EA - Thoughts on legal concerns surrounding the FTX situation by Molly

Link to original articleWelcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: Thoughts on legal concerns surrounding the FTX situation, published by Molly on November 13, 2022 on The Effective Altruism Forum.As Open Phil’s managing counsel, and as a member of the EA community, I’ve received an onslaught of questions relating to the FTX fiasco in the last few days. Unfortunately, I’ve been unable to answer most of them either because I don’t have the relevant legal expertise, or because I can’t provide legal advice to non-clients (and Open Philanthropy is my only client in this situation), or because the facts I’d need to answer the questions just aren’t available yet.The biggest topic of concern is something along the lines of: if I received FTX-related grant money, what am I supposed to do? Will it be clawed back? This post aims to provide legal context on this topic; it doesn’t address ethical or other practical perspectives on the topic.Before diving into that, I want to offer this context: this is the first few days of what is going to be a multi-year legal process. It will be drawn out and tedious. We cannot will the information we want into existence, so we can’t be as strategic as we’d like.But there’s an upside to that. Emotions are high and many people are probably not in a great mental place to make big decisions. This externally-imposed waiting period can be put to good use as a time to process.I understand that for some people who received FTX-related grant money, waiting doesn’t feel like an option; people need to know whether they can pay rent, or if their organization still exists. I hope some of the information below will provide a little more context for individual situations and decisions.I also committed to putting out an explainer on clawbacks. That is here, though I think the information in this post is more useful.Bankruptcy and ClawbacksBackgroundThe information in this section is based on publicly available information and general conversations with bankruptcy lawyers. I do not have access to any nonpublic information about this case. None of this should be taken as legal advice to you.FTX filed for bankruptcy on Friday (November 11th, 2022). More specifically, Alameda Research Ltd. filed a voluntary petition for bankruptcy under Chapter 11 of the Bankruptcy Code, by filing a standard form in the United States Bankruptcy Court for the District of Delaware. The filing includes 134 “debtor entities” (listed as Annex I); it looks like this covers the full FTX corporate group.This means that the full FTX group is now under the protection of the bankruptcy court, and over the coming months, all of the assets in the debtor group will be administered for the benefit of FTX’s creditors. By filing under Chapter 11 (instead of Chapter 7), FTX has preserved the option of emerging out of the bankruptcy proceeding and continuing to operate in some capacity. You can read a useful explainer on the bankruptcy process here.The rules in the Bankruptcy Code are ultimately trying to ensure a fair outcome for creditors. This includes capturing certain payment transactions that occurred in the past. Basically, the debtor can reach back in time to undo deals it made and recoup monies it paid; this money comes back into the estate through clawbacks and gets redistributed to creditors according to the bankruptcy rules.ClawbacksThere are two main types of clawback processes. The first and most common (called a “preference claim”) target transactions that happened in the 90 days prior to the bankruptcy filing. Essentially, if you received money from an FTX entity in the debtor group anytime on or after approximately August 11, 2022, the bankruptcy process will probably ask you, at some point, to pay all or part of that money back. It’s almost impossible to say right now whether any specific grant or contract will be subject to clawb...