FTX Is a Signal to Brush Up on Your Red Flags- Here Is How To
Only when the tide goes out do you discover who's been swimming naked, as Warren Buffett famously said. After more than a decade or near-zero interest rates and the mother of all stock-market parties, the tide of free money is most definitely receding. The bankruptcy of Sam Bankman-Fried's FTX empire is a foretaste of what may be to come. While the crypto world dances to an arcane beat that may be only tangentially connected to the realm of conventional finance, it's emblematic of more straitened times that a business valued at $32 billion only a few months ago couldn't find anyone to put up the extra funds that would enable it to keep going.
If history is a guide, the uptrend in corporate failures to be expected from rising costs of capital is likely to be accompanied by an increasing incidence of fraud. The Enron Corp. and WorldCom Inc. scandals both blew up in the years after the bursting of the dotcom bubble, another period of near-free money, at least for companies that could tinge themselves with a new-economy aura. Bernie Madoff's investment firm finally collapsed during the nadir of the global financial crisis in 2008, exposing the world's largest-ever Ponzi scheme. In the UK, Polly Peck International Plc expanded rapidly during the go-go 1980s before foundering in the 1991 recession. Its chief executive officer was later jailed for theft. The 1997-98 Asian crisis uncovered abuses across some of China's international trust and investment corporations. The list goes on.
“You're going to get a lot more frauds,” Christopher Leahy, Singapore-based managing director of research and advisory firm Blackpeak Group, told the Asian Corporate Governance Association conference in London. With a recession coming, “we should
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