I’ve been repeatedly astonished by the level of moral outrage amongst EAs and expressions of prior cluelessness over FTX ‘fraud’. As an EA newcomer, I was assuming most everyone was aware and okay with it “because consequentialism”. Ignoring the specific egregious act of asset misallocation that brought FTX down, I thought it’s been more or less common knowledge that FTX has been engaged in, at a bare minimum, knowingly facilitating the purchase and sale of shares in Ponzi schemes, and that Alameda has been trading in the same, against counterparties made up in large part by a population of people who did not understand these assets and would have lacked the financial sophistication to be allowed into other, better regulated leveraged financial markets. I say ‘knowingly’ because SBF all but admitted this (with regard to ‘yield farming’) in an interview, and there’s also an old video going around of the Alameda CEO expressing her initial discomfort with the schemes as well. I was aware of these schemes going on within maybe 1 week of first having heard of FTX & SBF back in May of this year. My immediate take was “Billionaire ‘Robin Hood’ figure is re-allocating wealth from crypto-bros to the global poor, animals, and the longterm future of humanity… eh, why not? But I sure hope he cashes out before the house of cards comes crashing down”.
The few times I mentioned any of this at a gathering, it was always met by something along the lines of “Yeah, I guess… meh”. It never seemed to be a particularly surprising or contentious take.
The other thing that’s weird to me is the idea of taking this firm stance that the ponzi schemes we did know about weren’t going over the line, but that ‘re-investing customer funds’ was going over the line. This feels like a fairly arbitrary line from which to go, on one side, “eh, whatevs” to “this is an outrage!” on the other side. It’s convenient that the title of this post uses the term ‘fraud’ rather than ‘theft’; that makes this criticism much easier to levy because ponzi schemes are by definition ‘fraud’. In both cases, people are being taken advantage of. They’re both against norms, both involve misleading customers, both involve customers losing a lot of money, and they’re both illegal within well-regulated financial markets (which I know crypto is not, but still).
All of this to say… I don’t think now is the time for handwringing about this… that time was many months ago for anyone who had a principled stance on the matter and was aware of the DeFi schemes FTX was openly invovled in; handwringing now comes off sort of as lamenting getting caught, with an after-the-fact rationalization for the arbitrary placement of the line that was crossed.
To be fair, I can’t moralize about this either; I don’t get to say “I told you so” because I didn’t tell many people so, and certainly not anyone in a position of authority to do anything about it. Personally, I didn’t have a principled stance on the matter, and I would have needed a quite strong principled stance to justify going against the social incentives for keeping that opinion to myself.
On the other question of the day, whether to give the money back: if you’re in the subset who were aware of the FTX DeFi shenanigans and weren’t lobbying for giving back or rejecting the money 3-6 months ago, little has materially changed about the issue on a moral level since then.
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To be clear, I completely agree that the latter is worse than the former. I am arguing that the two wrongs (the known Ponzi schemes and the unknown-till-now squandering of depositor funds) exist on the same spectrum of “dishonesty” and “cheating people”.
That said, “allowing people to make potentially risky decisions” is not a fair representation of promoting and benefitting from Ponzi schemes. Ponzi schemes are fraud. People who knowingly promote them are acting as con men when they do so. SBF has publicly described the process and its absurdity in great detail… he knew exactly what he was selling.
I’m disturbed by the inability of many even now to acknowledge, in retrospect (and independent of whether they ‘should’ have known before the collapse), that these known schemes were fraudulent. I see a lot of scrambling to justify them under the guise of “they weren’t technically lying” or “they weren’t technically illegal” (which isn’t entirely clear to me, though it is clear that if the same schemes had been happening in the open in US jurisdiction and not within the crypto-realm they would have been massively and obviously illegal, and the FTC/SEC would have destroyed them).
This statement does not logically follow, and does not align with finance industry norms (and laws) which obligate brokers to conduct due diligence before selling a given security. If the head of NASDAQ went on the news and said “Yeah, XYG [traded on our exchange] is basically a total Ponzi scheme, lol” (as SBF basically did with Matt Levine), there would be an immediate and colossal legal and ethical shitstorm. The existence of all the remaining, legitimate companies also being traded on the NASDAQ would not be relevant for the ensuing lawsuits. You appear to be arguing that as long as SBF wasn’t dealing solely in frauds, it’s okay; whereas the sensible view for someone taking a strong moral stance is that it’s only okay if SBF wasn’t knowingly dealing in any frauds.