Sam Bankman-Fried, FTX, and effective altruism

Sam Bankman-Fried is the disgraced founder of the cryptocurrency exchange FTX. In 2022, effective altruism received a great deal of public attention due to Bankman-Fried’s association with the movement and the community. This page briefly discusses the FTX scandal, how Sam Bankman-Fried was connected to effective altruism (EA), and how the movement responded to his crimes. FTX went bankrupt in 2022 after misappropriating customer funds to invest in its associated hedge fund Alameda Research. Bankman-Fried is currently serving a 25-year prison sentence for fraud, conspiracy, and money laundering. Alameda Research’s CEO, Caroline Ellison, was also sentenced to two years in prison after pleading guilty to fraud charges.

The collapse of FTX caused serious harm to its customers and investors. FTX's major investors each lost hundreds of millions of dollars. Many companies with ties to FTX, such as Genesis Global Capital and BlockFi, also collapsed. The new management that took over FTX after its collapse eventually recovered $14–$16 billion in assets, which allowed them to pay back 100% plus interest to nearly all FTX customers. But in the meantime, these customers were unable to access their money for years, and they were only reimbursed for the dollar value of the crypto they held plus interest, even though many cryptocurrencies like Bitcoin had doubled or tripled in value over that time.

Sam Bankman-Fried publicly credited effective altruism as his reason for pursuing wealth and getting into the crypto industry.

In 2012, Bankman-Fried met William MacAskill, one of the intellectual founders of the effective altruism movement. MacAskill introduced Bankman-Fried to the concept of “earning to give.” Earning to give means choosing a high-paying career so that you can donate a large percentage of your income to charity, for example, by working as a financial trader, a software engineer, or a management consultant. Importantly, however, effective altruism has always stressed that people who earn to give should choose a career with a neutral to positive effect on the world, and avoid harmful careers, even if they are lucrative.

Sam Bankman-Fried tried out different career paths, including working for two months at the Centre for Effective Altruism. In 2017, he founded Alameda Research (a hedge fund that traded cryptocurrency) and in 2018, FTX (an exchange where people bought and sold cryptocurrencies). He said that he founded these companies to earn money that he could then donate.

Alameda Research and FTX seemed to be wildly successful. Bankman-Fried's net worth peaked at $26 billion. He founded the FTX Future Fund to give away his billions to causes such as pandemic preparedness, AI safety, and supporting the effective altruism movement. According to an article in Forbes, the FTX Future Fund claimed that it had donated an estimated $190 million by the time of FTX's collapse. Bankman-Fried also expressed public support for effective altruism, earning to give, and the importance of protecting humanity from serious threats like AI risks and severe pandemics.

Unfortunately, many within the effective altruism movement played a role in promoting Bankman-Fried. Some effective altruist organizations cited him as an example of someone who successfully earned to give, which may have made him seem more credible and trustworthy to the public. Furthermore, many effective altruist organizations accepted money from Bankman-Fried. For example, Effective Ventures (Effective Ventures UK and Effective Ventures US, which housed projects like the Centre for Effective Altruism) received $26,786,503 from FTX and the FTX Foundation in 2022.

In retrospect, people and organizations within the effective altruist community made errors of judgment in uncritically accepting money from, supporting, and promoting Bankman-Fried. Some early employees at Alameda Research, who were connected to effective altruism, quit due to misgivings about poor accounting and risk management practices; however, the community didn't respond adequately to these warning signs. Some effective altruist nonprofits allowed themselves to become reliant on Bankman-Fried as their primary funding source and failed to subject him to sufficient scrutiny.

Once the fraud was discovered, many of the FTX Future Fund’s donations were returned to the people FTX owed money to. Following the collapse, Effective Ventures agreed to settlements with the FTX bankruptcy estate. As part of these settlements, Effective Ventures paid the FTX bankruptcy estate $26,786,503 — an amount equal to 100% of the funds the entities received from FTX and the FTX Foundation in 2022. Effective Ventures also commissioned an independent investigation into the organization’s relationship with FTX: this found no evidence that anyone at Effective Ventures knew about the fraud. Many prominent people in the effective altruism community, including William MacAskill, have reflected publicly on the lessons they learned from the FTX collapse; you can read other reflections on the Effective Altruism Forum here.

Effective altruism has always been about how people can use their resources to help others as much as possible. Stealing enormous amounts of money from your customers is not among the best possible ways to help others. Sam Bankman-Fried's behavior went against values central to effective altruism, such as honesty, humility, integrity, and concern for other people. While he spoke the language of effective altruism, his actions did not reflect effective altruist ideals.

Effective altruism is a diverse movement made up of many different people and organizations. While many in the community made mistakes in trusting Sam Bankman-Fried, his actions don’t undo the many positive acts of people across the movement, such as individuals donating 10% of their income to the Against Malaria Foundation, advocating for better conditions for egg-laying hens, or developing technologies to help us be better prepared for the next pandemic.