The collapse of the cryptocurrency exchange FTX has shaken both the finance world and philanthropy over the past week, with its wunderkind founder Sam Bankman-Fried turning from hero to villain practically overnight.
The 30-year-old’s company, once valued at $32 billion, filed for bankruptcy Monday after being overwhelmed by billions in withdrawals sparked by reports of shaky finances, and it now faces investigations by the Securities and Exchange Commission and the Justice Department. Prosecution and even jail time may await, not to mention potential lawsuits from investors and up to 1 million creditors.
The fall of Bankman-Fried, a darling of the effective altruism movement who signed the Giving Pledge this year, means the loss of potentially billions in promised philanthropy. His various giving vehicles face an uncertain future, and existing grantees don’t know if they’ll get paid. The greater damage may be to the reputation of effective altruism, particularly its “earn to give” credo, which is what drew Bankman-Fried (known as SBF) to crypto in the first place and motivated his inner circle, according to the New York Times. Charitable donations in the form of cryptocurrency, which had been rising in popularity, are now on shaky ground, as well.
It’s also the latest window into how a billionaire with money to burn can bring an incredible range of allies to their side. Read a few of this past week’s news stories and it can seem like everyone who is anyone was involved with SBF and FTX, from Tom Brady and Gisele Bündchen to Tony Blair and Bill Clinton. Heck, FTX even pulled in Anthony Scaramucci, who infamously served as Trump’s spokesperson for all of 10 days before being fired.
It’s like the change-the-world version of the 1MDB bank scandal. Instead of lavish parties featuring Cristal, private jets and A-list actors, you had long-shot political campaigns, heavyweight lobbying operations and billion-dollar philanthropic promises. Of course, we don’t know yet whether SBF or his deputies committed any fraud, but initial reports are concerning. One group of resigning employees condemned any possible “deception and dishonesty” by their leader and his deputies.
All that star power might obscure the broader lesson of SBF’s fast rise and faster fall, albeit an exaggerated one, about the rapidly fluctuating fortunes of today’s top philanthropists, who are engaging in high-dollar giving at an earlier age and often blurring the lines between their business and charitable ambitions. While his reputational losses are hard to match, by the measure of Bloomberg’s Billionaires Index he’s lost less money than many other mega-philanthropists this year.
Read on to find out who has lost money in FTX’s downfall, who has lost face, and whether SBF is even the biggest loser of all.
Who in philanthropy has lost money?
Within philanthropy, unsurprisingly, it’s the grantees that will be hit hardest and most directly. The FTX Future Fund, launched in February with a boast that it could distribute “up to $1 billion” this year, may now not even cover its existing pledges. “We are devastated to say that it looks likely there are many committed grants that the Future Fund will be unable to honor,” reads a resignation letter from the fund’s five-person team. It’s unclear how much the fund, which reports $160 million in grantee commitments on its website, had promised grantees prior to the collapse.
The picture is even murkier at the other philanthropies linked to SBF. It’s unclear if the FTX Foundation, which I profiled last August, or Building a Stronger Future, a foundation Bankman-Fried ran with his brother, have any remaining assets to draw on, or even if they are registered as charitable foundations. (Neither show up in the IRS database, but Puck’s Theodore Schleifer has reported both are 501(c)(3) nonprofits.) What is certain is that there are grantees left with unfulfilled promises. ProPublica told the Washington Post that two-thirds of a committed $5 million grant has been put on hold.
SBF’s biggest grants went largely to pandemic prevention (such as HelixNano and AVECRIS) and effective altruist institutions (the Centre for Effective Altruism and the Long Term Future Fund). Other portfolios in artificial intelligence sent millions to groups like Lightcone Infrastructure, while his leadership development funding (which mostly chose effective-altruist-aligned groups) boosted organizations such as The Atlas Fellowship and Constellation.
Then there are the investors. Aside from scrutiny from regulators, some backers may see losses reach their philanthropies’ returns. The fast-growing Crankstart Foundation, which I profiled in September, is perhaps the most notable. As of its last tax filing, it had much of its roughly $4 billion endowment invested with Sequoia Capital, the Silicon Valley venture capital firm once led by Michael Moritz, who founded Crankstart with his wife. Sequoia recently told its limited partners that its $213 million investment in FTX is now worthless. The good news: The investments accounted for less than 3% of those Sequoia portfolios.
Many other investors had their FTX holdings wiped out, but most have much smaller philanthropic operations. For instance, the $200 million Chase and Stephanie Coleman Foundation might feel an indirect pinch, as Chase’s hedge fund, Tiger Global Management, was a major FTX backer. Several other well-known billionaire investors reportedly lost their stakes, like Izzy Englander and Daniel Loeb, but their philanthropic giving is even smaller, so it seems unlikely we’ll see a big philanthropic impact in most cases.
The greater harm
The bigger philanthropic damage from this saga, it seems, is to reputations, not balance sheets. Effective altruism had been riding a wave of several years of positive press, but FTX’s collapse is a huge hit, with outlets like the New York Times weighing in, as well as anguished reflections from the community’s leaders. SBF had become a sort of unofficial spokesperson — the whiz-kid billionaire featured on magazine covers who drives a Corolla and wants to donate every cent to stop pandemics, prevent nuclear winter, and save as many future lives as possible.
Now the philosophy, which promotes interventions that donors believe will improve or save as many lives as possible at the lowest cost, and prides itself on its ethics-first approach, faces a reckoning over how its figurehead could be so apparently immoral. Not to mention billions lost in potential future donations. (For a deep dive on the repercussions for EA, watch for a forthcoming post by my colleague Mike Scutari.)
In the short term, the crash appears likely to draw on the time and resources of effective altruism’s other big donors: Dustin Moskovitz, the Facebook co-founder, and his wife, former reporter Cari Tuna. The couple and their Open Philanthropy operation are now the movement’s most prominent philanthropists, having grown the outfit into an impressive suite of portfolios covering biosecurity and pandemic preparedness, immigration, criminal justice reform, and more. Moskovitz wrote on Twitter that he would “try” to “repair the damage Sam did.” That could mean simply addressing reputational harm, but you have to wonder if it will include bailing out the many grantees left in the lurch, particularly given the tight-knit nature of the effective altruism community.
Even more broadly, the whole episode seems likely to have a chilling effect on the acceptance of crypto donations. As blockchain currencies have proliferated, virtually every substantial nonprofit has had to wrestle with the question of whether to accept such gifts. Perhaps this episode will simply harden policies that require immediately liquidating crypto donations, or working with intermediaries to do so. But it could scare some off entirely, rightly or wrongly.
An outlier, but also a warning
In a year or two, SBF and FTX may just be a couple of forgotten acronyms for most of us. Yet the episode may prove to be an early, if extreme, example of the fragile fortunes of many of today’s billionaire mega-donors. Bankman-Fried’s paper wealth went from $16 billion to close to zero in the past few days. A much-quoted Bloomberg lede called it “one of history’s greatest-ever destructions of wealth.” Yet other mega-philanthropists have also seen their fortunes fall even further — in dollar amounts if not percentage of wealth — over the past year.
Mark Zuckerberg and Priscilla Chan have $82 billion less to their names than at the beginning of the year, according to Bloomberg’s Billionaire Index. Jeff Bezos is down $71 billion. The Google founders, whose philanthropy is less prominent but still sizable, each have dropped nearly $40 billion. Other big-dollar donors, like Jack Dorsey and MacKenzie Scott, have seen their estimated fortunes nearly cut in half over the same period.
Yes, these drops are due to stock price fluctuations, not business collapses. Most seem largely to reflect corrections from peak-COVID valuations and a return to a sort of normality. But some losses reflect bigger-picture challenges. For instance: Will Mark Zuckerberg’s big bet on the metaverse pay off, and can he fend off Facebook contenders like Tik Tok? Others like Amazon and Google might seem untouchable. But so did Sears and IBM, right?
The chaotic nature of these fortunes might not be a huge concern for philanthropy as a whole, were it not for the fact that the sector is becoming increasingly reliant on those sitting on top of them. Inside Philanthropy and think tanks like the Institute for Policy Studies have been sounding the alarm for years about the dangers of top-heavy philanthropy, as more charitable giving comes from the ultra-wealthy, and less from everyday households. Philanthropy is increasingly dominated by billionaires, many of whom are relatively young and giving at an earlier age than their predecessors. Engaging in philanthropy early on can be a good thing, but the SBF disaster shows the peril of hitching our ambitions for a better world to a young tycoon who accumulates billions of dollars in a heartbeat.
Unethical moves by a too-trusted founder may be as old as business itself. But Bankman-Fried’s collapse — along with this year’s stock losses to date — is a reminder that today’s fortunes can sometimes fall as fast as they grow, as my colleague Philip Rojc examined in a longer post last year. The figures put out by Forbes and Bloomberg are educated guesses, but also sometimes illusions. A social media network or a cryptocurrency are, in the end, built on some mix of popularity and trust. And that can evaporate in a hurry, even before those made marvelously wealthy can fulfill their promises to give it all away.