Analysis

Sam Bankman-Fried: the full story of the FTX collapse

In a matter of days in November 2022, one of the largest cryptocurrency exchanges in the world collapsed, taking with it several billion dollars belonging to its customers. At its head was a thirty-year-old man, in a T-shirt and shorts, who professed an unusual goal for a billionaire: to earn as much as possible in order to give it all away. Sam Bankman-Fried was about to become, in the world's press, something like a byword for effective altruism.

The association between this man and this movement still clings to effective altruism. Because Mieux Donner draws on the principles of effective altruism, we regularly hear this case of fraud used as an argument to discredit the whole thing. So we wanted to take the time to go back to the facts. What actually happened, what he was convicted of, and why his conduct contradicts, point by point, the principles he claimed to serve.

A useful reminder before the story begins. Effective altruism is an approach that seeks, on the basis of solid evidence, the ways of helping others that do the most good for every euro and every hour committed. It is neither a person nor an organisation, but a set of principles and a community that tries to follow them. Among those principles: honesty and transparency, meaning publishing your methods as well as your limitations, and a refusal to cause harm in the name of a good cause. These are precisely the principles that Sam Bankman-Fried lacked.

Who was Sam Bankman-Fried?

From Jane Street to a bet on cryptocurrency

Sam Bankman-Fried was born in 1992 to two Stanford law professors, and studied physics at MIT. He began his career at Jane Street, a trading firm known for its rigour.1Wikipedia: Sam Bankman-Fried By then he already described himself as close to the movement: he had taken the Giving What We Can pledge, an organisation that invites everyone to give at least 10% of their income to effective charities, and in practice he gave away a good part of his salary.

The direction came from a simple idea, put to him by the philosopher William MacAskill around 2012: rather than working directly for a cause, someone good with numbers can sometimes help more by earning a great deal and giving a great deal.2Daily Nous (New York Times): the earning-to-give principle This is the principle of earning to give. Bankman-Fried took it to the extreme. In 2017, convinced that he could multiply what he gave by exploiting price gaps in the cryptocurrency market, he left mainstream finance and founded his own trading firm.

Alameda Research, then FTX

That firm, Alameda Research, started as a small group made up mostly of people who identified with the effective altruism movement, funded in part by investors close to the movement. The stated aim: to generate profits and direct them towards high-impact causes. After a turbulent start, the business took off.

In 2019, Bankman-Fried launched FTX, a cryptocurrency exchange, which grew very quickly and ended up with more than 130 affiliated entities around the world. At its peak, Forbes ranked him the forty-first richest American. In June 2022 he signed the Giving Pledge, the public commitment to give away most of one's fortune.1Wikipedia: Sam Bankman-Fried Alameda and FTX remained two separate but closely linked companies, and it was precisely this link that would bring about the collapse.

An image of frugality, a very different reality

Bankman-Fried carefully cultivated the image of a frugal billionaire: he was shown sleeping on a beanbag at the office, drove an old Toyota Corolla, highlighted his veganism and his indifference to material goods, and promised to give away almost everything.3Bloomberg: public image and lifestyle

The reality was otherwise. He lived in a penthouse at a luxury resort in Nassau, in the Bahamas, valued at around thirty to forty million dollars, which he shared with about ten colleagues, and he had access to the jets chartered by the company.3Bloomberg: public image and lifestyle In total, FTX spent in the region of 243 to 256 million dollars on property in the Bahamas for its executives, its staff, their families and their friends, using funds that mingled the company's money with the customers' money.4Wikipedia: FTX (collapse, repayments, Anthropic) This gap served as a veneer: it masked conduct far removed from the principles he invoked.

The collapse of FTX (November 2022)

How FTX and Alameda were connected

On paper, FTX and Alameda were two separate companies. In reality, they were linked by flows of money that the public knew nothing about. Alameda, the trading firm, was able to draw on the deposits entrusted by FTX's customers. In other words, money that individuals believed they were keeping safely on the platform could be used to fund the sister company's bets.4Wikipedia: FTX (collapse, repayments, Anthropic)

The timeline of the collapse

Everything tipped over in early November 2022. On 2 November, the specialist site CoinDesk revealed that Alameda's balance sheet rested largely on FTT, a token created by FTX itself. A fragile asset, whose value depended directly on FTX's health. A few days later, the head of Binance, the largest competing platform, announced that he was selling his own FTT. Confidence collapsed, customers rushed to withdraw their funds, as in a bank run. FTX could not honour those withdrawals. Binance briefly considered buying the company, then pulled out, citing the scale of the problems. On 11 November 2022, FTX, Alameda and more than 130 related entities filed for bankruptcy.4Wikipedia: FTX (collapse, repayments, Anthropic)

What was lost, what was recovered

The hole was vast. US prosecutors would put the misappropriated customer funds at around eight billion dollars. The new executive put in charge of the bankruptcy described a company with no reliable accounting, run like a personal fiefdom.1Wikipedia: Sam Bankman-Fried

The sequel is less well known. Thanks to the recovery of cryptocurrency prices and the sale of assets, the entity in charge of the liquidation recovered a substantial sum, in the region of fifteen to sixteen billion dollars, and began repaying creditors. Among the assets sold was a stake of around five hundred million dollars in Anthropic, an artificial intelligence company FTX had invested in, whose resale contributed to those repayments.4Wikipedia: FTX (collapse, repayments, Anthropic)

The law: what was he convicted of?

The trial and the verdict

Bankman-Fried was arrested in the Bahamas on 12 December 2022, then extradited to the United States. His trial opened in New York in the autumn of 2023. The prosecution presented him as the mastermind of a massive fraud: having drawn on customers' money to fund Alameda's bets, investments, property purchases and donations. The defence argued the opposite, that of a young entrepreneur overtaken by events, guilty of mistakes but not of theft.

Three of his former close associates, including Caroline Ellison, who ran Alameda, along with the co-founders and executives Gary Wang and Nishad Singh, pleaded guilty and testified against him. On 2 November 2023, the jury found him guilty on all seven counts, covering fraud, conspiracy to commit fraud, and money laundering.1Wikipedia: Sam Bankman-Fried

The sentence, then the rejected appeal

On 28 March 2024 he was sentenced to twenty-five years in prison. He then attempted several appeals. A request for a new trial, based on supposed new testimony, was rejected in April 2026. On 12 June 2026, the federal appeals court unanimously upheld his conviction and his sentence, in a forty-two-page decision in which Judge Barrington Parker summed up that the evidence gathered against him was, to put it mildly, strong. His lawyers may still try to petition the Supreme Court.1Wikipedia: Sam Bankman-Fried

In parallel, Bankman-Fried has filed a request for a presidential pardon, pending as at the date this article was published.

SBF and effective giving: what is the real link?

Unlike other figures sometimes wrongly associated with the movement, Sam Bankman-Fried really was close to it. But being close to a movement and embodying its principles are two different things, and that is the whole nuance of this section.

A commitment displayed early on

As we have seen, Bankman-Fried identified with effective altruism from his student days, drawing on the principle of earning to give. For years, that commitment seemed sincere. He made giving pledges, spoke about them publicly, and presented FTX as a machine for generating funds for good causes. It was this story, that of the altruistic and frugal billionaire, that fed his reputation and, by extension, that of the movement he attached himself to.

The FTX Future Fund and the money distributed

In February 2022 he launched the FTX Future Fund, a philanthropic fund devoted to long-term issues such as pandemic prevention and the safety of artificial intelligence. The stated ambition: to deploy up to one billion dollars, at a rate of around a hundred million a year. The team brought together well-known figures from the movement, including William MacAskill. In practice, as at 1 September 2022, the fund had committed around 160 million dollars to 110 charities. When FTX collapsed, those commitments became, for the most part, impossible to honour.1Wikipedia: Sam Bankman-Fried

Moreover, part of the sums already paid out was later recovered by the liquidators, who regarded them as in fact belonging to the defrauded customers. Many charities and beneficiaries received letters of formal demand, and a number of them chose to freeze or return the funds rather than risk a lawsuit. There is no consolidated public total of what the charities were ultimately able to keep: the settlements are made case by case, and are often confidential. But the overall logic is that the portion actually paid out was largely reclaimed.5EA Forum: clawback demands

His money did not stop at philanthropy. Bankman-Fried was also one of the largest political donors in the United States, the second-largest donor to the Democratic camp in 2022 behind George Soros, with around forty million dollars declared, including twenty-seven million to a single committee.6TIME: political donations It later emerged that part of these donations went through straw donors and was funded with the money of Alameda's customers, which earned Bankman-Fried one of his charges. In other words, part of his displayed generosity rested on misappropriated funds.

A reminder: what effective altruism actually means

Effective altruism is not a person. The term refers, on one side, to principles, using evidence and reason to help others as much as possible, and on the other, to a community of people trying to follow them. There is no leader, nor any official doctrine covering every subject, but rather a set of shared values.7Centre for Effective Altruism: Core principles The Centre for Effective Altruism identifies four:

• Scope sensitivity: for the same resources, helping a large number of people matters more than helping a few.
• Impartiality: helping first those who need it most, without giving more weight to those who resemble us or live near us.
• The scout mindset: seeking the truth and revising one's beliefs in the face of evidence, rather than defending received ideas.
• Recognition of trade-offs: because time and money are limited, choices have to be made and priorities set.

These values go hand in hand with a demand for honesty and integrity in the way one cooperates and gives account.

This has a direct consequence for how we should reason. Ideas do not become true or false depending on the reputation of those who claim them. Judging a method by the behaviour of an individual who invokes it is to commit what is called the fallacy of guilt by association. That Sam Bankman-Fried presented himself as an adherent of effective giving says nothing about the strength of GiveWell's evidence on anti-malarial bed nets, nor about the effectiveness of cash transfers to people in extreme poverty. The reliability of an approach is judged by its methods, not by the morality of the loudest person who lays claim to it.

How his behaviour betrayed these principles

The principles of effective altruism include, among others, honesty, transparency and a refusal to cause harm, and Sam Bankman-Fried's conduct was their negation.

Honesty and transparency, the exact opposite of his conduct

The movement calls for publishing your methods, your results and your limitations, so that they can be criticised. Bankman-Fried did the opposite. He hid from customers, investors and regulators the fact that the money deposited on FTX was being used to fund Alameda. He gave public reassurances about the company's soundness while using it, in the words of the appeals court, as a personal piggy bank.1Wikipedia: Sam Bankman-Fried An approach founded on transparency does not disguise itself in this way. This was not a grey area, it was concealment.

"The end justifies the means", a line of reasoning the movement rejects

It is often said that effective altruism pushes people to think that anything goes as long as the outcome is good. This is false, and it is even the opposite of what founding texts of the principles defend, texts which explicitly warn against this kind of calculation. The idea that a mind clever enough could free itself from common rules in the name of a greater good has a name: naive utilitarianism. The movement's guiding principles insist, on the contrary, on integrity, and hold that fraud can never be justified by an altruistic cause.7Centre for Effective Altruism: Core principles

It is worth noting that this mode of reasoning, in Bankman-Fried's case, predated his closeness to the movement, and went further than what most of its members defend. After the collapse, in an exchange with a journalist at Vox, he described the ethics he professed as a facade, a way of reciting the right slogans to be liked.

The admission is chilling, but it is clarifying: it clearly separates the words he spoke from the principles he claimed to embody.

The refusal to cause harm

The movement holds that helping some must never be done by harming others. Yet the victims of FTX are real people: ordinary customers who lost their savings. Funding distant causes with money stolen from real people is not a clumsy application of the movement's principles, it is a breach of them. You do not help humanity by ruining a part of the humanity right in front of you.

How the movement responded

Warning signs before the collapse

This behaviour was not aligned with the movement, and some of it had already been criticised internally before FTX even collapsed.

As early as 2018, at Alameda, the co-founder Tara Mac Aulay and about half the staff left after conflicts over risk, accounting, compliance and the way Bankman-Fried ran things. Internal documents from the time described him as reckless in the way he spent money and used the trust placed in him. According to an investigation by TIME magazine, several figures in the movement were reportedly warned, as early as 2018 and 2019, that he was not trustworthy.8TIME: 2018 and 2019 warnings

The people targeted by these warnings give a different reading of them, which must also be presented. According to their accounts, these warnings concerned a reckless, overconfident and difficult leader, not fraud. William MacAskill has recounted that at the time he saw a very gung-ho founder, whom he feared would end up losing any check on his power by surrounding himself with people who were too deferential, but that he did not imagine him capable of fraud on such a scale. Several of those who had left Alameda say themselves that there was no proof of illegal acts and that none of them had anticipated fraud of this size.9Clearer Thinking: William MacAskill's account TIME's investigation reports, for its part, that some of these concerns had been played down, treated as start-up squabbles or as mere rumours. The two readings coexist: neglected signals on one side, real but too-faint signals on the other, too weak to hint at what was to come.

Other practices, later on, jarred with the stated principles. The lifestyle we described, but also certain choices by the Future Fund, the main philanthropic entity, such as funding people to travel to the Bahamas to work, were criticised internally and seen as hard to defend.10EA Forum: FTX Future Fund resignation Ambition in how we have a positive impact can sit in tension with restraint, and several of these choices were seen internally as going too far. They were debatable at the time, and were criticised before the collapse,11EA Forum: Free-spending EA (April 2022) and more openly still afterwards.

A deeper dynamic also played a part. The influx of money dulled vigilance: by the admission of a central figure of the movement, the apparent success of the FTX people had led several of its members to loosen their usual caution. Some acknowledged afterwards that the fear of tarnishing the movement's image had discouraged people from raising doubts, at odds with the culture of transparency and self-questioning the movement should have shown.10EA Forum: FTX Future Fund resignation

A sense of betrayal, and the end of the Future Fund

When the affair broke, the reaction was immediate. On 10 and 11 November 2022, the entire Future Fund team resigned as one. In a public letter, they said they condemned in the strongest terms any deception or dishonesty by FTX's leadership, and recalled that you cannot claim to act for the good without honesty and integrity.10EA Forum: FTX Future Fund resignation

The individual statements went the same way. William MacAskill wrote publicly that he had placed his trust in Bankman-Fried and felt betrayed, as customers, employees and investors had been. He spoke of his rage and his shame at having been deceived.9Clearer Thinking: William MacAskill's account

The lessons learned

The movement then began a critical examination of its own weaknesses.10EA Forum: FTX Future Fund resignation

This is perhaps the most important point for our purpose. A movement that openly debates its mistakes, documents them and adjusts its practices behaves like a community that learns.

What the affair does not say about effective altruism and effective giving

Effective altruism is the scientific method applied to helping others: how many lives an action improves, at what cost, on the basis of what evidence. That standard stays the same, whether Sam Bankman-Fried invoked it or not.

And that standard has produced results. The Centre for Effective Altruism estimates that the approach has helped save more than 150,000 lives through global health programmes, to get tens of millions of hens out of the narrowest cages, and to make the safety of artificial intelligence a real field of research.12Centre for Effective Altruism: Our mission These results rest on randomised controlled trials, meta-analyses and independent evaluations made public that anyone can consult and challenge. When we recommend a donation for anti-malarial bed nets or interventions to reduce animal suffering, it is this evidence that speaks, and the collapse of FTX changed none of it.

Effective altruism, moreover, has never been a single person. It is also a community: nearly 11,000 people have committed, through Giving What We Can or Mieux Donner, to give at least 10% of their income throughout their lives.13Giving What We Can: members page

That is why condemning the method because a man laid claim to it would be a reasoning error: rejecting medicine because a doctor commits fraud makes no sense. Bankman-Fried did not apply these principles, he trampled on them, and the movement has said so without softening it.

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