Both a good line and a mostly accurate description of forensic accounting!
https://twitter.com/bitfinexed/status/1486131370556542979
Frauds collapse mostly because the scale of lies (promises of returns, chiefly, but then checkable metadata about operations) compounds on itself more rapidly than anything should compound in most legitimate businesses, eventually hitting a checkpoint that can not be bullshit.
Frequently that is a liquidity crisis; less frequently it is intervention by a partner or government.
“Checkable metadata about operations?”
Legitimate businesses do something in the physical world, and facts about those operations leak into the physical world and are checkable. You have e.g. suppliers who have orders corresponding to your inputs which were paid for and shipped.
Legitimate businesses do something in the physical world, and facts about those operations leak into the physical world and are checkable. You have e.g. suppliers who have orders corresponding to your inputs which were paid for and shipped.
Frauds allege that they are doing something in the physical world to produce the eye popping returns, but they cannot tell a consistent story about that thing, because simulating the physical world at a high level of fidelity is really, really hard.
Also, frauds by nature are promising some sort of hyper growth which would have outsized impacts in the physical world, but they are incapable of producing those outsized impacts, and therefore the gap will be very apparent if you know where to look.
An example of this: Tether’s claim to be backed by tens of billions of dollars of commercial paper was self-evidently absurd, and very quickly checkable by people who actually worked in what is generally called commercial paper. They called around and nobody knew Tether.
Another example: Mt. Gox alleged that they were DOSing the wire department at the second largest bank in Japan and that was why they had difficulty sending people the money they owed.
That claim was treated at face value by a lot of people, who did not really believe that the second largest bank in Japan exists in the physical world and has people working at it with names, addresses, and willingness to answer straightforward questions about daily wire volumes.
(I am still annoyed at the financial media for this one.)
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