The Rational Reminder Podcast

Episode 312 - Prof. John M. Griffin: Forensic Finance and the Power of Research

Jul 4, 2024

01:02:48

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Leading forensic finance expert Prof. John M. Griffin exposes financial scams in crypto markets, pig butchering scams, and fraud in Paycheck Protection Program during COVID-19. Discussion highlights importance of rigorous academic research in uncovering financial fraud and calls for robust oversight and transparency in financial systems.

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Quick takeaways

Forensic finance research focuses on deciphering illicit activities in financial markets using data science tools and econometrics.

Crypto fraud is driven by Tether's unbacked crypto prints, social connections via social media, and market manipulations.

The Paycheck Protection Program revealed significant fraud incidences, highlighting the need for robust monitoring systems and financial accountability in major relief initiatives.

Deep dives

Forensic Finance and the Study of Frauds in Financial Markets

Forensic finance involves a study of things potentially illegal, illicit, and immoral in financial markets, akin to investigative journalism in the academic realm. Academic research in forensic finance uses data science tools and econometrics to decipher nefarious activities within complex financial systems, aiming to differentiate between illicit and legitimate explanations by following data trails.

Intro

2min

Uncovering Fraud and Market Dynamics Through Forensic Finance

7min

Exploring Positive Bias in Academic Papers and Crypto Pig Butchering Scams

2min

Crypto Scam Proceeds and Money Laundering in the Cryptocurrency Network

17min

Critique of Tether and Market Dynamics in Crypto Industry

16min

Navigating Challenges in Publishing Controversial Research in Forensic Finance

2min

The Rampant Fraud in the US Paycheck Protection Program (PPP)

13min

Exploring Market Flaws, Academic Success, and Purposeful Research

4min

Discover the hidden underbelly of financial markets in today’s episode featuring Professor John M. Griffin, a leading forensic finance expert and the James A. Elkins Centennial Chair in Finance at McCombs School of Business at the University of Texas at Austin. Tuning in, you'll learn how forensic finance exposes illicit activities in crypto markets, revealing how entities like Tether (a cryptocurrency pegged to the US dollar) facilitate scams and money laundering. We also delve into the disturbing world of pig butchering scams, which have stolen more than $75 billion from victims globally, and how the victims of these scams have helped John study the flow of illicit funds in crypto markets. Find out how John uncovered massive fraud in the Paycheck Protection Program during the COVID-19 pandemic, and how this exposed the central role of fintech lenders and social networks in spreading fraud. We also discuss the importance of rigorous academic research and its practical implications in uncovering financial fraud, emphasizing the need for robust oversight and transparency in both emerging and traditional financial systems. Tune in for a thought-provoking discussion that challenges established practices and calls for greater scrutiny in financial systems!

Key Points From This Episode:

(0:05:23) An overview of John’s research, the definition of forensic finance, and what sets forensic finance research apart from more traditional finance papers.

(0:09:55) The economics of pig butchering scams and how the victims of these scams help John study the flow of illicit funds in crypto markets.

(0:14:42) How crypto exchanges fail to monitor for potential scammer activity.

(0:18:44) The role of so-called legitimate crypto exchanges in criminal activity; why Tether (a cryptocurrency pegged to the US dollar) is the most important cryptocurrency in scam activity.

(0:21:43) Unpacking the $75 billion figure in John and Kevin Mei’s paper on Pig Butchering and how it finances slavery; how this compares to fraud estimates from firms like Chainalysis. (0:26:25) How the methods in John and Kevin’s paper can be used to improve the monitoring of crypto exchanges, and how the crypto community has responded to their paper. (0:29:14) An overview of John’s paper on Tether with Amin Shams and how often fraud and misinformation are associated with asset price bubbles.

(0:30:52) What Tether is, the difference between it being demand-driven or pulled, and supply-driven or pushed, and why Tether creators want to inflate the price of Bitcoin.

(0:34:46) Decentralization in the crypto space and why decentralized finance is a misnomer, how to test whether Tether is pushed or pulled, and investigating Tether’s relationship to Bitcoin.

(0:35:56) How to test whether Tether is pushed or pulled; investigating Tether’s relationship to Bitcoin and how it can be exploited by bad actors.

(0:42:05) Tether’s response to John’s paper and why he tries not to listen to nay-sayers with vested interests.

(0:46:10) John and his co-writers’ findings on the prevalence of fraud in the Paycheck Protection Program (PPP) during the COVID-19 pandemic.

(0:48:05) The role of fintech lenders and social networks in the propagation of PPP fraud and the impact PPP fraud had on real estate prices.

(0:56:07) Policy implications and recommendations for future financial relief efforts.

(0:59:47) John’s personal journey and his profound definition of success.

Links From Today’s Episode:

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/

Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on X — https://x.com/RationalRemind

Rational Reminder on YouTube — https://www.youtube.com/channel/

Rational Reminder Email — info@rationalreminder.caBenjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/