(Not a lawyer, not legal advice, but if anyone reads OP and does consult a lawyer, I think they should get advice on the below.)
You focus on answer #5 from Claude for why this may not apply. Do you have anything to say about #7, quoted below? That’s the reason I was expecting charities to have to give everything back.
Court determination of no value given: If the bankruptcy court determines that Organization B provided no value or consideration in exchange for the grant, it might deny creditor status.
Donations are usually made in return for ‘no value or consideration’; this is part of what makes them donations:
It’s true that in general, avoidance actions or ‘clawbacks’ are designed to create equity among creditors who withdrew and those who didn’t, and this usually means those who withdrew retain some of the money. For example here’s a recent Matt Levine description, bold added:
And in fact US bankruptcy law has mechanisms for dealing with this: Section 547(b) of the bankruptcy code allows a bankruptcy estate to claw back some payments to creditors made within 90 days before bankruptcy, if the company was insolvent and those payments gave the creditors more than they would get in the bankruptcy. So if you withdrew 110 cents on the dollar a day before bankruptcy, and everyone else got back 70 cents after bankruptcy, you have to cough up 40 cents to share with everyone else. And this is true of Ponzi schemes too. Lots of Bernie Madoff’s investors did great, and then had to pay back their winnings to the other, less fortunate investors.
The issue I see is that if a nonprofit received a donation from insolvent FTX/Alameda, ‘what they would get in the bankruptcy’ is likely nothing. Insolvent companies are meant to be paying back creditors, not making donations.
However, if a nonprofit was holding other funds on FTX—perhaps it took in crypto donations via transfers to its FTX account, sold the crypto for USD, and withdrew the USD in the run up to bankruptcy—then yes absolutely check what you’re entitled to and speak to a lawyer before you settle anything.
No particular opinion. I don’t think it’s so disqualifying that it should stop you from seeking legal advice (twice to be sure, if you don’t like the first advice), and I don’t know what I would say here that you should weigh over that advice.
My layman’s guess is that there is a more-than-colorable argument that Alameda-of-2022 intrinsically valued the work of the grantees that it chose to grant to (including via the FTX Foundation), and so Organization B provided value by being able to work on its goals. The fact, then, that Alameda-of-2024 no longer values the same things (in no small part because it is run by different management) doesn’t enter into it.
But more generally, the main thing that I—as a non-lawyer—have learned in my interactions with the bankruptcy process is that most things come down to the spirit of the law as interpreted by one judge in Delaware. Even things that don’t reach a litigation tend to resolve along the lines of what the parties think that judge would rule after thinking about it for about an hour. It is not obvious to me that that hypothetical judge would rule that the spirit of the law is better-fulfilled by a grantee remitting funds that will ultimately go to government fines (according to the plan), and so it doesn’t feel like Sullcrom’s position is overwhelmingly strong here. “Come on, this feels borderline and a bit silly; let them keep it” can be a surprisingly valid position in the process as it actually happens, and I wouldn’t assume defeat based on my own attempt to steelman the opposing position based just on the text.
The second thing that I have learned is that the estate’s counsel and de facto management has broad discretion over what to pursue and what settlements to strike, and that while their goals may be furthered by the opportunity to do work that increases the number of legitimate billable hours, it’s a material risk to them to be billing hours that will later appear to be illegitimate. While maximizing total recoveries is supposed to be their paramount concern, it is perhaps the case that billing and the perception of legitimacy occasionally enter into their decisions, and that it would be consistent with those concerns to try sending pointed letters to former recipients of funds, accept voluntary returns, and not follow up vigorously against the small-to-medium (up to a few $mm) recipients that have more-solid cases and appear prepared to fight for their rights.
We agree that this is a point that the reader should discuss with their counsel, based on the specifics of their case.
(Not a lawyer, not legal advice, but if anyone reads OP and does consult a lawyer, I think they should get advice on the below.)
You focus on answer #5 from Claude for why this may not apply. Do you have anything to say about #7, quoted below? That’s the reason I was expecting charities to have to give everything back.
Donations are usually made in return for ‘no value or consideration’; this is part of what makes them donations:
It’s true that in general, avoidance actions or ‘clawbacks’ are designed to create equity among creditors who withdrew and those who didn’t, and this usually means those who withdrew retain some of the money. For example here’s a recent Matt Levine description, bold added:
The issue I see is that if a nonprofit received a donation from insolvent FTX/Alameda, ‘what they would get in the bankruptcy’ is likely nothing. Insolvent companies are meant to be paying back creditors, not making donations.
However, if a nonprofit was holding other funds on FTX—perhaps it took in crypto donations via transfers to its FTX account, sold the crypto for USD, and withdrew the USD in the run up to bankruptcy—then yes absolutely check what you’re entitled to and speak to a lawyer before you settle anything.
No particular opinion. I don’t think it’s so disqualifying that it should stop you from seeking legal advice (twice to be sure, if you don’t like the first advice), and I don’t know what I would say here that you should weigh over that advice.
My layman’s guess is that there is a more-than-colorable argument that Alameda-of-2022 intrinsically valued the work of the grantees that it chose to grant to (including via the FTX Foundation), and so Organization B provided value by being able to work on its goals. The fact, then, that Alameda-of-2024 no longer values the same things (in no small part because it is run by different management) doesn’t enter into it.
But more generally, the main thing that I—as a non-lawyer—have learned in my interactions with the bankruptcy process is that most things come down to the spirit of the law as interpreted by one judge in Delaware. Even things that don’t reach a litigation tend to resolve along the lines of what the parties think that judge would rule after thinking about it for about an hour. It is not obvious to me that that hypothetical judge would rule that the spirit of the law is better-fulfilled by a grantee remitting funds that will ultimately go to government fines (according to the plan), and so it doesn’t feel like Sullcrom’s position is overwhelmingly strong here. “Come on, this feels borderline and a bit silly; let them keep it” can be a surprisingly valid position in the process as it actually happens, and I wouldn’t assume defeat based on my own attempt to steelman the opposing position based just on the text.
The second thing that I have learned is that the estate’s counsel and de facto management has broad discretion over what to pursue and what settlements to strike, and that while their goals may be furthered by the opportunity to do work that increases the number of legitimate billable hours, it’s a material risk to them to be billing hours that will later appear to be illegitimate. While maximizing total recoveries is supposed to be their paramount concern, it is perhaps the case that billing and the perception of legitimacy occasionally enter into their decisions, and that it would be consistent with those concerns to try sending pointed letters to former recipients of funds, accept voluntary returns, and not follow up vigorously against the small-to-medium (up to a few $mm) recipients that have more-solid cases and appear prepared to fight for their rights.
We agree that this is a point that the reader should discuss with their counsel, based on the specifics of their case.