Sam Bankman-Fried sentencing: crypto-funded researchers grapple with FTX collapse

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Sam Bankman-Fried sentencing: crypto-funded researchers grapple with FTX collapse

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Sam Bankman-Fried, former chief executive of the now-bankrupt cryptocurrency exchange FTX, has been sentenced to 25 years in prison after being convicted of fraud and money laundering last year.

Meanwhile, the broader fallout from the collapse of FTX continues — and has ramifications on research that his organizations funded.

Bankman-Fried co-founded FTX in 2019. Before its collapse, the company allocated tens of millions of dollars to effective altruism — a movement that involves wealthy companies or individuals donating funds to charitable causes — and to tackling long-term risks to humanity, such as climate change.

This included giving money to research organizations and scientists, many of which now face the prospect of returning the funds to avoid possible legal action.

One research organization that did not want to be named for sensitivity reasons said that the situation was a “source of great stress and confusion”, adding that it was allocated funds “in good faith” but was now being pressed to return the money.

Others are concerned that news of the fraud has damaged the perception of effective altruism itself. “It appeared, up until the fraud was revealed, that [FTX] had a genuine interest in making the world a better place,” says Jake Eberts, communications director of the US-based medical-research advocacy organization 1Day Soone. “It was frustrating to see how the community had been led astray.”

Future fund

At its peak, FTX’s parent company, the FTX Foundation, was responsible for managing more than US$700 billion in annual cryptocurrency trading and was valued at $32 billion. But in November 2022, Bankman-Fried was found to be siphoning money to a sister company and himself, leading to a mass withdrawal of funds by FTX customers and the company declaring itself bankrupt later that month. Many people lost their investments in the collapse.

Before any fraudulent activity came to light, FTX had announced it would allocate some of its money to scientific organizations, charities and individual researchers, making “grants and investments to ambitious projects to improve humanity’s long-term prospects” through a body called the FTX Future Fund.

The fund awarded more than 250 grants from March 2022. One of the largest recipients was Lightcone Infrastructure, a California-based company that promotes projects to tackle long-term goals for humanity and runs an online forum for effective altruists, called LessWrong. “In total, we received something close to $4 million,” says Oliver Habryka, the company’s chief executive. The subsequent collapse of FTX “had a huge effect on us”, he says. “Currently half of my job is probably still dealing with that fallout.”

The FTX contribution amounted to “around 50 to 60%” of Lightcone’s total funds, says Habryka. Some of the money helped to pay for the Lightcone Offices in Berkeley, California, which had to close in early 2023; some was allocated to running LessWrong.

By the time the fraudulent activity came to light, many of the funds had already been spent, leaving Lightcone in a difficult situation. “We are talking to the FTX estate about what are reasonable settlement numbers and how we can return things,” says Habryka. “We were very heavily impacted by FTX. I’ve put [in] a decent chunk of my personal money to keep the organization afloat. But we have no chance of giving back most of the money because it was already committed, and I don’t know where we’d get the money from.”

Cancelled plans

1Day Sooner received a considerably smaller sum from the FTX Future Fund than Lightcone — less than $400,000, accounting for about 4% of the organization’s funding — which they decided to return when news of the fraudulent activity broke. Losing the money still had an impact, says Eberts. “It did require curtailing plans.”

The organization had planned to use the funds to support future pandemic preparedness in Africa and take steps towards a pandemic insurance fund for developing countries. The idea was to create a mechanism in the World Health Organization that industrialized countries would contribute to, he says. “The Future Fund grant would have been used on “lobbying to get this proposal [discussed] at the World Health Assembly”.

Those plans have been cancelled. “We decided to shelve indefinitely the pandemic insurance fund,” says Eberts. “It was a moonshot in a lot of ways, but the required funding was not forthcoming from other funders.” When news of the FTX fraud broke, “we were all devastated”, he adds.

Sawyer Bernath, executive director of the Berkeley Existential Risk Initiative (BERI) in California, has been through a similar experience. The Future Fund awarded his organization, which seeks to tackle long-term threats to humanity through research collaborations, nearly $400,000 in grants, about 10 percent of BERI’s total funding, for five projects. After the bankruptcy was announced, BERI decided to return the money. For three projects, the cash had not yet been spent. For “the remaining two, we did end up spending because it was very time-sensitive,” says Bernath. “When we did decide to return everything, we used some of our general funds to fill in.”

Operationally, returning the funds has not been too much of a problem, says Bernath, but the “psychological impacts” have been big. “In terms of the existential-risk community, we were really gearing up to this big change with all the money that FTX was committing to things,” he says. “Right at the upswing where everyone was excited, all of a sudden it turned out to be all fake.”

The bankruptcy came as a surprise, and he now finds that there is less funding available from other philanthropic organizations. “When FTX was offering all this money there was a push for mega projects, [worth] $100 million,” he says. “No one talks about that any more.”

The fallout is likely to continue. “Many of the charities that received this money have been negatively affected,” says Bernath, noting that FTX customers also suffered losses. “Many lost all of their life savings, because they felt like this was a trustworthy company, as did we,” he says. “I hope they’re able to get that back.”

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