What percentage of FTX Future Fund grant funds will ultimately be returned/clawed back?

This will likely have to resolve in part by my judgment -- at least in Madoff, recoveries under a certain amount weren't individually published. I do not trade in markets with any degree of subjectivity, so will not trade in this one. Please ask if you have any questions!

"FTX Future Fund" includes any grant that was listed on the FTX Future Fund website, irrespective of who the actual grantor was (North Dimension, SBF, FTX Philantrophy, etc . . ." The question encompasses all grants irrespective of when made (but does not include grants that were never dispursed). It does not include any donations that were not listed on the FTX Future Fund website.

"Grant" excludes equity investments.

"Grant funds" is by percentage of monies, not by percentage of grants.

"Returned/clawed back" means that the money is actually returned -- whether voluntarily, after settlement, or after a court order. It includes any payment by a third party to settle a claim against a grantee. It does not include clawbacks that the FTX Debtors failed to collect for any reason.

If proceedings are still ongoing by the end of 2028, I will resolve using an expected-value approach. In setting probabilities, I would give great weight to then-current court decisions that are on appeal or likely to be appealed, although I won't give any more weight to a district court's appealed decision than to a bankruptcy court ruling it reversed. I am a lawyer, but not a bankruptcy specialist.

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I don't trade on my markets with any subjectivity, but feel 36 percent is too low. Is it that people think there are good defenses under sections 548 and 550 if the transfer was too distant to be a preference? Or do they think the debtor will settle the claims cheap?

predicts HIGHER

@Jason I think the amount clawed back is going to be bimodal across grants. The grants received from the FTX Foundation are safer because it isn't a debtor entity, and small grants (and grants made to outside the US) are less likely to be targeted for clawbacks.

Also, my guess is that FTX would settle for a decent discount on the amount returned, since litigating is expensive (even if they think they have claim to 100% of the grant given out). They will have expected a portion of those funds to have been spent, too.

On the other hand, John J Ray III has got a reputation to uphold and will probably go to great lengths for it. Would be interested in other people's thoughts here. Although (as long as people know it's likely to be clawed back) I expect good forecasts on this question are unlikely to be relevant to the decisions people make.

FWIW, I don't think this will be an easy question to resolve — I don't know how much FTX will report (they redact people's names in many of the documents they've published) or whether the clawback request list will match up with the grants published on the Future Fund site (especially as I expect there'll be some grants paid out that weren't made public).

@berealistic I don't put too much significance in FTX Foundation's role here. First, because the FTX-to-Foundation transfers were fraudulent conveyances, the FTX debtors can go after subsequent transferees under section 550. Second, it should be easy to put Foundation in bankruptcy if that suits the FTX debtors' interests. Foundation had actual knowledge of the whole fraudulent scheme; look at who the directors were. So the Foundation-to-grantee transfers look fraudulent to me as well.

I think small grants will generally settle for a low percentage -- the debtors have a comparative advantage early on as far as who incurs litigation costs and will leverage that to get some money.

But I expect EVF to return the bulk of its grants -- there's enough to justify full litigation, I don't like EVFs chances as its size and ties to SBF make a defense harder, and litigation would likely publicize info EVF would like to keep under wraps. Between CEA, Longview, and 80K, that's a sizable chunk of the grants already.

You'll also have some grantees agree to return funds rather than fight, based significantly on ethics or optics considerations.

Jay is a professional, as are the lawyers, and both know their billings are subject to court approval and public scrutiny. They'll accept deals when appropriate.

predicts HIGHER

@Jason That's an interesting view about the FTX Foundation, though it's curious that it's not been put into bankruptcy already with that reasoning.

@berealistic The debtors would probably want, and might even need, a judgment against Foundation before filing an involuntary bankruptcy petition. They don't have authority to file a voluntary one on its behalf, and even if Delaware appoints new directors for Foundation (as it should) it probably has no assets to pay for a voluntary even if the new directors wanted to.

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