Avoiding the Next FTX Collapse

Are you asking ‘Why’?

Of the many major stories of 2023, the collapse of FTX, and the trial of Sam Bankman Fried will go down in history as a drama worthy of Shakespeare.

So many questions, but one that plagues me is WHY did so many people trust this geeky company with their life savings?

Certainly, savvy marketing and celebrity endorsements added to FTX’s perceived value, but did you know that FTX was audited, TWICE?!?!

The Government Blockchain Association (GBA) conference explores how to avoid the next FTX collapse.

Of the major stories of 2023, the collapse of FTX, and trial of Sam Bankman Fried will go down in history as a Shakespeare-worthy spectacle.

So many questions, but one that plagues me: WHY did so many people trust this geeky company with their life savings?

Certainly, savvy marketing and celebrity endorsements added to FTX’s perceived value, but did you know that FTX was audited, TWICE, in 2021, and received a clean financial report? This came from two separate auditing firms, no less!

Yes, FTX was audited in 2021, one year before declaring bankruptcy. Those insolvency filings noted that Prager Metis — a US firm with $139mn in annual revenue, issued an unqualified audit statement for the crypto exchange.  The second audit came from Armanino, a California-based firm with $458mn in annual revenue, which issued an equally unqualified evaluation for financial statements from FTX’s US exchange business.

How did that happen? Let’s assume for a minute that these two firms performed their digital ledger technology audits in good faith. But apparently, what did not happen at FTX was a basic common sense audit of the financial records. Possibly the fact that FTX was a crypto exchange MIGHT have enabled this odd team to mislead traditional financial auditors with cryptic ‘blockchain jargon’. The surprising choices of clothing and video game playing during meetings only added to their mystical façade. (Or, the auditors were lavishly paid off, and chose to overlook some things…)

Either way, there was no digital asset standard ascribed for these accounting firms to prove that THEY were above misconduct.

By the way, just for the record, FTX was not running on blockchain technology.

One thing is clear- Digital Assets have been exposed as vulnerable to fraud, and in need of a digital asset management system by which to assess them. Do you plan to own or manage any digital assets? Then listen up.

Next spring, The Government Blockchain Association (GBA) will host The Future of Money, Governance, and the Law, May 2-3, 2024, in Washington, DC. This two-day conference will be THE EVENT for DIGITAL ASSET MANAGEMENT.

Come and find out how to manage your digital assets, or your organization’s digital assets, at GBA’s The Future of Money, Governance, and the Law.

Early Bird Pricing Tickets are on sale now.

CE, in 2021, and received a clean financial report? This came from two separate auditing firms, no less!

Yes, FTX was audited in 2021, one year before declaring bankruptcy. Those insolvency filings noted that Prager Metis — a US firm with $139mn in annual revenue, issued an unqualified audit statement for the crypto exchange.  The second audit came from Armanino, a California-based firm with $458mn in annual revenue, which issued an equally unqualified evaluation for financial statements from FTX’s US exchange business.

How did that happen? Let’s assume for a minute that these two firms performed digital ledger technology audits in good faith. If so, what did not happen at FTX was a thorough forensic accounting audit or financial forensics.

Forensic accounting investigates whether firms engage in financial reporting misconduct, or financial misconduct within the workplace by any of the employees. This type of accounting is looking for trouble. Digital Ledger Technology, (a digital timestamp) is not the same thing as “double entry accounting” and would not pass the rigor and test from a forensic accountant. The fact that FTX was a crypto exchange MIGHT have given the firm a cloud of mystery enabling them to mislead traditional financial auditors with vague ‘blockchain jargon’. (Or, the auditors were lavishly paid off, and chose to overlook some things…) Either way, there was no digital asset checklist set for these accounting firms to prove that THEY were above misconduct.

By the way, FTX was not running on blockchain technology.

One thing is clear- Digital Assets have been exposed as vulnerable to fraud, and in need of a digital asset management system by which to assess them. Do you own or manage any digital assets? Then listen up.

Next spring, The Government Blockchain Association (GBA) will host The Future of Money, Governance, and the Law, May 2-3, in Washington, DC. This two-day conference will be THE EVENT for DIGITAL ASSET MANAGEMENT.

Come and find out how to manage your digital assets, or your organization’s digital assets, at GBA’s The Future of Money, Governance, and the Law.

Early Bird Pricing Tickets are on sale now.