How to Fix "Accounting's Big Lie" of Independence

Accounting’s Big Lie — and How to Fix It

Corporations, big accounting firms, and the federal government have been selling the public a lie.

They claim that the financial statements of public companies — including those traded on the stock market — are audited by independent accounting firms.

But the audit firms are not independent.

They are dependent.

The audit firms are chosen and paid by the companies they audit. Just as the company hires its auditor, the company has the power to fire its auditor. The system incentivizes auditors to please their clients instead of protecting the public.

As professor Don Moore of California’s Haas School of Business has put it, “The very notion that the current system allows for truly independent audits is laughably implausible.”

The system incentivizes auditors to please their clients instead of protecting the public.

Crypto scam victims seek to hold Coinbase responsible for losses

Over the past year, thousands of people have lost tens, if not hundreds, of millions in cryptocurrency when gangs of sophisticated scammers whisked their money out of their accounts, which are managed by an app from the publicly traded cryptocurrency giant Coinbase.

Now those victims are fighting back. Nearly 100 people are trying to hold Coinbase accountable, saying the company didn’t do enough to protect them. Scam victims says they notified the company, begging it to fix defects in its Coinbase Wallet software that had allowed the victims unknowingly to grant the scammers access to their accounts.

The requests were to no avail, scam victims say.

Web 3.0 – The Great Con

In over ten years since Bitcoin captured the public imagination with the idea of blockchain, we’ve seen no significant real world adoption of cryptocurrency as currency (and the few attempts to do so have ended in failure), no use of blockchain as a superior alternative to conventional databases and cryptographic signatures, no democratic revolution of the internet and big data.

What there has been is a countless number of investors who’ve lost money, outright illegal scams preying on the hype, projects which started with good intentions but subsequently collapsed (while their founders miraculously got away with millions), pump-and-dump schemes which leave a large number of “bag holders” separated from their life savings and an increasingly stagnating market of useless tokens which are primarily used as a form of gambling.

So next time someone tries to tell you that blockchain is the future, or that crypto is going to revolutionize the economy, my advice is simple: don’t buy in to the hype.

New York Financial Regulator Wants to Lead on Crypto, Climate Change

The head of New York’s financial regulator is looking to use the state’s role as a financial-services leader to help set the regulatory agenda nationwide, with a particular focus on bringing order to the cryptocurrency industry.

Adrienne Harris, who was confirmed in January as superintendent of the New York State Department of Financial Services, said she intends to accomplish her goals partly by offering clearer guidance to banks and other financial institutions and by bolstering the resources her agency needs to do its job.

New York’s financial regulator, which oversees insurance companies and state-chartered banks, already plays an outsize role in financial services, with many other states following its lead on regulation and enforcement. Ms. Harris seeks to bring that leadership role to other areas, including crypto and climate change.

Hacker Gets $50 Million in Heist of DeFi’s Mango

The community of decentralized-finance application Mango DAO on Saturday got back a portion of about $100 million stolen this week after letting the hacker keep about $50 million of the funds.

The settlement wraps up several days of tense negotiations between the hacker and Mango, which is governed by its community of token holders who vote on any changes. Soon after the theft, the hacker posted a proposal in the app’s governance forum asking for bad debts on the platform to be erased – a deal that was not approved by the majority of Mango token holders even after the hacker voted for it with some of the stolen tokens.

The Mango team then posted a counter proposal, offering to let the hacker keep around $50 million for the return of the rest of the funds while promising no criminal prosecution and to erase the bad debt.

Is the SEC the New Crypto Sheriff in Town?

Gensler said on Sept. 8 that the SEC will be aggressively policing crypto tokens and intermediaries. And on Sept.19, the agency quietly—but radically—suggested in a lawsuit that it would assume jurisdiction over the entire Ethereum network.

Ether, the second-largest crypto by market capitalization, was previously viewed as a commodity and not within the SEC’s jurisdiction.

These two events may well shape the regulations that crypto companies and users will face in months and years to come. Industry stakeholders and intermediaries will need to adjust to the SEC’s new enforcement tactics and assertion of jurisdiction over the markets.

Nikola Founder Trevor Milton Is Convicted of Fraud

A federal jury on Friday found Trevor Milton guilty of defrauding investors by lying about the supposed technical achievements of Nikola, the electric truck maker he founded.

Mr. Milton was convicted of one count of securities fraud and two counts of wire fraud, the most serious of which carry a maximum prison sentence of 20 years. He was acquitted on an additional count of securities fraud. The jury in U.S. District Court in Manhattan delivered the verdict after about four weeks of testimony and about six hours of deliberation.

There Is No “C” in “ESG”: An Illustration of ESG’s Biggest RiskCyber security is not the only subject matter that some have added to the universe of ESG (e.g., tax strategy, Russia’s invasion of Ukraine). Nor is it the only one that experts differ on what letter gets assigned (e.g., DE&I, talent). But the various and creative ways in which cyber security can be packaged as ESG shown above demonstrate the potential for ESG to become an open-ended term. Even past evangelists now pray that we move on and search for a better one.

One could argue that the term “ESG” is best used as shorthand for anything not typically measured with traditional financial metrics, or “externalities” in general, and pedantic arguments over specific words and letters miss the point. But the possibilities for what is an ESG issue cannot be endless. What is not ESG? An undisciplined approach to what constitutes ESG will render it meaningless to those who need to understand its importance, and an absence of boundaries makes ESG ripe for manipulation, co-option, and ridicule by those with ulterior motives. Continuing down this path will undermine the concept of ESG as a critical component of business and investment decisions. ESG’s own biggest risk may be that it can be whatever you want or need it to be.