NEW! GKB: Fraud Part I: Fraud in Digital Assets

Crypto and fraud in the global conversation

Sam Bankman-Fried, the charismatic founder of cryptocurrency exchange FTX, was once worth an estimated $26.5 billion. As the leader of what was at one point the third-largest exchange in the crypto market, Bankman-Fried and FTX were the darlings of a variety of high-profile investors such as BlackRock and NFL player Tom Brady. Yet, Bankman-Fried lost all of his wealth virtually overnight in one of the most dramatic company collapses in modern history.

Bankman-Fried was arrested on December 13, 2022, in the Bahamas. According to published reports, he faces various charges including wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering.

While there is a human interest in the sheer spectacle of such an incredible downfall, the event has also raised greater questions regarding digital assets. With parallels to scandals such as Tornado Cash and Bitzlato, FTX’s collapse and the subsequent impact on the industry it represented has led many to question the long-term viability of crypto assets — at least in its current state, which U.S. Securities and Exchange Commission Chairperson Gary Gensler called the “Wild West.”

Despite being built on blockchain technology, which is among the most secure ways to maintain crypto assets and information, if the very visible head of one of the world’s most prominent cryptocurrency exchanges can allegedly commit acts of large-scale fraud, what other vulnerabilities might exist for companies that operate in the industry in some capacity? How has the risk landscape changed with the meteoric rise of crypto assets, and how are some organizations and their internal audit functions successfully responding to these changes?

Part 1 of this three-part series on fraud will address these questions by examining the common fraud schemes seen in the early stages of a crypto-asset world.