It took FTX founder Sam Bankman-Fried seven months for headlines to go from “Crypto Billionaire Who Wants to Give His Fortune Away” (https://bloom.bg/3gOO71z) to “‘Effective Altruism’ Implodes With His FTX Fortunes” (https://bloom.bg/3gYbHJe).
There are many questions about how this scheme fooled so many, but for the movement of Effective Altruism (EA), the big one should be: Do the ends really justify the means?
Sam Bankman-Fried worked to build the credibility of his Bahama-based crypto exchange FTX since 2019 by crafting an image of an MIT grad interested in making money now to later donate in effective ways.
Credibility was the real asset that Bankman-Fried needed to build customer and investor trust as he built FTX to $16 billion in assets. This credibility was purchased through celebrity spokespeople, buying rights to the Miami Heat arena, political donations to the Democratic National Committee, and pledges given under the banner of EA.
William MacAskill, one of the people behind the EA movement stated in a 2014 paper that “sufficient donations might justify an otherwise morally controversial career, since the impact of taking an unethical job is small if someone else would have taken it regardless.” (Replaceability, Career Choice, and Making a Difference https://bit.ly/3VtKvAT). This kind of utilitarian thinking is in line with the EA focus on data and research to do the most good with donations.
Bankman-Fried met MacAskill when he was a student at MIT and appeared to buy into the EA ideology of “Earn to Give.” MacAskill later joined the FTX Future Fund and began working on the FTX Future Fund before the collapse.
The idea of “Earn to Give” creates a social impact accounting that relies on donations to morally justify potentially unethical business practices. This ideological flaw is now on full display in the philanthropic world as more is revealed about the millions of customers that have been defrauded by FTX including some teacher pension funds (https://bloom.bg/3XPb6tL). The EA philosophy was featured in the public relations that Bankman-Fried used to burnish his reputation, which helped him increase trust and investment in FTX.
The hard truth is that pledges are just public relations and EA gave Bankman-Fried his money’s worth. Total donations from FTX were reported to be $140 million of which $29 million went toward MacAskill-lead EA nonprofits (https://nyti.ms/3XUpaSM).
As bankruptcy proceedings now commence, many nonprofits that received grants are preparing for potential clawbacks of funds (https://on.mktw.net/3uqpuuV). Clawbacks are legal requests for fraudulently earned money that was donated to be returned. In the aftermath of the Bernie Madoff scandal, hundreds of nonprofit organizations had to return millions in donations (https://bit.ly/3unnwf3).
As news of the bankruptcy and fraud allegations came out, the entire team from the FTX Future Fund publicly resigned in a public letter on Nov. 10, 2022 (https://bit.ly/3gVpP5Y).
In a further statement, MacAskill said he was “appalled” at the events and “No plausible ethics permits one to lose money trading then take other people’s money to make yet more risky bets in the hope that doing so will help you make it back.”
The five-person team listed on the FTX foundation site (https://bit.ly/3FlKEkc), which included MacAskill all had direct ties to the University of Oxford as affiliates, alumni or professors. There is no public record of donations made to the university according to disclosed grants on the foundation site (https://bit.ly/3ulOunm).
Meanwhile, philanthropist MacKenzie Scott announced in a blog post she had given $1.99 billion to 343 organizations in just seven months (https://bit.ly/3ukVq44). No pledges. No promises.
Scott showed receipts. Bankman-Fried’s philanthropic promises are now worth less than the paper they were written on and are now raising questions on the survival of EA and crypto philanthropy.
The movement of Effective Altruism has some soul-searching to do in the aftermath of FTX. On its face, EA as a method for smart giving driven by data and reason to do the most good makes sense (https://bit.ly/3Fohe5i). Extending EA as public relations for unethical business practices, as long as the check that is pledged is big enough seems to violate the philosophy. To solve the world’s largest problems, the rising generation will need to earn to impact, examining the net impact of work and giving add up.
The burgeoning world of crypto philanthropy has also been set back as the FTX collapse has set the crypto industry back by years. But just as Bernie Madoff didn’t destroy private foundations with his $64 billion scheme, Bankman-Fried’s $16 billion alleged fraud won’t destroy crypto giving. Crypto will still provide a transparent, frictionless way for the generous to donate to nonprofits.
George Weiner is chief whaler at digital agency Whole Whale. His email is email@example.com