In Defense of SBF

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.

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.)

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.

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.

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.

"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?

@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.