in the case of FTX its probably easy to. shave customer liabilities without it showing up. probably, this is because they didn't have proper segmentation of client funds. if you have an external entity holding the assets in trust then you need to be doing very dodgy stuff in the company to be hiding customer liabilities. for example even in with a trust account setup you could have part of customer funds being diverted into secret accounts and they don't show up in the liabilities. as an external auditor you can ask to see systems and a paper trail but you are just seeing what people want you to see and if there is a conspiracy to lie then you are fucked. the best you can do is try to get some industry estimates and see if they match or compare to external statistics (like revenue, etc) and hope they have been reported truthfully.
my guess in the case of FTX there probably were red flags like lack of proper segregation and these weren't reported by the external auditor.
1) You do a bad job at the due diligence and do not review anything beyond the income statement and top-level balance sheet accounts.
2) You turn a blind eye to it because it is favourable to you. Favourable can also be just the outcome of assessing the risk of 'cost of reversing fund diversion practices' vs. 'letting it slide because those diversions yield returns'.
Discovering a fraud when most people at the organization don't know about it and the people who do would like to your face is not a light task!
I'm guessing algebra is difficult for journalists.
> Major investors, with lots of money on the line, also didn't catch this.
Major investors had all the incentives to keep the scam going as they stood to make big money from the scam.
Journalists should have the incentives to expose the scams, except they were not in this ( and probably some other ) case because they were either getting money from the scam or were trying to be the best cheerleaders possible in hope of getting money from the scam.
Not sure what you're saying here? The amount of money the FTX Foundation was distributing was plausible given FTX's fees and volume.
> Major investors had all the incentives to keep the scam going.
That ignores new investors buying in, who I don't think had those incentives?
Only if FTX and its founder found a way to create print money out of the thin air.
> That ignores new investors buying in, who I don't think had those incentives?
New investors are definitely not major investors and even those investors simply want to find an even greater fool.
Two weeks ago I overheard a bartender in a dive bar where beer and a shot goes for $6 telling the regular drunk about all the mad money he is making at FTX. Here's a thing: there's not a single non-scam that would allow a bartender in a dive bar that sells $6 beer and a shot to make gobs of money "investing" or "trading"
It looks like FTX volume was something like $7B/day in July [1].
FTX fee structure [2] was complex, but assuming they got at least 0.04% seems reasonable? In which case they were making ~$3M/day ($7B * 0.04%) or ~$1B/year in fees.
[1] https://web.archive.org/web/20220725151202/https://www.coing...
[2] https://help.ftx.com/hc/en-us/articles/360024479432-Fees
https://ir.nasdaq.com/news-releases/news-release-details/nas...
Yes? Everyone knew that volume in crypto was too high and likely irrational. But that wasn't much indication that FTX was behaving fraudulently: they seemed to be just doing the straightforward work of helping match buyers and sellers and taking a cut.
> if he has that much time to be a clown what are the odds of him actually running a company
Lots of CEOs seem to do things like this; again that's not a strong signal. Also doesn't have anything to do with algebra.
> without a team?
FTX had several hundred employees
No, everyone knows that the exchange volume in crypto is high and fraudulent. Irrational behavior is not acknowledging it.
> Lots of CEOs seem to do things like this; again that's not a strong signal. Also doesn't have anything to do with algebra.
They do not. There's 24 hours in a day. Excluding 5 hours the CEO "slept", two hours that CEO spent eating and waking up that leaves 17 hours total. Every single activity one engages in subtracts available time for running the company.
> FTX had several hundred employees
FTX "leadership" lived in a single Penthouse in Bahamas, having sex with each other. Fish rots from the head. In this case anyone who did not want to ignore it saw that the head of the fish was rotten.
I agree. But the incentives are gone. A huge portion of the investigative journalism industry died when hard copy newspapers died. A lot of those journalists now work for private industry doing competitive intelligence. They need to pay their mortgage just like software developers do. Very few people pay for hard core journalism now (ads by their nature mainly pay for clickbait, and even then the 'journalist' sees very little of the income)