It’s Raining Unaudited Financials: A Crypto Comedy

Sam Bankman-Fried Trial Exposes the Amateur Nature of Crypto

The Sam Bankman-Fried Trial Exposes Crypto’s Amateur-Hour Ways

Welcome, digital asset investors, to a tale as captivating as a magic trick at a Wall Street circus. Today, we delve into the convoluted world of cryptocurrency companies and their audited financial statements, or should I say, the lack thereof. Hold on tight, because this story will make your head spin faster than a Bitcoin rollercoaster!

Picture this: Paradigm, BlockFi, Genesis, and other major players dishing out billions of dollars, left, right, and center, without even peeking at a single audited financial statement. What were they relying on, you ask? Unaudited financial statements and casual chats with company executives. It’s like buying a used car without popping the hood, only with a few extra zeros involved.

Now, before you start sweating like a first-time investor during a market crash, let’s address why this matters. Regulators and the traditional finance world are observing this spectacle with a mix of bewilderment and disdain. This amateur-hour display of financial due diligence won’t exactly help the crypto industry’s PR campaigns in Washington or on Wall Street. Ouch!

But wait, there’s more! BlockFi’s CEO, Zac Prince, took the stand and revealed the dirty little secret of the crypto world – audits are about as rare as a unicorn sighting. So, instead of audited financials, they settle for unaudited versions or any financial information the borrower is willing to share. It’s like playing a high-stakes poker game blindfolded, relying solely on the trustworthiness of your opponents.

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Oh, did I mention the internal balance sheets that were doctored by former Alameda Research CEO, Caroline Ellison? Those were sent to the likes of Genesis and BlockFi, who had kindly lent some funds to Alameda. Talk about shenanigans! It’s as if these stressed-out twenty-somethings were trying to hide a multibillion-dollar hole, hoping no one would notice. Spoiler alert: they did.

It’s ironic, really. The crypto industry loves chanting “don’t trust, verify” like a mantra during full moon rituals. Yet, when it comes to their own financials, they seemed to have forgotten the script. Relying on unaudited financial statements prepared by inexperienced youngsters is like hiring a chiropractor to perform brain surgery – a recipe for disaster.

But hold your horses! FTX steps into the spotlight, showcasing just how toxic the hype cycle can be. With a glossy exterior and rapid growth, it managed to seduce even the most vigilant investors. Paradigm’s Matt Huang even admitted to investing a whopping $278 million in the FTX empire. A word of advice: never judge a book by its shiny, hype-driven cover.

Meanwhile, in another corner of the crypto universe, SEC-regulated companies receive regularly audited financials. What a concept! Audits are like seatbelts for investors, providing some level of assurance and protecting them from financial collisions. But in the wild west of crypto, it seems auditors are as elusive as Bigfoot. “Very unusual,” one auditor said, shaking their head in disbelief.

To add insult to injury, it seems the executives from the lending companies may have skipped a crucial step – discussing those unaudited financial results in excruciatingly comprehensive detail with the borrowers. It’s like having a dinner date without asking any questions about your partner’s past or, you know, basic compatibility. These lend-a-billion-dollar deals require a bit more than good looks and charm.

“These guys couldn’t possibly be more of a mess,” the auditor exclaimed, throwing their hands up in exasperation. And boy, did their mess reverberate through the halls of power! The collapse of FTX and its infectious reach dragged down various crypto companies, casting doubt on the due diligence required to evaluate financial health in the crypto realm.

As the story unfolds, we catch a glimpse of due diligence attempts by BlockFi and Genesis. BlockFi’s legal team took the lead, carefully examining the FTX and Alameda teams before deciding to lend. Meanwhile, Genesis remains silent, not responding to our desperate pleas for comment, like an introverted hermit hiding away from the world.

Brace yourselves, my dear investors, for the aftershocks of FTX’s collapse will echo through the walls of Washington, D.C., and beyond. The regulators are sharpening their pencils, ready to scribble sternly worded memos demanding stricter financial practices. If the crypto industry wants to be taken seriously, it must confront the auditing dilemma head-on. Time to find those unicorns, folks!

Now, some other noteworthy tales caught my eye this week. California signed a “BitLicense” bill, Australia proposed a new licensing regime for crypto exchanges, the U.S. House Speaker role remains an enigma, state regulators intervene in Coinbase’s unregistered securities case, and the SEC’s decision not to appeal the Grayscale case may affect Bitcoin ETF prospects. Exciting times ahead, my friends!

Before we part ways, I’d love to hear your thoughts and questions. What fascinating topic should we explore in next week’s adventure? Don’t be shy! Email me at [email protected] or find me on Twitter @nikhileshde. Join the Telegram group conversation and let’s continue this crypto comedy!

Until then, stay curious, invest wisely, and remember, audits are, and always will be, a crypto investor’s best friend.

See ya’ll next week! 🎉

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