Sid DeLong on Ethical Altruism and Sam Bankman-Fried
Defective Altruism: Reflections on Bankman-Fried
Sidney DeLong
As the long hand of the criminal law closes inexorably around the neck of Sam Bankman-Fried the disgraced founder of the bankrupt crypto exchange FTX, the insatiable Meaning Machine has already begun to Draw Conclusions from his fate.
Herein are mine. This is posted during his criminal trial and may be amended.
Effective altruism is a modest approach to doing good that would appeal to people across the pollical spectrum in a saner world of ideas. Briefly stated, it challenges each person to maximize their effectiveness in mitigating inequality by careful application of their resources, getting the most bang for your charitable buck. For Bankman-Fried and his friends, it meant making a lot of money and giving a lot of it away to worthy causes, while keeping enough to lead the good life. Effective altruism apparently is not overly concerned with the first step in the program (making a lot of money) and so it seems not to have mattered that Bankman-Fried’s wealth came, directly or indirectly, from speculating in the wildly fluctuating values of bitcoin and other crypto currencies.
Bankman-Fried also established FTX, a cryptocurrency exchange permitting customers to buy and sell bitcoin. In the unregulated world of crypto-currency transactions, FTX offered those who wished to deal in bitcoin a trustworthy platform on which to buy and sell bitcoin with certainty that the trades would be executed and that the customer’s funds and bitcoin holdings were safe. Because it acquired a reputation as being exceptionally trustworthy, bolstered by Bankman-Fried’s celebrity, FTX grew at a prodigious rate and was soon said to be worth several billion dollars.
With the help of funding from ethically minded millionaires, Bankman-Fried and his friends also created Alameda Research, a hedge fund firm that traded and speculated in bitcoin and other crypto currencies. As a market maker, Alameda provided liquidity to some of FTX’s customers. Alameda’s trading profits were intended to be devoted to altruistic causes. During their operations both FTX and Alameda donated millions of dollars to causes their founders deemed worthy, including Democratic Party political campaigns and causes.
Under Bankman-Fried’s control, Alameda and FTX operated closely together with only casual attention to the corporate formalities. The FTX bankruptcy trustee has accused Bankman-Fried of improperly transferring customer funds back and forth from FTX to Alameda, whence they evaporated in the crypto crash, leaving FTX customers with billions of dollars of losses from their accounts. He is also accused of commingling assets, failure to maintain proper records of transactions, and a host of other breaches of fiduciary duty to the customers and creditors of FTX. He is accused of improperly using the funds of FTX for personal gain. His defense to some of these claims is much more difficult than it would be otherwise because of grossly inadequate record-keeping.
But if these allegations are true, What Does It Mean? To trace all of Bankman-Fried’s misbehavior to his parents’ training on Effective Altruism would be unjustified. Effective Altruism is not a call for a crypto-Robin Hood to take bitcoin from the rich and give it to the poor after extracting a handsome handling fee in the process. But it is predictable that the Singer philosophy is likely to become a scapegoat in the political press, especially when the altruism appears directed to Democrats rather than Republicans. One need not be a cynic to predict that teaching Effective Altruism will be banned in Florida schools.
Although Effective Altruism does not require the forms of misbehavior of which Bankman-Fried and his friends stand accused, it seems that they did not think that it excluded it either. Perhaps Effective Altruism should be recast as Ethical Altruism, limiting the raising of funds for charitable redistribution to ethical means. Ethical Altruism would disavow robber baron philanthropy as a form of secular simony in which one’s sins can be pardoned with a sufficiently large charitable foundation, But this is only a suggestion from a non-philosopher.
If Bankman-Fried had been educated at Stanford Law School, where his parents taught, instead of or after his stint at MIT, he might have avoided his present legal plight. At a general level, he would have been taught the legal constraints and fiduciary obligations that arise when dealing with other people’s money, along with the procedural ways in which to comply with them. Regrettably, in their zeal to convert Sam to the ultimate goals of altruism, his parents apparently failed to teach the less dramatic lawyer-virtues that underlie rules that they taught their law students, including those concerning fiduciary duty, commingling, conflicts of interest, breach of trust, and the other constraints one must observe when dealing with Other People’s Money.
On a more mundane level, if he had been trained as a lawyer, he would also have been forced to come to acknowledge his own ignorance of the legal and ethical relationships that were created by his novel and complex financial empire. A less self-confident Bankman-Fried would have sought legal advice on such questions as the following: What is the exact legal relationship between FTX and people who trade bitcoin on its platform? What are FTX’s record keeping obligations regarding their trades? What am I legally permitted to do and what am I prohibited from doing with regard to customer funds and bitcoin? Am I a trustee and if so to what extent? What may I do and what am I prohibited from doing with regard to transactions between FTX and Alameda? What is the best legal vehicle to achieve my goals?
I confess that the urge to speculate as to why Bankman-Fried failed to get detailed, expert advice on these and similar questions is irresistible. To me, his tragic flaw was that old Greek standby hubris, in this case induced by his having become a twenty-something billionaire who was proclaimed a genius by powerful and wealthy people who praised him for thinking outside the box. For one who was a hero in a culture that prizes recklessness (“Move fast and break things”), it would have been uncharacteristic for a genius to run all his business plays by his lawyers. And anyway, he was assured by ethical experts that his soul was pure because his motives were unimpeachable.
So that is the Meaning I have drawn from this sad tale, as we await the completion of his criminal trial. It is a modest, law school level observation that even masters of the crypto universe must know about professional and fiduciary responsibility and that altruism must be tempered by such responsibility.
As a postscript, however, as the lesser-known details of the FTX bankruptcy sadly illustrate, Bankman-Fried may conclude from this experience that merely training lawyers about their professional responsibility may not be enough to prevent ethical lapses of the sort he committed. His counsel and several other people have accused Sullivan and Cromwell, one of the largest and most prestigious law firms in the country, of a massive conflict of interest arising from its representation of both FTX, as it advised him to file for bankruptcy, and the FTX bankruptcy trustee who later attacked those transactions. The bankruptcy court has rejected these challenges after Sullivan supplemented its disclosure.
Nevertheless, Bankman-Fried might well conclude that the Sullivan firm appears to have reasoned its way around apparent ethical barriers that would have stymied less prestigious, less sophisticated lawyers: It seems to be a professional flaw that an unconscionable fee doth make casuists of us all.