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Sam Bankman-Fried’s red flags were seen in all corners of his empire

On paper, the nonprofit Our World in Data is neatly aligned with Sam Bankman-Fried’s worldview. It focuses on “terrifying problems,” including poverty, climate change and pandemics — the very issue SBF called his next big risk in July.

So it’s little surprise that in that same month, the FTX Future Fund offered the group a $7.5 million grant to track changes in living standards, the global impact of Covid-19 and other “trends that are relevant to humanity’s long-term prospects.”

The nonprofit turned the money down.

“We were reviewing their offer, conducting due diligence checks,” an Our World in Data spokesperson said by email. “We decided not to move forward.”

Another organisation, MITRE, was offered $485,000 in May to research bioweapon security, but also decided against finalizing the gift.

“We have asked FTX Future Fund to remove the grant from their website,” a spokesperson said in an email.

Both MITRE and Our World in Data declined to specify what red flags prevented them from moving forward.

Whatever they spotted months ago, the decision looks prescient as FTX employees, investors and customers remain in limbo following the epic collapse of Bankman-Fried’s crypto empire. Uncertainty has also enveloped nonprofits, researchers and academics, who were either promised money from the exchange’s charitable arm that will likely never come, or who received funding and fear they’ll be caught up in a complex bankruptcy.

All told, some $90 million that the Future Fund promised in grants won’t ever be paid, according to a person familiar with the matter. What’s more, millions of dollars came from one of FTX’s now-bankrupt subsidiaries, said the person, who requested anonymity because the information is private, raising the risk that the funds could be clawed back.

While some may have been suspicious of Bankman-Fried, they were the fortunate ones.

Ridge Barker, a partner at Withers, said nonprofits and academics shouldn’t be expected to do the kind of due diligence that would spot FTX’s fraudulent behavior when the likes of the Ontario Teachers’ Pension Plan, Sequoia Capital and Tiger Global Management backed the exchange.

“They just don’t have the resources,” Barker said. “There were investors who had massive, massive resources and did significant diligence and felt comfortable investing significant sums of money and didn’t uncover the situation that led to its demise.”

North dimension

Bloomberg News attempted to contact each of the roughly 200 grant recipients listed on the Future Fund’s website — an incomplete list because it’s updated quarterly and was due for a refresh, the person familiar with the fund said. Many declined to be interviewed or didn’t respond.

Among those who did, almost all said they were stunned at how quickly Bankman-Fried turned from an effective altruism icon to facing regulatory scrutiny over his potential mishandling of customer funds. He was worth $26 billion at his peak, and made no secret of plans to give away his vast fortune and shape the world.

“We’re pretty shocked by this turn of events, and saddened by the prospect that even some of the money may have been fraudulently obtained,” said Jake Eberts, a spokesperson for 1Day Sooner, which in August received the $350,000 it was promised and had intended to use for pandemic preparedness and vaccine equity. “We have not spent that money yet and do not have immediate plans to do so given the current, uncertain circumstances.”

Eberts said an earlier $25,000 grant from the Future Fund in May was wired to the nonprofit from an entity called North Dimension Inc., which is one of the 130-plus entities named in FTX’s sprawling bankruptcy. That money has been spent, he said.

Others are wondering how they’ll carry on without the promised cash.

Goodly Labs, a nonprofit that received $500,000 from the fund for a tool that combats misinformation, was told it could expect to receive as much as $30 million in 2023. They started to think big, said Nick Adams, its founder and chief scientist.

“That, obviously, is extremely unlikely to happen now,” Adams said in an email. Goodly Labs had “quite detailed plans about how we would spend such large sums.”

Effective altruism

Before his firms went bust, Bankman-Fried, 30, surrounded himself in the Bahamas with other youthful believers in effective altruism, including Alameda Research Chief Executive Officer Caroline Ellison. The movement contends one should give away money to try to have the greatest long-term impact possible and has recently been espoused by billionaires including Elon Musk.

In an interview with Vox after the bankruptcy filing, Bankman-Fried was asked “the ethics stuff — mostly a front?” His reply: “Yeah.” He added that he “had to be” good at talking about ethics because “it’s what reputations are made of.”

Bankman-Fried spoke Wednesday at the New York Times DealBook Summit. He defended the Future Fund’s grants and thinking big about eradicating disease and preventing the next global pandemic. But he also acknowledged that not everything he did was genuine.

Regulated companies “are not looking at saving thousands of lives,” he said. They run promotions and marketing campaigns that are “un-impactful,” he said, and “FTX did as well.”

The Centre for Effective Altruism in March was promised almost $14 million that it never got “and does not now expect to receive,” a spokesperson for the nonprofit said in an email. It’s “currently considering the impact” of receiving funding directly from Bankman-Fried and Ellison.

Others that never received gifts: the Institute for Progress, which was promised almost half a million dollars in May; a Harvard University undergraduate offered $30,000 in April; and HR Luna Park, which was told in August it would get $200,000.

The Future Fund team, for its part, resigned hours before FTX’s bankruptcy filing. The five people who signed the post on the the EA Forum included William MacAskill, an originator of the effective altruism movement.

Charitable chaos

Like much of Bankman-Fried’s empire, the bookkeeping at the FTX Future Fund was chaotic and promises were made that weren’t kept. The roughly $140 million that it distributed this year, according to the person familiar, flowed freely, sometimes offered to organizations that didn’t expect or want it.

The FTX Future Fund was created in February as part of the FTX Foundation, a nonprofit primarily supported by Bankman-Fried, according to its website. The Future Fund was Bankman-Fried’s biggest philanthropic arm, with plans to distribute as much as $1 billion to charity in 2022. It did that with the help of a team of more than 100 “regrantors” from all over the world, according to the person familiar with its operations.

The Future Fund made gifts mostly from the FTX Foundation, which hasn’t declared bankruptcy. But it also paid out some grants from North Dimension Inc., one of the units that went bust, when they weren’t defined as charitable by the US tax code, the person familiar said.

The money from North Dimension is at risk of being taken back, said Barker, the lawyer from Withers.

“The bankruptcy trustee has the ability to claw back certain transfers,” Barker said. “For most people it’s 90 days, but for insiders it’s a one year clawback.”

The person familiar with the Future Fund’s operations said around $10 million in North Dimension grants fall into that 90-day window.

James Cox, a Duke University professor specializing in corporate and securities law, said it will ultimately be legally difficult to recoup money from grantees.

“It’s going to be a tough case,” he said. “But prosecutors may choose to be very aggressive in the FTX matter to deter others from taking gifts from equally scurrilous groups.”

© 2022 Bloomberg


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