/NicoDelon/will-austins-in-defense-of-sbf-have had resolved at 27% PROB. Not too shabby.

https://manifold.markets/NicoDelon/has-in-defense-of-sbf-by-austin-age?r=Tmljb0RlbG9u

It feels like EA is punishing SBF not for being unethical, but for being unlucky.

This is probably where I disagree the most, it's totally unacceptable to handle customer funds this way, and I would codemn it as strongly in a counterfactual world where this somehow all worked out. I don't think I have a clean way to explain this if you don't already have this intuition, but it's the financial equivalent of the greatest possible violation of trust. In the case of the Lehman Brothers, no customer funds were ever at risk and all funds were returned to customers. Stealing, gambling with, and losing customer funds is not only fraud but fraud of a level far beyond the fraud most people usually condemn. As far as accounting, I find it very difficult to simultaneously believe that FTX International was a successful, competently run business, and that SBF believed it was legitimate to list the assets FTX held to cover customer funds as mark to market when they were the primary holder of those assets and responsible for the vast majority of the trading volume of those assets. It should not be possible to make this sort of mistake in good faith, and it's the responsibility of the fund to ensure that these sorts of mistakes are not made.

But if you believe the latter — tell me, how much did you know about crypto, exchanges, or trading firms before last week?

Since I'm being asked, probably top tenth percentile? Not a whole lot, but I was certainly familiar with this type of fraud before FTX collapsed, it is very much classic fraud. It's not impossible that SBF sort of accidently stumbled into committing fraud totally in good faith, but it does seem to me like a pretty absurd claim which would require a whole lot of updates on my part about his intelligence, knowledge of finance, personal ethics, or mental state. Again, putting yourself in a position where it's possible for you to fat-finger billions of customer funds is not acceptable. You are required to not put customer funds at risk. Even if the actual loss of funds was somehow totally done in good faith, the actions leading up to it are still unethical and should still be condemned.

Risk-taking and ambition are two sides of the same coin. If you swarm to denouncing risks that failed, you do not understand what it takes to succeed.

I think one of the most credible and reasonable criticisms of Utilitarianism and specifically longtermism is that it becomes very easy to justify certain means that most people would find repulsive if taken too naively and too literally. 0.00001% of an astonishingly big number is still an astonishingly big number, and so what is $9B of customer funds but a pebble on the road to the long term future? Personally, I like to take my utilitarianism with a side of virtue ethics.

For what it's worth, I don't think much or any of the criticism from with EA is motivated by their changed financial situation. If EA has a track record of anything, it's continuing to do their best and reason in good faith even when large sums of money are involved. Fairly rapidly EA has moved to directing an order of magnitude more funds and it doesn't seem to have led to any notable corruption or dilution of morals. The whole thing is unfortunate and I'd generally prefer to let the trial end before criticizing anyone too heavily. My predictions, though, are 99% willful fraud, and that most of the people who have a fraud probability of under 90% will update significantly after the trial. No plea deal offered means the prosecution thinks they have an absolutely slam dunk fraud case, and I generally believe that the people in charge of prosecuting high profile fraud cases have access to the most information about the case in question and are generally competent and knowledgeable about fraud. Finally, while it's unfortunate and painful, I think it's necessary to criticize people who do things that are unethical even if you like and care about the person in question.

Discussion started here, I thought I might as well cross-post it:

https://manifold.markets/jack/will-we-believe-sbf-committed-willf#PAiiBwePgOWrv6dKt3cu

I guess I don't really get the loyalty point. Surely I should be loyal to real qualities, but if those seem to have been false I am not obligated to be loyal to a person who didn't actually do them.

I have Yes shared on this market in part due to several of the items you mentioned.

EAs are emotional and feel hurt, which i think is meaningfully affecting the community response.

My bet is on that it was willfwl fraud, with no ill intent. :P

(Only half joking.)

I think you should apply your bias toward trust (which I'm on board with generally, fwiw) to the response by EAs! "But from EA folks, this behavior strikes me as cowardly, coldhearted, opportunistic, bandwagon-y, two-faced and distasteful...Are EA folks only fair-weather friends, happy to accept your money in good times but also ready to eviscerate you to maintain deniability and a glossy PR sheen?"

This post argues for a level of charity toward SBF that it doesn't display to EA backlash. Bandwagon-y, sure. I've thought the same. But for the rest, I see most EA commenters (and have heard in personal conversation) saying they are angry because they believe SBF to have committed fraud and fraud is unethical. Since EAs typically care a lot about ethics, that makes perfect sense, and I think we should take the self-ascribed motivation at face value. It's not cowardly opportunism to accept money that you believe to have been honestly acquired, but to turn on the donor when you realize the donor has used destructive/harmful means. (And I believe the world is complicated, you can't guarantee any money you've received to truly be clean, etc etc, but there are levels.) I think Eliezer's linked article is excellent, and that the thing he's responding to is evidence of my read of the situation. And Scott's "world-branch" section hit me really really hard.

Also, whether or not SBF specifically was committing willful fraud, it's short-sighted about the value of trust to argue that a risky gamble using customer funds would be basically okay if it paid off. Trust is the perennially valuable currency and seems vital to society working, so to me, the anger doesn't seem remotely out of proportion. Someone gambling customer funds against their own terms of service is doing something unethical and should be denounced whether or not they get lucky.

That all being said, I found your points about how complex systems break and how risk-taking and ambition go together to be very very valuable for my own understanding and thought processes. I'm glad you posted this and don't think you should regret it.

A lot of people are extremely skeptical of the possibility that it wasn't willful fraud. Given the current evidence, I think there's a plausible case (not necessarily likely, but plausible) that it may not have been fraud, and it could have been a combination of bad judgement and mistakes - egregious, careless, and reckless, sure, but that would be quite different from willful fraud. And whether it was willful fraud or not changes the interpretation of everything else, in my view.

This is one good example of the way such a mistake could have very plausibly occurred, reported by https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-quietly-used-ftx-customer-funds-without-raising-alarm-bells-say-sources.html

Part of the issue, according to the same source, was FTX’s web of complicated leverage and margin trading. Its “spot margin” trading feature let users borrow from other customers on the platform. For example, if a customer deposited one bitcoin they could lend it to another user and earn yield on it.

But every time an asset was borrowed, FTX subtracted the borrowed assets from what it needed to keep in its wallets to match customer deposits, a source says. In a typical situation, an exchange’s wallets need to match what customers deposit. But because of this practice, assets were not backed one-to-one and the company was underestimating the amount they owed customers.

This sounds to me like a classic software bug. When one customer borrows from another customer, FTX needs to subtract its asset backing requirements from one place and add in another place - and apparently they had a bug where the adding was missed! This type of mistake could easily cause a company to accidentally loan out more company funds than they were supposed to and end up accidentally loaning out customer funds. Of course, such a mistake would still be very bad and be evidence of carelessness and recklessness.

Yes, there are many pieces of evidence pointing in the direction of willful fraud, but so far I haven't seen any that are all that clear-cut. Finance is extremely complicated and I can imagine so many ways to make a dumb mistake that looks like "intentionally loaning out customer deposits". E.g. SBF's explanation that he mislabeled accounts on a spreadsheet - it could be a weak made-up defense, but it's also the sort of thing that really does happen all the time and lead to disastrous consequences. Perhaps the one that caused me to update most towards willful fraud so far was the news of SBF having a "backdoor" in FTX's book-keeping system (see https://www.reuters.com/markets/currencies/exclusive-least-1-billion-client-funds-missing-failed-crypto-firm-ftx-sources-2022-11-12/) - but this is still very light on details and I can still imagine so many plausible non-fraud reasons for this.

tl;dr: FTX's failure to hold customer deposits as fully backed deposits seems like it could very plausibly be a mistake rather than fraud.

@jack If it turns out it was deliberate fraud, do you think that is a bad thing, and that the condemnation of SBF that is currently happening would appropriate/proportional?

@PeterBorah Yes, I do think that willful fraud is bad and deserves condemnation. I personally think if we had evidence making us confident that it was willful fraud in the style of Enron, the types of condemnations that Austin linked to seem likely appropriate and proportionate. (Although I haven't thought particularly hard about this and obviously it depends a lot on the situation and a lot on what the condemnations are exactly.)

It is worth recognizing SBF's good contributions, but the scale of the badness of the fraud (if it was fraud) far surpasses those, in my view. I believe fraud like that is disproportionately harmful and there is probably a good decision theoretic justification for condemning them. And I do not believe someone who willfully deceived deserves loyalty (unlike someone who made mistakes).

This market helpfully surfaced this reporting https://www.wsj.com/articles/alameda-ftx-executives-are-said-to-have-known-ftx-was-using-customer-funds-11668264238

In a video meeting with Alameda employees late Wednesday Hong Kong time, Alameda CEO Caroline Ellison said that she, Mr. Bankman-Fried and two other FTX executives, Nishad Singh and Gary Wang, were aware of the decision to send customer funds to Alameda, according to people familiar with the video.

So it appears there was definitely some intentionality, although SBF was also still claiming that there were mistakes after Wednesday e.g. this tweet https://twitter.com/SBF_FTX/status/1590709172936798208 "a poor internal labeling of bank-related accounts meant that I was substantially off on my sense of users' margin. I thought it was way lower." Not sure what that all means, is it a claim along the lines "we knowingly loaned out user funds and we thought it was ok financially but we were wrong"?

I would love to see this post accompanied by an accounting of FTX-related market positions you hold, so I can better understand how you're quantifying how you feel about this. Do you expect SBF to be convicted of fraud? Do you expect the sentencing to be harsh? Do you expect it to be discovered that he was lying about something?

I haven't been keeping track of my sources so well that I can point to receipts, but I would buy yes om the last question--my take is that a lot of community members would do the same.

I think this is the crux of your post. It's perhaps disloyal to turn your back on someone who supported you when they turn out to have made an honest mistake, but not when they betray you or you learn that they aren't who you thought they were.

I think many EAs are feeling, with the information they have, like there's very little chance they weren't betrayed. Not that SBF made a mistake, or even that he committed a crime--but that he wasn't the person they thought he was.

I'm not gonna make that market, because I simply do not want to, but, idk, maybe that's the place for this conversation you want to have to best continue.

(Notice: I hold YES on the "Austin regrets this post" market.)

I'm not gonna make that market, because I simply do not want to, but, idk, maybe that's the place for this conversation you want to have to best continue.

I'd be happy to make and arbitrate this market if you think it'd be good to have. Something like "Will EAs in this future poll feel betrayed by SBF and that he was hiding his true personality?"?

@IsaacKing I don't want to be too literal about "wasn't who they thought he was," but I think there's been significant disagreement even in these comments about what the sum of the evidence is RE: if "willful" fraud was committed/someone just made a really big mistake. I don't fully understand if the existing markets capture this distinction or not, but if they don't, I think a new market would likely be useful, yeah.

My understanding is that it's really hard to make any sense of this situation without FTX having failed to hold customer deposits as fully backed deposits, and that FTX represented itself as doing that. This seems like really super duper classic financial fraud? Like you can't end up doing that without soliciting customer trust and then breaking it on purpose. Trust isn't broken in the moment when you lose the money, it's broken in the moment when you put the money at risk, do anything with it besides store it in a wallet. There's a clear bright line there and it shouldn't have been possible to step across it by accident.

If a later story comes out where, somehow, all of this happened without ever crossing the clear bright line of "we did something with customer deposits other than keeping them in a crypto wallet" - then yeah, I'd walk back a lot of things.

I think FTX's failure to hold customer deposits as fully backed deposits seems like it could very plausibly be a mistake and not done on purpose (I'm not arguing that it's likely, just plausible). I posted another comment explaining why here: https://manifold.markets/post/in-defense-of-sbf#jIGvMdkFDKDltmegirwJ

On the second point, my take is that SBF current problems will not be made worse by people distancing themselves from him. Loyalty is valuable but if you can't help then sometimes it's best to stay away from the fire.

I was wondering whether his political donations would result in "loyalty" in the form of a pardon, but decided to make a market instead.

https://manifold.markets/MartinRandall/sam-bankmanfried-gets-pardoned-or-g

Loyalty not good when it's corruption.

BLUF: This post makes me update strongly away from trusting Manifold in general, and Austin in particular, especially if there is ever real money involved in the future.

Longer commentary: I have little trouble with the first section. It's a complicated situation, many of the relevant facts aren't yet available, and "innocent until proven guilty" is a reasonable heuristic, especially for people you had previous reason to trust. I personally think there's little chance it turns out Sam didn't commit knowing fraud, but I don't begrudge people reserving judgment.

However, the later sections pivot from that to just straight-up endorsing fraud and theft:

> If the question is “should I associate with a person who has this track record, and also once fraudulently misused customer money, but has repented and is trying as hard as possible to fix it”… the answer seems like a clear yes to me.

This assumes facts not in evidence. Sam has not yet admitted to "fraudulently" doing anything, as the first section explicitly points out. Thus, we cannot say he's repented. We also don't know whether he will "work as hard as possible to fix it". If he does that, perhaps his reputation can be rehabilitated at some point in the future. But he would have to put in the work to get to that state, and in the meantime it is reasonable to refuse to coordinate with a known fraudster.

> And on a personal note, I aspire to create a lot of value for the world, and direct it towards doing lots of good. Call me overconfident, but I expect to be a billionaire someday.

These sentences are perhaps the ones that most directly lead to me distrusting the author. In conjunction with the rest of the post, it's hard to read this as saying anything other than "I plan to act similarly to SBF in the future, consider yourselves warned".

> Imagine a world in which things had gone a little differently. [...] then the news breaks that three years ago, Sam willfully took a risky gamble using customer funds to keep FTX and Alameda both afloat. What would your reaction be? Would you denounce fraud, demand that customers be compensated (how much?), ask Sam to step down?

Yes, of course. I don't know what the statute of limitations on fraud is, but three years doesn't seem nearly enough to pretend fraud wasn't fraud.

As for the amount of compensation, that's a fairly easy calculation. The customers should be paid interest on their deposits at a rate determined by what the fair market cost of an uncollateralized loan to FTX/Alameda at the time would have been, if all the facts had been disclosed. (Probably times some multiple as "punitive damages" for subjecting them to that risk without their knowledge or consent.)

As comparison, Matt Levine reports today that banks are getting offers for Twitter debt that are around 60 cents on the dollar, despite Twitter likely being a safer bet than FTX was.

> Fred Smith, the founder of FedEx, famously gambled his company’s entire bank account at a casino in order to keep deliveries going: [...]Of course, these two stories aren’t exactly the same; betting investor/company money is different than betting money entrusted to you for other purposes.

These stories are not just "not exactly the same", they differ in exactly the crucial detail that makes the one example fraud, and the other not-fraud. This is like comparing a case where a thief sold a stolen watch at a pawn shop with a case where someone who needed money sold their own watch at a pawn shop.

(Crucially: I think that it is correct to consistently support him in our world and World 2. You can also be consistent by saying that EA should denounce him in both worlds. But if you believe the latter — tell me, how much did you know about crypto, exchanges, or trading firms before last week?)

I believe the latter. I worked full-time as a developer in the cryptocurrency space from 2014-2018, traveled the world giving talks on crypto, etc, and have maintained an amateur interest since. I know somewhat less about exchanges and trading firms, but have certainly picked up some basic understanding from being in the crypto community for 8 years, reading Matt Levine for years, etc. I feel confident that it doesn't take more knowledge than that to know that lying to customers in order to take risky bets with their money is bad practice.

@PeterBorah Thanks for weighing in!

However, the later sections pivot from that to just straight-up endorsing fraud and theft:

I probably did a bad job explaining here (fwiw, I do not endorse fraud or theft). But points 2 and 3 are an argument about something like - even in the worlds where fraud actually occurred, the backlash I'm seeing is fairly disproportionate. It's a consideration on the margin: there's a correct amount of updating in response to bad actions; I think the community has gone too far.

As for the amount of compensation, that's a fairly easy calculation. The customers should be paid interest on their deposits at a rate determined by what the fair market cost of an uncollateralized loan to FTX/Alameda at the time would have been, if all the facts had been disclosed. (Probably times some multiple as "punitive damages" for subjecting them to that risk without their knowledge or consent.)

This could make sense as a compensation scheme -- but really I'm more curious, has this kind of payback ever been done before? My feeling is that, because you've taken the stance that "fraud is worth punishing" you want to bite the bullet and say that in World 2 you would also be consistent. And maybe you would! But I don't currently have the feeling that many others who are weighing in now have your same background and context; their behavior feels very bandwagon-y to me.

has this kind of payback ever been done before?

I don't know! I think if no one actually lost money, the more usual pattern is for the entity to have to pay massive fines to the government, rather than the customers, possibly combined with jail time, but I'm not an expert on fraud prosecutions.

FWIW, I see rather little daylight between "endorsing fraud and theft" and "saying that the community is over-updating on the information that someone stole literal billions of dollars from literal millions of innocent people".

@Austin @PeterBorah Now a Manifold market! Come place your bets.

https://manifold.markets/Jotto999/will-austin-chen-manifold-cofounder

@PeterBorah BLUF: This post makes me update strongly away from trusting Manifold in general, and Austin in particular, especially if there is ever real money involved in the future.

I agree. Obviously, I'm not the mega-genius heroic altruist that SBF is or I'd be enjoying my many mansions in the Bahamas instead of lurking in the comment section of someone else's website, but I just.... can't really imagine a scenario in which I would be entrusted with someone else's money and think it's OK to be so reckless and careless that I couldn't tell you where it was or how much of it there was or what I had done with it. I don't see such a huge bright line between that and fraud, especially when you consider how much effort FTX had put into mass advertising to get 'normal' people to give them their money. That so many people here seem to think so little of this makes me pretty sad and disappointed.

I have spent a bit of time trying to get to the mental state where "being entrusted with others' money" means so little that you no longer have basic moral obligations, and I can't get there without making some massively uncharitable assumptions about the kind of person that would think that, as this post suggests Austin thinks, so I shan't write them out further. But I definitely feel much less comfortable trusting Manifold in any kind of real-money scenario, which is really saddening. I think I may take a break from the site for a bit and see how I feel in a month.

@JohnRoxton Thanks for your thoughts, and I'm sorry that this post makes you feel that Manifold or myself are untrustworthy.

For whatever it's worth, I think SBF's specific failure cause (indirection, lack of transparency and accountability leading to loss or enabling fraudulent behavior) is quite unlikely for Manifold/me. I'm the one who pushed for Manifold to be open source, open stats, open API, even open finances with our salary/cap table/runway; I'd challenge you to name any startup that operates as transparently as we do. More broadly, I think I'm a pretty ethical person, but I suppose that everyone thinks that...

In any case, I really appreciate the time and effort you've spent participating in the Manifold community, such as your excellent Substack posts. Wherever you choose to spend your time, that place is lucky to have you!

"Whatever happened to loyalty? To supporting those who have helped you in the past? Are EA folks only fair-weather friends, happy to accept your money in good times but also ready to eviscerate you to maintain deniability and a glossy PR sheen? What distinguishes altruism from selfishness is “being good to people who cannot help you back”. It is extremely suspicious that EA as a whole was happy to laud praise on SBF while the money was flowing, and then turn their backs as soon as it was clear the gravy train dried up."

Criticizing EA folks for being "cowardly, coldhearted, opportunistic, bandwagon-y, two-faced and distasteful" seems to be tone deaf to the fact that these folks reputations are now trashed, potentially beyond the point of being recoverable, simply by association. These people have careers, families, employees that they are prioritizing over SBF, which is hardly "disloyalty", and arguably it is the very definition of having your loyalties in the proper order. I think it is uncool (to say the least) to criticize people for that.

I hate to say it, but there is a non-trivial chance the grant Manifold received was literally liquidated client account funds and never SBF's money at all. How would you feel if that turned out to be true? Would you feel obligated to return the money?

I will also say that I definitely DID NOT expect this essay to end with the revelation that you had only met SBF once briefly and hadn't even gotten to know him during that encounter. Hard for me to wrap my head around being loyal to someone who probably wouldn't be able to pick you out of a lineup...

@BTE I think the loyalty aspect is some combination of "loyalty to your heroes", "stay consistent with your past self in beliefs", and "impulsive contrarian streak".

I also don't endorse the "trying to figure out whether Manifold's investment accounts was client funds or not". Money is basically fungible, and it's not very meaningful to say "these were good dollars" or "these were bad dollars". Eliezer's thoughts on this topic seemed wise to me.

@Austin To be clear I don't think you should consider giving the money back, but first my question was "how would you feel" if it turned out the FTXFF money was liquidated client money? As in, would it be enough for you to no longer feel any loyalty? What is the ethical line that cannot be crossed?

I totally empathize with the "impulsive contrarian streak", that is usually where I start all analyses, but I strongly believe in being open to updating my priors with new information.

@Austin

"In World 2, CZ never triggered a bank run on FTX because he got locked out of his Twitter account. Alameda repays its debts and continues on to print money."

Also, there is no reason to suggest CZ is responsible for anything that has happened, and there is definitely no reason to believe that had he not dumped all Binance's FTT that Alemeda would have been able to dig their way out of trouble. That is because there is no evidence that Alameda was ever "printing money" at all, or even profitable for that matter, at least not since the Bitcoin/yen carry trade that made SBF his first billion stopped being insanely profitable. Open to being corrected about this, but I think everyone was just taking SBF's word for it.

@Austin - Just want to make a general comment without commenting on any specifics - I don't think one should ever regret standing by "innocent until proven guilty" and due process. So I commend and respect you for that doing that openly and publicly, especially when I'm guessing many in your larger community feel differently. A lot of details are yet to come out; and while everyones priors are different, I hope as and when new evidence comes out, in which ever direction that may be, people will update accordingly.