypothetical has much relation to the actual situation. I think itās better for recipients of money from FTX to assume it wasnāt legit, and set anything aside that hasnāt been spent.
It sounds like they intermixed user deposits with operating capital from day 1, and never accounted for anything well enough to have a responsible estimate of whether they had money to donate.
I think this is plausible, but I would currently take a bet against this. My best guess is that customer deposits were safe until earlier this year.
Is that true of grants made back in JanāFeb? I read somewhere (Forbes, I think) that this was when the big grants to EA orgs were made, whereas it seems maybe the solvency issues didnāt arise until after the Luna crash in May?
For a neater, hypothetical version of the question: consider some honest profits FTX made several years ago. If still in their accounts now, it would need to be used to pay back the creditors. But suppose instead that they immediately granted out those profits (several years ago), which seemed an intrinsically legit transaction given the circumstances at a time, and the recipient org for some reason hasnāt gotten around to spending those funds (not sure exactly what that means, in accounting terms, since money is fungible and the org would surely have had some expenses during this time; but maybe it was earmarked for a specific purpose that hasnāt yet eventuated). Do you think the org is obligated to return the funds in this case?
While none of know exactly what went on or what the state was at any time, my mental model is basically that there was never a time where FTX genuinely had āhonest profitsā it was free to disperse as it wanted.
It sounds like they intermixed user deposits with operating capital from day 1, and never accounted for anything well enough to have a responsible estimate of whether they had money to donate.
It could be that if you went back to some particular snapshot in time, you could find various points where yes their actual assets exceeded their liabilities (which doesnāt count having as āassetsā a bunch of shitcoins marked to market). But even at that point, I think if you go back a further theyāll have passed through points where they werenāt solventāwhere they traded on user funds. This is basically what Shkreli went to jail for: he dipped into one fund to rescue another. The trades happened to work so everyone was in the black, but this still isnāt legit.
However, letās grant the premise of your hypothetical, and imagine a world where FTX circa 2020 had always been in the black, and it granted out some of its rightly gained profits. The recipient of that grant shouldnāt need to give anything back. In that transaction FTX did have the right to give the grant, so thereās no issue.
But I really donāt think this hypothetical has much relation to the actual situation. I think itās better for recipients of money from FTX to assume it wasnāt legit, and set anything aside that hasnāt been spent.
I think this is plausible, but I would currently take a bet against this. My best guess is that customer deposits were safe until earlier this year.
Fair enough, thanks for the explanation!