Effective Altruism on Trial with FTX
Most of his employees were gone — quit, fired, or arrested — so only one colleague and his parents remained in the $35 million Bahamian penthouse when the police arrived for Sam Bankman-Fried.
In a New York City federal court, Bankman-Fried faces one count of wire fraud, two conspiracy charges, and a count of money laundering over the collapse of his cryptocurrency exchange and hedge fund, FTX. Once worth upwards of $30 billion, FTX and its sister firm, Alameda Research, which FTX used to launder customer funds, sent shockwaves through the financial world when they folded late last year. On November 6, 2022, the founder of rival firm Binance raised concerns over the ability of FTX to repay its loans, causing a customer frenzy to withdraw funds from the platform. Customers asked to withdraw over $6 billion in funds in just 3 days, and by November 8, FTX was unable to repay users attempting to extract money they had invested on the FTX platform. Within a week, FTX declared bankruptcy, and within a month, Bankman-Fried was arrested in the Bahamas. When the dust settled, FTX owed $8 billion to customers ranging from Tom Brady and Steph Curry to everyday investors.
Over the next few months, investigators worked to untangle exactly how FTX mismanaged its funds so poorly — and whether Bankman-Fried himself was criminally responsible. Prosecution witnesses detailed how Bankman-Fried directly ordered the illegal transfer of customer funds from FTX to Alameda, in addition to $5 billion in personal loans to himself and other members of the FTX inner circle. In the end, Alameda was unable to make good on its loans because it blew money it illegally received from FTX on shoddy investments, risky acquisitions, and real estate purchases, such as six separate penthouses in the Bahamas (including the one that Bankman-Fried was arrested in last December).
These properties were part of a heavily orchestrated campaign by Bankman-Fried to perfect his public image. Sporting a mop of curly hair and loose-fitting t-shirts, Bankman-Fried played perfectly into the awkward-genius-tech-CEO trope. He made appearances at celebrity events and publicly proclaimed that he would one day be the world’s first trillionaire. However, Bankman-Fried’s most prolific public relations campaign has been his involvement in the Effective Altruism movement.
Effective Altruism (EA) is an early 2000s ideological movement developed in academia but popularized in online forums. The central pillar of EA is that for individuals to maximize their philanthropic impact, they must first increase their own personal wealth. Proponents believe that by donating to startups, funds, and charities that have been scrutinized by the organization, they can make a greater positive impact than simply giving to conventional charities. Sam Bankman-Fried first engaged with Effective Altruism as an M.I.T. undergraduate, and as he rose to crypto-stardom, he became the poster-child of the rapidly growing organization. Best known for his flashiest stunts — such as proposing to pay former president Donald Trump $5 billion to not seek reelection — Bankman-Fried donated $13 million to the central fund of the Effective Altruism movement and has pledged to give 99% of his $26 billion fortune. However, following Bankman-Fried’s theatrical fall from grace, many have called into question the sincerity of his commitment, especially as a federal court tries to untangle exactly how much of the money was truly his to give away.
The impacts of the FTX saga on the Effective Altruism movement have also been profound. Bankman-Fried was a cult hero for many EA members, and his deceit has instilled a sense of deep-seated betrayal. Leaders of the movement have tried desperately to distance themselves from the disgraced crypto magnate to prevent FTX from dragging Effective Altruism down with it. EA has been scrutinized heavily since Bankman-Fried’s downfall, and the movement has struggled to find new members. And as Bankman-Fried’s rumbles towards an all-but inevitable conclusion, the remaining leaders of the Effective Altruism movement face a number of existential questions.
How can the Effective Altruism movement recognize disingenuous or disreputable members in the future? Without a way of adequately vetting donations or pledges of future support, there is no effective mechanism for determining who could be the next Sam Bankman-Fried. Furthermore, how can the movement continue to attract new members despite its public disparagement on the national stage? How can leaders reassure those members that Effective Altruism is not a fundamentally corrupt institution or an overly optimistic ideology susceptible to exploitation by selfish and malicious actors like Bankman-Fried? As the prosecution lays out the deplorable tale of Bankman-Fried’s misdeeds, it feels like the disgraced crypto magnate is not the only one on trial — the new-age billionaire trope, the cryptocurrency market, and the Effective Altruism movement also stand to lose.
Toby Zimmerman ‘27 studies in the College of Arts & Sciences. He can be reached at t.zimmerman@ wustl.edu.