What Accountants Can Learn from Fyre Festival
Whether or not you have Netflix or Hulu, by now you’ve probably heard about the infamous Fyre Festival, a failed attempt to create a music event in April 2017 on a Bahamian island. This blog is an attempt to make the connection between this fraud of an event and what's going on with accountants on social media and technology, cryptocurrencies and blockchain in particular.
Recently released documentaries detail the events of what turned out to be a fraud. If you have not watched them, based on my observations of accountants in social media recently, I highly recommend signing out and watching. For those limited in time, Liza Ayres wrote an excellent summary on ACFE Insights.
Here are some of my thoughts as to what the profession should be taking away from this event as we navigate the evolution of technology in our field. Any resemblance to a specific person, application or company in the hypothetical examples are purely coincidental.
The story of Fyre Festival goes that Billy McFarland, an entrepreneur, sought to change the market for booking talent at an event. He solicited help from rapper, Ja Rule to create an app, making the process for booking entertainment more accessible.
They hired a staff to create the app and took the idea of promoting it with a music event known as Fyre Festival. In order to promote their idea, they set their sights on purchasing an island in the Bahamas and hosting a music festival.
With no regard for budget or time, they hired the best in every category. They flew in models and media to generate publicity and relied heavily on social media influencers to spread the word.
The event was sold out in nearly two days, despite the fact that at this point it had no substantive plans in action beyond an idea. My point here is, regardless of whether people initially start out with malicious intent, when one over-promises without any sense of reality, the need and temptation to make poor choices happens.
Billy McFarland falsified financial statements and leveraged power and influence to continue borrowing money to further the marketing efforts. Here is where the connection comes in: As a former practitioner and currently a researcher in the crypto and blockchain space, my concerns for our profession are mounting.
We as accountants historically fall prey to the late adoption stigma assigned to our profession. In doing so, we make ourselves vulnerable to charismatic visionaries and ideas presented that appear to be a vehicle to fast track us to mainstream acceptance.
Regardless of whether the initial efforts are malicious, people seek to capitalize on the public perception and trust of our professional designations. I have read about multiple fintech projects where the founders have a history of premature success, based on their ability to recognize a trend and effectively market to a timely exit.
None of the aforementioned founders have any formal accounting training and many openly admit they struggled with proper recordkeeping in prior ventures. It is evident by many of the statements coming from tech “thought leaders” that they do not have any training and minimal understanding of accounting and audit.
David Gerard, in his book “Attack of the 50 Foot Blockchain: Bitcoin, Blockchain, Ethereum & Smart Contracts," references “the fallacy of transferable expertise,” meaning one believes that their competency in one field immediately translates to mastery of another. In engaging with colleagues on and offline, I see this all too often, especially in the tech space.
I have laid out certain concerning events with line-by-line parallels to the Fyre Festival, only to have people respond with awe at a founder’s brilliancy. Let me be clear, I think all criminals are brilliant in their way. However, to celebrate all of their ideas without challenge and cast away one’s own core beliefs and education for the promise of a vision is a problem.
What makes this worse is when I see accomplished, accounting thought leaders used as props for legitimacy. We have existing standards in place that I believe are sufficient in many situations where they are being dismissed.
The fact that there is ‘no guidance’ should be one’s opportunity to stand up and shine, not lobby to excuse all accountability. Moreover,
- We know how to record a discount for a sale or how to record debt.
- We know that there is not a standard that permits a company to use customer deposits for equity share repurchases.
- We know that a token cannot be classified on a balance sheet sometimes as a liability and others as equity without the proper convertible debt disclosures and capital structure.
What concerns me the most is how many projects rely on funding via a tradeable token, purchased by retail investors. When we ourselves get caught up in the momentum of tech and abandon our applicable expertise, we run the risk of misleading our clients or at a minimum underserving them…and we most certainly know how to assess risk.
There is always risk and it is our responsibility to assess it beyond copying and pasting a disclosure. For anyone providing investment advice or assisting clients in conducting their own research, it is dangerous to merely classify a crypto token as ‘good’ because of its position on CoinMarketCap, exchange availability, or source of funding.
My advice to many accountants who are starting in this field is to stop chasing the code and the tech. I certainly support and learn best by doing, experimenting and possess a basic understanding. However, many accountants would be better served by leveraging existing knowledge to better understand additional finance or economic concepts. Otherwise, racing to social media with a limited understanding of token supply models, exchange revenue models and a global perspective is flat out careless.
Absence of regulation does not, and should not, translate to acceptance of poor practices or denial of risk. Perhaps there are multiple advances in enterprise solutions happening that I am not aware or privy to.
After watching announcements and following projects, it seems to me that much of the money invested in some of these lofty goals are at best being reduced to streamlining redundant processes and existing databases. It seems to me that some of our wisdom and expertise could be well utilized in improving processes and correcting existing inefficiencies within and across organizations.
Dumping an inefficient process onto the blockchain is not going to fix it, so I look at credentialing systems. According to a recent PwC report, “37 percent of hiring managers who reported bad hires said it was due to the candidate’s skill/credential misrepresentation.” It is unclear how much of that number may be mitigated with the assistance of blockchain, as some of that may be attributed to poor judgement and/or collusion and corruption that can still occur prior and post the blockchain.
I often wonder if there is a study of how much could be done to enhance existing tools and communication. Our clients and society in general rely on our valued opinion. We owe it to them and ourselves to not sacrifice our knowledge and experience for fame, power and money.
The Financial Times started a series The entire economy is Fyre Festival. It is free to access with registration and worth taking a few moments away from our daily routines and noise to recall some reasonableness, tests and basic common sense. I hope we can get back to that.