From the President

Blind faith

When I flew to Canada last November, the immigration officer asked me what I was doing in Toronto. I told him I worked for the ACFE, what we were about and that we were holding an anti-fraud conference nearby. To my surprise, he immediately peppered me with questions about the fraud allegations involving the fall of crypto exchange FTX and its youthful founder and CEO Sam Bankman-Fried, commonly called SBF. We spent the next several minutes discussing it (which I hope didn’t hold up the queue).

Like the Canadian immigration agent, everyone is fascinated with the humiliating collapse of FTX, which declared bankruptcy in November, and SBF, who now faces a string of charges in what’s being called one of the “biggest financial frauds in American history.”

In this issue’s cover story, “Taming Fraud in crypto’s Wild West,” Fraud Magazine examines the inner workings of FTX and the many reasons it fell apart. As the crypto company’s saga continues to unfold, its recently appointed CEO John J. Ray III perhaps best summed up FTX’s organizational structure: “a complete failure of corporate controls.”

Journalists and fraud examiners are referring to FTX as the crypto version of Enron and SBF as crypto’s Bernie Madoff. Indeed, the similarities to Madoff are eerie. Cash is always king, and much like Madoff, when folks wanted their money out, the scheme fell apart. But it shouldn’t be market conditions that uncover these frauds.

The frenzy around cryptocurrency companies is equivalent to the California gold rush. Folks have been looking to get rich quickly in the crypto boom. And the rush to invest has often clouded their judgment amid a blind desire to be in on the next big thing.

It’s outrageous that FTX allegedly built a “backdoor” to secretly move billions of dollars of client funds to SBF’s hedge fund Alameda Research. With no true board of directors providing proper oversight and hardly any discernable control environment in place, we can see how FTX executives perpetrated a fraud of this magnitude. Even sophisticated investors did little to no due diligence. It appears many FTX customers put their faith in “experts” who said this company was legitimate, and their money was safe. Unfortunately, until this largely unregulated industry has more accountability, financial crimes such as FTX will likely continue.

Because this industry is still emerging, there are few experts out there to help fight fraud in the crypto market. Auditors have a difficult task sorting through various standards and practices. Blockchain technology is here to stay. And it looks like crypto, despite its volatility and unpredictability, won’t be vanishing anytime soon. More than ever, we need CFEs with expertise in this area to prevent and detect these frauds.

Bruce Dorris, J.D., CFE, CPA, is president and CEO of the ACFE. Reach him at: