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

July 4, 2024 Guest User

Pic: University of Texas at Austin

Professor John M. Griffin is the James A. Elkins Centennial Chair in Finance at McCombs School of Business, University of Texas at Austin. Dr. Griffin is a leading forensic finance expert, specializing in understanding the role of potentially illegal, illicit, or immoral actions in financial markets. His research has analyzed potential fraud related to cryptocurrencies, PPP fraud, CMBS, CLOs, the 2007-2008 financial crisis, bonds and structured finance products, credit ratings, derivatives, insider trading, market manipulation, investment bank disclosures, financial market anomalies and hedge funds. His papers have won top finance awards and, according to the SEC, he is the second most cited academic in recent SEC rulemaking. He has published over 30 papers in the top finance and economics journals and is widely cited. His recent research has been profiled in Bloomberg, The Wall Street Journal, The New York Times, and over 750 other news outlets around the world.

Professor Griffin is the CEO/owner of Integra FEC, Integra REC, Integra Research Group, and Integra MED Analytics, which specialize in Forensic Investigations. Integra FEC and Professor Griffin have consulted for various entities including the US and state DOJs, the SEC, the CFTC, and other parties. He is a past President and Vice-President of the Western Finance Association, one of the leading finance associations, as well as a past President and Vice-President of the Society of Financial Studies SFS Cavalcade, and a former director of the Financial Management Association and Western Finance Association. He has also been a visiting professor at Harvard Business School, Yale School of Management, and the Hong Kong University of Science and Technology. An overview of his research can be found here on Bloomberg and Podcast.

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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.

Read The Transcript:

Ben Felix: This is the Rational Reminder podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. We're hosted by me, Benjamin Felix, and Cameron Passmore. Portfolio Managers at PWL Capital.

Cameron Passmore: Welcome to episode 312. I think we'll do a different intro this week, Ben. I've been thinking we had a long conversation with this week's guest after we stopped recording. It kind of really made me think. Our guest this week is Professor John M. Griffin. And through the whole conversation, I found him so fascinating because he's on a mission. He's got a purpose. And he's dedicated his life to researching something.

And just the way he talked about how he chooses what's important to dig into to be truly independent. What tests you build to test your hypothesis? And he just keeps his head down. Ignores the feedback and just keeps following what those tests deem to be the truth. And he's just got such a refreshing style about them. And he's so interesting and very effective communicator. But it's all about the usefulness of academic research, which is the essence of effectively what this podcast has been about for six years.

And it was just a really thoughtful experience. More than just the questions and answers, which the topics – I'll let you get into the topics, which are absolutely fascinating. But I just thought he did such a great job of articulating the benefit of this whole body of research that goes on beneath the scenes. And we talked about this with them afterwards. Beneath what you and I and others in our industry are marketed. I loved it. Loved the conversation.

With that, he's the James A. Elkins Centennial Chair in Finance at McCombs School of Business at University of Texas at Austin. You made the connection. I I'll let you take it from there and talk about the topics. But I think this is a fantastic conversation.

Ben Felix: His big area of research right now. And he talks about what that means at the end of the episode when we ask him about success and how he decided to go down this path of doing this type of research. But his big thing is forensic finance. And so, he defines what that is at the beginning of the conversation. I won't go rehash the definition. But we talked a lot about his work on crypto. Using forensic finance to look at that space.

And then also on the PPP program, the Paycheck Protection Program in the US, which was a big relief program for COVID-19. He's taken forensic finance principles and applied them to looking at what's actually going on in crypto and what actually went on with the PPP program. And both are super interesting practically because you can actually see what the name suggests. You can kind of look under the hood and see what's going on using forensic methods, which encompass a whole bunch of different things. Like, using econometrics and using machine learning to see what's going on behind the scenes in a complex system.

In crypto, we talked about pig butchering, which is the kind of romance scams that a lot of people are somewhat familiar with. There are tons of very horrible sad stories. And I've unfortunately – not personally, but I've professionally seen some pretty scary stuff happen. And so, John's really dug into that space. What is going on with pig butchering? And what role does crypto play in facilitating that type of scam?

We also talked about Tether, which is the paper that really led me to John's work years ago, was his paper on Tether and what role Tether has played in Bitcoin's price. And whether Tether is backed. And if people are familiar with Tether, they'll know what that means. And if not or if that sounds unfamiliar, John will explain it in the episode. I found all that super interesting.

And then the Paycheck Protection Program stuff is also very practically relevant. Because both the US and Canada have gone through pretty similar experiences where we had massive relief programs and a lot of potential for fraud and probably a lot of actual fraud in the case of the US, for sure, as John's research shows definitely. And his answer to the success question was really deep and I thought pretty powerful.

Cameron Passmore: Indeed. Anything else you want to add, Ben?

Ben Felix: We're so grateful to be able to talk to people like this and just chat with them about their research and dig into questions. It's like we're just kind of hanging out with this brilliant person who's done a ton of research on a topic. And we just get to sit here and ask some questions about it. It's really an incredible experience.

Cameron Passmore: And as he said, he's never worried about pleasing everyone. Just follows the research. Keeps his head down.

Ben Felix: He referred a couple of times to the fact that he's a Texan. And it's basically saying you can't mess with me. And I'm not going to take your BS. I'm going to do the research and no one's going to tell me otherwise.

Cameron Passmore: But it's open to debate. And he said the industry of research needs more debate.

Ben Felix: 100%. He's gotten a ton of push back from the crypto industry on his research on crypto. And he kind of said that he doesn't pay too much attention to that. However, if serious people come to him with serious rebuttal or serious analysis that shows his results were incorrect, then he's happy to listen. But that has not happened yet.

Cameron Passmore: With that, Ben, let's go to our conversation with Professor John M. Griffin.

***

Ben Felix: Professor John Griffin, welcome to the Rational Reminder podcast.

Prof. John Griffin: Thanks so much for having me. Very pleased to be here.

Ben Felix: Super excited to be talking to you. All right. I want to start with kind of a broad overview of a lot of the research that you do. What is forensic finance?

Prof. John Griffin: Yes. You're pulling this I believe from my paper with Sam Kruger, my trusted co-author. We've written many papers together in the forensic finance area. We decided to write a survey paper. Other people like Jay Ritter have used this term in the past and written shorter papers on this. But we survey the more recent literature on this.

We define forensic finance a little differently. We define it as the study of anything that is potentially illegal, illicit and/or immoral in financial markets. And we think that word potential is important because we think it's important to examine things that may look questionable and find that they're not questionable. We think that's also important, too.

And so, one could think of this in terms of an academic version of investigative journalism. Investigative journalism looks at what one can learn about a particular subject. But academic research has a lot of tools at its disposal in particularly econometric tools, data science tools, big data. And academic research also has the scientific paradigm to kind of understand the nefarious and the non-nefarious explanations and pit those explanations against each other and see what does the data say?

And in fact, often, I think data does leave tracks. And if people are engaged in some sort of nefarious activity, those tracks will be in the data and often be able to separate the nefarious and non-nefarious explanations.

Ben Felix: Super interesting. And we're going to get into your research on that, which I find just fascinating. What makes forensic finance research different from more traditional papers that you might see in top finance journals?

Prof. John Griffin: I think it's much more applied and specialized. It's often focused on a particular market or a particular real-world question over a certain period. Some academics may not like that. They may think, "Well, how is this applicable to the world at large?"

But I like the fact that it's very applied. Because sometimes in my prior research, I actually found that I had a hard time seeing the connection between the work that I was doing and something in the real-world. We estimate actually that about 6% of all finance research has a forensic nature to it.

Oftentimes, people don't categorize their research necessarily as that because maybe they're working in an area such as mutual funds, but they find something that's suspicious. Or private equity. And they find something that's suspicious. They may categorize the research in the private equity area, hedge fund area. But in fact, it also has an investigative component and a forensic component.

Cameron Passmore: How does forensic finance help to balance out hype in areas like crypto?

Prof. John Griffin: I think that academics aren't immune to hype either. You can think about academics, they want to sell their research. Writing a paper to justify why crypto is so popular and useful, that is a paper that might be well-received. And in particular, I think that some top academic papers appear to read more like marketing papers for the crypto industry. Maybe that was inadvertent. But there's two facets of it. The people that are very excited about crypto, those are the ones that start writing papers in the area. And so, as an outsider who's not drinking the Kool-Aid, one can come in and hopefully look at markets in a more objective manner and look at the pros and the cons to it.

Ben Felix: That's interesting. There's like a selection bias about who will write about some new thing and it'll tend to be more positive.

Prof. John Griffin: There's a selection bias. And, also, papers that are more positive, it's going to be better received by that audience of academics. And, also, it'll be better received that practitioners also go to these conferences as well. And they sponsor these conferences. It's going to be well-received by the crypto industry.

Ben Felix: That's interesting. You show up with the actual forensic finance data just to say maybe this isn't as great as it seems. And people don't like it.

Prof. John Griffin: Not everyone likes it. Yeah.

Ben Felix: Yeah. Not everyone likes it. I like it. I do want to move on to some of your research on crypto. You got a recent paper looking at how crypto flows finance slavery, which is just fascinating. To kick that off, can you explain what a pig butchering scam is?

Prof. John Griffin: I also want to give credit to my co-author, Kevin Mei, who has done a tremendous job here. And in this paper, we also use tools to trace crypto that we developed at Integra FEC, our consulting firm. These pig butchering scams, they've become quite common. You may have gotten a random text message from someone. Or you just get a picture, "Here's a bottle of wine. Would you like this bottle?" They're trying to make a conversation with you. Do you like horses?

I've gotten a lot of these random text messages. And they're just trying to develop a relationship. These people are also on online dating websites. All kinds of websites. Just looking to develop relationships. But the in-purpose of those relationships is to get you comfortable investing in crypto. In fact, though, it's not really investing. It's just transferring your money to their platform. The schemes are often very sophisticated such that very smart and well-educated people fall for these schemes as well.

Ben Felix: Yeah. It's crazy. I've seen first-hand some pretty wild stories where they use the romance as a foot in the door and it kind of lets people's guard down, I think. They effectively trick people into putting money into crypto. Crazy stuff. How do the victims of these scams help you study the flow of illicit funds in crypto markets?

Prof. John Griffin: We obtain two data sources that have been vetted in terms of these are actual victims of the scams. And these are the addresses that they report. And then we run those addresses through our tracing algorithms. And, basically, we see where the money goes. Because the money's on the blockchain, we're able to follow those funds. And you can follow those funds to their end destination. And that's what we do. We trace them to their end destination.

Ben Felix: Super cool. So you get verified victims of pig butchering scams. And because everything flows through blockchains, you can kind of track where the funds go.

Prof. John Griffin: That's right. It's something you can't do when there's money laundering in the traditional financial system because all those records are private. This is one of the first times you can actually look at those funds and see how money laundering works and how criminal activities operate.

Ben Felix: I had this question later on and maybe we'll ask it again in that context, but blockchains are supposed to be transparent. That's one of their selling points. But you're using proprietary technology effectively to actually trace what's going on. Are blockchains actually transparent if you need that kind of technology to see what's happening?

Prof. John Griffin: Well, there's two aspects of that. Blockchains are meant to be anonymous. But, really, they're quasi-anonymous and they're partially transparent. If you develop the algorithms, you can follow the fund flows. And you follow those fund flows to the end source and you can see where those exchanges are.

Now you could trace those addresses to what is essentially the person's bank account number. So you don't know the name on the bank account number unless there's some other piece of information that's out there. If, for instance, they're a person that's collecting a lot of money and they have a Twitter account and they put their account number out there, then you can actually – it's called attribution. You can actually add attribution to that address.

But most of the major exchanges, you're able to do attribution on those exchanges. And so, you can look one step back from those exchange hot wallets and you can grab the deposit addresses. And so, you know that, in fact, this person interacted with binance exchange. And it's well known that law enforcement then can subpoena those exchanges and get whose account it was and all their information at that point.

Cameron Passmore: How do scam proceeds typically enter and exit the cryptocurrency network?

Prof. John Griffin: Well, that was one of the things that's surprising about our paper is because you think of all of these more sophisticated ways that crypto can move through the system, we show that most of it's happening from exchange-to-exchange. Most of the money coming in, we're finding it's coming from Coinbase and crypto.com, for instance, in the West. And also, Binance in the East. And then it moves over to exchanges that are less transparent and follow less rigorous KYC protocols. Including Binance, Huobi and OKX.

And the reason the money's going over there is because even though people refer to crypto as a currency, I like to refer to it just as crypto. Because even though one can find unique cases where it's being used as a currency, for the most part, it is not a currency. And so, people need to cash out and move their money to dollars or another hard fiat currency.

Ben Felix: How well did the crypto exchanges monitor for potential scammer activity?

Prof. John Griffin: I think that's what's kind of embarrassing about our paper for the crypto industry is it shows that it's not monitoring very well. We're showing two aspects of that. We show that there's a lot of inducement. The Western-based exchanges like Coinbase, crypto.com, Kraken, those exchanges are at least not large cash-out points for these scammers. It is the case that they seem to be following KYC procedures. They're not having a lot of criminals cashing out on those exchanges. But the flip side for them is that the funds, they're not monitoring the nature of these networks. And one of the features about pig butchering is they like to build trust with the victims. And so, they send the victims back money to build trust. They send them back crypto. And those are called inducement payments. And we show that there's literally thousands of inducement payments going to these exchanges and they're not detecting these inducement payments. That's one aspect.

Cameron Passmore: Unbelievable.

Prof. John Griffin: Yeah. There's over 100,000 inducement payments in general. And on the backside of these, the cashing out, the exchanges Binance, Huobi and OKX, these large crypto exchanges are serving as the cash-out point for a lot of this activity moving through the system. That's showing that these exchanges, even though they purport to engage in some kind of KYC and AML walls, whatever their protocols they're following are fairly loose and are being gained.

Cameron Passmore: That's my next question. How does crypto allow people to circumvent those frameworks at KYC and AML when Western crypto exchanges have to follow these protocols?

Prof. John Griffin: Well, the Western exchanges have to follow the protocols. And they do follow the protocols. But they don't engage in a lot of monitoring activity in terms of what the people do coming in and off of the exchange with their funds. But what our paper is showing is that the exchanges like Binance Huobi and OKX and others that pop up, those exchanges really are not engaged in rigorous KYC protocols, because there's so much criminal funds that are exiting those exchanges, moving through those exchanges.

Ben Felix: The crazy thing about crypto is that it lets people transact with each other directly. And, well, maybe if it's through exchanges, it's through exchanges. So it's not necessarily direct. But in either case, if you have a good KYC regime in one place and a bad one in another place and crypto lets you move seamlessly between them, it kind of blows the whole KYC framework up, doesn't it?

Prof. John Griffin: The funds move to the point of least resistance in the KYC framework. But it is interesting though. Because, for instance, we're not making many friends with this paper obviously in the crypto industry. But if you look at Binance for instance, they had a large settlement with the DoJ not too long ago. But our paper shows that criminal networks are still moving money through their exchanges even in 2024 after the settlement. We don't understand what's going on with that.

One thing that can happen is that criminals can set up accounts and use those accounts to launder funds or use someone else's account to launder funds. But if you're engaged in a rigorous study of where those funds are coming from, those accounts could quickly be shut down. But our paper shows that those accounts are open for a long time and they're moving millions of dollars through the accounts. These aren't just small mom and pop operations. These are massive criminal operations.

Ben Felix: You mentioned Binance and a couple of other ones, Huobi and OKX, I think. Those are the whatever – the bad guys, the off-ramps that don't have the KYC in place. What role did they legitimate? And I put that in my notes as in quotation marks. Because I don't know how legitimate any of crypto is. That's my own bias though. What role do the legitimate crypto exchanges play in all of this criminal activity?

Prof. John Griffin: Most of those exchanges, they refer to themselves as legitimate exchanges. One thing we show is that from moving the money on the blockchain to the exchange where they exit, it's about 87 basis points in transaction cost on average to move the funds. That's half of a credit card fee to move the money all the way overseas.

Now there are additional fees that they'll have to pay entering the system, exiting the system, actually transacting the money to fiat. So we don't have the total all-in cost. But that 87 basis points is very cheap to move the money across the system. And they're not using extremely sophisticated techniques to do so. I think what we're showing is that these legitimate exchanges are the entry points and off-ramps. And so, in some ways, the legitimate crypto market is providing the liquidity.

I want to also throw it out there, there's lots of firms that – even Western-based funds, hedge funds that are like, "Well, we engage in market-making, in dark pools and so forth." What are they doing in these markets? Who are they providing liquidity to? Usually, if you're making 10 basis points behind some trade, there's a reason for it. A lot of times, they could just be facilitating money laundering. They're facilitating money laundering on the blockchain in these various markets.

It's a market that, in some sense, the bigger the legitimate crypto market gets, the cheaper and easier it is. And left detectable, it is for the illegitimate market to use this and plug into this and criminal activity to use this, which is not a message that the crypto industry seems to be particularly fond of.

Ben Felix: I can imagine that they don't want I hear that.

Cameron Passmore: Which cryptocurrency is most important in scam activity?

Prof. John Griffin: We find that 84% of the transactions are in Tether. Now they don't always start out in Tether. But they quickly move the money to Tether. And in fact, when the money starts – it used to be people would think Bitcoin would be the major crypto. When we show that – when they receive Bitcoin, oftentimes, two-thirds of the time or so, they quickly mov that money to Tether on the Ethereum blockchain.

Why is that? Well, we don't know exactly. But you can imagine that it might make it easier for criminals to keep the money in dollars. It's stable. Bitcoin fluctuates a lot. And if you're splitting profits among people, you want to know, "Hey, these are what the profits were. And here's our formula. And we're going to split it this way." So they don't have to worry about currency risk. Tether is extremely popular in the network and exiting the network.

Ben Felix: Can you talk about the magnitude of the criminal activity that you're measuring? And just to set that question up a little bit more. In preparing for this conversation, I read your paper. But there are also a few critical blog posts of your findings. Your paper points to the $75 billion figure. And some people online have kind of said, "That's crazy. It can't possibly be right." Can you talk about what that $75 billion is measuring?

Prof. John Griffin: I don't read, see all the Yahoo blog posts out here. There's a lot of people that blog in the crypto industry that absolutely know very little about what they're talking about. But they're able to sound sophisticated. I mean, we thought carefully about this paper and worked on it. Did a variety of things for over a year. And so, every number in there we've thought carefully about.

Now we're not saying it's exactly 75 billion. What the 75 billion represents is the amount of funds that are exiting the system that are tagged to accounts related to pig butchering networks. Now it's possible, and, surely, it's the case that some of these funds may not be pure pig butchering. For instance, we know that, unfortunately, the people that carry out pig butchering are victims themselves, most of them. And a lot of those people are enslaved. And they make ransom payments.

And in fact, a verified ransom payment was in our network. That means that the very people are getting Pig butchered on the front-end are linked to the people that are enslaved on the back-end. And so, some of that is the ransom. It could be other criminal activity that these guys are engaged in. It could be that we're overstating the funds by that nature. But there's also many things that would lead to us understanding the funds.

In particular, we don't have all the pig butchering addresses. We start with a fairly small fraction probably of the total addresses. And then there's also the case, we're starting with a subset of that. We're also focusing on the Ethereum network, whereas they're also doing recent activity, is picked up a lot in Tron Network. There's other currencies that they interact with.

And when we trace the funds, we also use conservative assumptions and we stop at unknown entities and stuff, which also maybe exit points. There's a lot of reasons to think actually. If I was to guess whether it was over or under in terms of the raw magnitude, I would actually guess that we're under representing it with our $75 billion figure. That's over like a four-year period. Most of it occurring in the last three and a half years.

That's the nature of that. We provide a lot of robustness around that figure and so forth. We show the amount of transactions. We're not measuring transactions. The amount of transactions in the system, in the networks is about $1.2 trillion of activity just in terms of the raw numbers of trades.

Ben Felix: 75 billion, just so I'm clear for listeners, is the amount that has left the system through illicit addresses over the last four years?

Prof. John Griffin: It doesn't necessarily mean it's totally left the system. Because there could be double counting to the extent that the money came through the system through one exchange and then another exchange. There could be some double counting in that. But like I mentioned before, there's also under counting in the sense that not measuring funds that are leaving the system and other mechanisms.

Ben Felix: How does that figure compare to estimates on fraud in crypto from firms like Chainalysis?

Prof. John Griffin: Firm like Chainalysis doesn't describe their methods in detail. Obviously, they're probably a trade secret with them. Their methods aren't firmly described. But what I understand from what they do describe – and they admit that they're super conservative in the way they go about it. So if they get an address that's tagged as a scam address, they tag that address and then they count all the funds into them.

Now interesting enough, Chainalysis has not provided to my knowledge in their last report. I couldn't find an estimate of pig butchering. They did provide an estimate for all scams, which included about nine or 10 different scams and there's some other large scams investment scams, phishing, rug pools, so forth. There's all kinds of scamming activity in crypto.

We're focused on this particular one just because it's such a dark one and we want to fully understand it. You can only go so deep if you're examining a lot of different things at once. But the number that they threw out there for all those scams was 4.6 billion in 2023. It's a massive order of magnitude relative to our number. And that's because they're actually looking at the initial addresses – my understanding at least based on what they put out there is that they're looking at the tagged addresses, the flows that are coming into those addresses. Whereas we're tracing the funds downstream and grabbing the big addresses where they're moving the money into the exchanges.

There's a big difference in the methodology and the way we go about it. If we were to just look at our initial addresses, we would also come up with a very small number. But that's the whole point of tracing, is to find out where the money is going.

Cameron Passmore: Let's dig in to those methods. How can the methods used in your paper be used to actually improve the monitoring for crypto exchanges?

Prof. John Griffin: There's lots of things that exchanges could do. They could employ some algorithms similar to what we do to monitor the funds coming in and out of their exchanges. But through some talks with insiders, I believe crypto exchanges also are caught in a little bit of a catch-22. Because people want to move money into crypto because there's a decentralized component.

Now, originally, it was set up as this decentralized system. But now what we see is it's actually very centralized market. Even though it was set up to be this anonymous decentralized financial system, now we have all the money entering and exit through these centralized exchanges. And it's been that way for quite some time actually.

These centralized exchanges though are still caught between a little bit of a catch-22 in the sense that their customers don't want everything monitored by the exchange. And, yet, there is also an element where they surely don't want to lose their life savings either. I think they could do much more monitoring. But they probably view that as just a cost center to them.

You got to imagine, they're making money if they're offloading all these accounts off of their exchange and they're making fees off of all those transactions. Shutting down that could shut down a significant source of revenue. They've got a cost center to imply these monitoring methods. And so, you can imagine where they could save money by not employing rigorous monitoring and also make much more on the fees on the front or back side.

Ben Felix: Yeah. That's wild. You mentioned you don't read the blog posts. But how has the crypto community to your knowledge responded to this paper?

Prof. John Griffin: In one of the articles that printed, Heather came out with a statement saying the paper was flawed. I mean, it was interesting. They came out with that statement. The paper had just been posted. I doubt more than a couple hours had gone by between when they made that statement or if they had time. Maybe they had time to read the abstract when they said that. But I wasn't too bothered by that because they said our previous paper was severely flawed and put a blog post up about it and stuff like that. And then, subsequently, the major allegations of our paper have all been borne out and in fact admitted by Tether themselves. The company has a history of just making up stuff.

I tend to ignore critics like that. And you got to realize, the industry has a vested interest. A lot of these even firms that engage in tracing, they have is their customers, their large customers are Binance and Chainalysis. That's one advantage to being independent is that we can call a spade a spade.

Ben Felix: You definitely do that in your papers. You're not messing around. I want to move on actually to your Tether paper. To set that up, can you talk about how commonly fraud and misinformation are associated with asset price bubbles?

Prof. John Griffin: It's something I wasn't aware of. And it was never really taught to me in any of my courses throughout my undergrad or PhD program. But when I started looking at books, they were more practitioner-oriented. Now this is related to your podcast with James Choi. But I also think there are things that we can learn from the practitioner-oriented finance folks as well.

And it seemed like historians had made a lot of connections between fraud and bubbles. Anytime there's an asset price bubble, there's just a hype. There's euphoria around it. And it leads to an ability to make stuff up. And so, there's been a history dated back to – the South Sea bubble is a very famous one. The Mississippi bubble. The dot-com bubble. These bubbles always had a tinge, and in fact, perhaps even much larger than people anticipated fraud component.

There's two aspects of that. There's two major theories on it. And one theory is that, well, because of the excesses, because of the hype, it allows people to be taken advantage of. That's definitely an aspect of that that's true. It allows the fraudsters to come in and prey on that. But there's also a second aspect that was shown in the South Sea bubble and the Mississippi Bubble at least anecdotally, as well as [inaudible 00:30:33] point out in like three bubbles including the Texas commercial real estate bubble. The fraud itself helping to drive and even cause the bubble. The mechanism is different in all these situations. But it could be the case that the fraud itself makes the bubble bigger.

Ben Felix: On that note, can you talk about what Tether is?

Prof. John Griffin: Yeah. Tether is a purported stablecoin that trades relative to a dollar. It's a "novel concept" in the crypto industry, that while we could have stability, something like the dollar, and we could yet trade in crypto, have very low transaction fees. But Tether was a crypto currency that was developed to be a stablecoin but developed in a very illiquid market, very opaque market. And associated with the Bidfinex exchange, Ifinix and some related companies. And so, they started this stablecoin. And since then, it's grown and taken over as to be one of the largest stablecoin by a large margin.

Cameron Passmore: What's the difference between Tether being demand-driven or pulled and supply-driven or pushed?

Prof. John Griffin: This is related to my paper with Amin Shams. And he's my co-author that's helped me understand a lot of these things. And it was very interesting for me to understand this market. We kind of set this up like we would in an international finance concept. In international finance, there's this concept of pushed or pulled in terms of capital flows. Our capital flows pushed or pulled and/or demand-driven or supply-driven.

And so, basically what we were looking at there is what was the rain source of demand for Tether? Was it fact that there was all these people? Let's say they had Bitcoin, or other crypto, or even dollars and they said, "I want to buy that's demand-driven." They want to buy Tether with it. Or was it the fact the supply-driven or pushed hypothesis was that Tether was printing crypto unbacked? And then by printing this unbacked crypto, it was using that to purchase other crypto like Bitcoin.

You can imagine, in an unbacked cryptocurrency case, let's just take the most common one we know, the US dollar is different in the sense it's backed by the full faith and trust of the US government. Not some people sitting on a remote island. When the US government decides that there's an emergency and they want to print $4 trillion, you guys deal a lot with investments, we all know what's going to happen. That 4 trillion pushes in the system and people have to do something with that money. And they tend to buy things with it and it tends to float all boats up. They end up buying stocks.

Now in this case, this is in the crypto system, if you print up a bunch of unbacked crypto and then you buy other crypto with it like Bitcoin, what do you think is going to happen? It's going to push up the price of Bitcoin. That's the push hypothesis.

Ben Felix: Why though would the Tether creators want to inflate the price of Bitcoin?

Prof. John Griffin: In general, they have an incentive to get more of their currency out there, first of all. Because you can imagine, when they first were creating it, the value wasn't that great. But right now, if you're sitting on Tether and you could park that money in terms of another instrument earning 4% or 5% return, every million dollars of Tether is earning significant yield.

There's a significant incentive for them to get more and more Tether out there. It's incentive for anybody that has a stablecoin to increase the supply of their stablecoin. But there's also an incentive for a lot of people in the crypto industry to push up the price of crypto in general because they're holding crypto. Most of the crypto industry is long crypto. And so, the crypto industry of course wasn't too happy about our paper. As one person emailed me, "Don't you understand? Tether is a good thing. Because if you're long crypto, it's a great thing. It pushes up the price of everything." They understood.

Ben Felix: You touched on this earlier. I want to ask about it again though. We talked about decentralization in crypto. And you mentioned the importance of Tether. Can you just talk about how decentralized or not the crypto space actually is?

Prof. John Griffin: Yeah. I think it's actually a little bit of a misnomer decentralized finance. Because, first of all, all the centralized players are the biggest players in the space. And that's where most of the capital comes into the system and then comes out of the system. And then, of course, you have DeFi, decentralized finance developing all these decentralized exchanges and so forth. But you might wonder, even decentralized exchanges usually don't just pop out of the ground, run by themselves. Someone has to write the code. There's cost associate with that. Those players that write the code have economic incentives. They're the ones that write the code. They know the ins and outs of the system. They know how to game the market if they want to game the market.

Even these decentralized players are in fact centralized to some degree. There's Silicon Valley money all over the crypto industry and to these DeFi projects as well. And so, it's not really decentralized as near to the extent that it was envisioned to be at the start of all this.

Cameron Passmore: How do you test whether Tether is pushed or pulled?

Prof. John Griffin: One thing is in terms of the timing of the market. We started with the premise that if Tether is being printed unbacked, we could look at the printing of the tether and then we could look at what happens afterwards. Now we looked at the printing of the tether. And just because they printed the tether doesn't necessarily cause the market to go up. We looked for when the tether actually left Bidfinex and what they were buying. And we found that they were moving to other exchanges. And with the money moved to those other exchanges, that's when the price of Bitcoin and other cryptocurrencies went up.

We narrowed in on the hours where, A, Tether had been printed and kind of sitting there in the background. Oftentimes, maybe for a couple days. But then, suddenly, that Tether was being used to purchase Bitcoin. And during those hours, in fact, a small set of hours, less than 1% of hours, we found that you could explain half of the rise of Bitcoin in the massive run up of Bitcoin in 2017.

Ben Felix: How do you identify the cause of relationship though? Is Tether increasing the price of Bitcoin? Or is the Tether supply responding to the price of Bitcoin?

Prof. John Griffin: We had a massive amount of tests in the paper. And it's been like five years since I've thought about all of this. I may forget the major ones. But we ran through a litmus test. But a lot of it came down to the timing of it. In particular, seemed like they were looking for periods where Bitcoin had fallen in price and then then the price had moved up.

The other thing about it is we found that most of the activity was behind one player. One entity was responsible for all the things. If it was this massive, "Hey, there's all these people moving into the space. The institutional players of the world. The pension funds of the world moving into the space." And that was what was driving it. Then you wouldn't see all this concentration in the one player.

In fact, we found it was the activity of the one player and the activity of the one player coming out of Bidfinex itself that was driving all the activity. Using Tether to buy Bitcoin on other exchanges and so forth wasn't driving any of this.

Ben Felix: Tether's being created and it's moving out through one significant player and going into Bitcoin?

Prof. John Griffin: Yeah. It was during that period. I believe that the mechanisms have likely changed. And in fact, I'm not an expert, but a reporter brought this to my attention, there was a lawsuit in Florida regarding Almeida and some text messages that came up as a result of that. And in those text messages it does seem to suggest that Almeida was in fact printing Tether with a "line of credit". What is a line of credit? Line of credit is really unbacked. They were printing Tether and they're using it to buy Bitcoin. Did they understand what they're doing? I don't know. I hope my papers are for good. But sometimes I feel they can be used the wrong way.

And in this case, the Almeida person chatted that Almeida could create USDT to outpace the value of Bitcoin. And they wrote in their text messages, "Okay. Putting in a $100 million creation. Need to beat BTC to 25,000." These folks may not have been rocket scientists. But you don't have to be a genius to understand that if you print $100 million of Tether and you're using that to buy Bitcoin in a concentrated period, at least during that period in 2020, you could have an outsized effect on the price. Other people in the crypto industry have an incentive here. It could be a collusive activity as well. More than one player. And this text message does seem like just still one player, but perhaps a different one that was responsible early on.

Cameron Passmore: Do you test whether Tether is backed by other financial assets?

Prof. John Griffin: We do test backing for Tether in a variety of ways. I think one of the most intuitive ways we do is we say, "Well, what would happen if Tether was, say, being printed unbacked and bought into Bitcoin and the Tether creators had created a bunch of Bitcoin?" And then, all of a sudden, you were going to get audited in your financials and you need to have cash in your bank? Tether was not audited very much. But there were some end-of-the-month dates where they were audited.

And so, we looked particularly at end-of-the-month dates after they had printed a bunch of tether and whether there was a downward effect on the price of Bitcoin. What we found is that, in fact, the price of Bitcoin did crash. Even though our sample was small, the t-stats were extremely large. That the price of Bitcoin was crashing right up to those end-of-the-month points where they would have had to sell Bitcoin to buy dollars.

And as kind of an out of sample test of it, we actually found that there was one period where they did it mid-month, it was the September 15th of the month. And in fact, in that September 15th month, you see a very strong pattern where Bitcoin crashed right up until the point they had to have the cash in the bank account. And then after that, the price of Bitcoin rebounded when they could move those money out. There was a variety of other things we did. But we did find evidence that Tether was at least partially unbacked.

Ben Felix: That test is super interesting. It was like if they were fully backed when they get audited, it's all good. No issue. If they're not fully backed, they need to sell Bitcoin before they get audited so they can put the cash in the bank account to say, "No. Look. We're good." And you found that it at least seems like that's what's happening. That they were selling the Bitcoin to fill the bank account.

Prof. John Griffin: And I guess auditing was a fairly strong word. They weren't being auditor by like Pricewaterhouse Coopers or anything to my knowledge. It was more of a mom and pop type auditing. And that type of auditing also had limits on what it said. It says it wasn't auditing other entities as well.

One could imagine the similar types of shenanigans that got FTX in trouble borrowing money from FTX, moving it to Almeida. That those similar type things could have been going on there in that setting as well. It's unbacked. But you can make it official by calling it a line of credit.

Ben Felix: Crazy. You would know better than me probably. But I don't think Tether's ever been audited. They've done attestations. But I don't know if they've ever had like a proper audit.

Prof. John Griffin: I haven't followed them recently. But at least a couple years ago, they hadn't had a proper audit.

Ben Felix: How did Tether respond to your paper on this?

Prof. John Griffin: Like I said, I try to not listen too carefully to all the people with naysayers and vested interest. If there's serious people that raise serious concerns and don't have a strong vested interest, I'm happy to listen to them and their content. But they made some very disparaging statements. I found one of them on their website. They put, "All Tether tokens are fully backed by reserves and are issued pursuant to mark demands and not for the purpose of controlling the price of crypto assets." It is reckless and utterly false to assert that Tether tokens are issued in order to enable elicit activity. Tether token issues have quadrupled since December 2017, which was part of my point.

They made that very strong statement. But, in fact, when their lawyer was under oath in the NYAG case, it's my understanding that they had to essentially admit that they were unbacked. And as part of the settlement, with the CFTC and the New York Attorney's General's office, the CFTC found, and I'm going to quote, "that from at least June 1st, 2016 into February 25th, 2019, "that's over the period of our study, "Tether misrepresented to customers and the market that Tether maintain sufficient US dollar reserves to back every USDT in circulation. And that, in fact, Tether reserves were not fully backed the majority of the time."

It first used to amaze me that when industry players would come after me and they would say things very convincingly, and, "No. No. No. This is the way it is." And I would listen to them earnestly. But over time, I've learned that even major companies can just flat out lie and make things up and say just disparaging things. It's one of the aspects about forensic finance we talk about in our paper that you got develop a little bit of a thick skin and to kind of ignore people that make things up. They also engaged in some other behind-the-scenes things that I don't want to necessarily talk about. But they were very duplicative in the way that they acted.

Ben Felix: Takes a level of bravery really for you to publish stuff like that. I'd be nervous personally.

Prof. John Griffin: I'm a Texan. I don't know a little bit of that scaring forward. Over time, I've learned it's just part of the job. But it is discouraging when some of these organizations, they do spend money and take lawyers and try to make stuff up. Luckily, the University of Texas – this happened several times in The University of Texas and stood behind us.

One lady at the tower standing behind me. I met one lady in the tower once and she said, "Yeah, we understand what these people are trying to do. We're going to tell them, don't mess with Texas."

Ben Felix: Very cool. That NYAG case, that's like a different version of an out-of-sample test of your findings. I guess in forensic finance, you get court cases as out-of-sample tests instead of just new data.

Prof. John Griffin: Yeah. Of course, the court cases take such a long time to unwind that most people have forgotten about it by then. A lot of times, people, industry firms will say I'm wrong on this or that. But as one editor told the paper that told some group that was disparaging us at an academic journal, he said, "You know, you're welcome to write a rebuttal paper." And, of course, I've never had any of our results overturned by rebuttal. Everything we've written is correct down to the T. And so, it's discouraging though that because these firms speak so strongly, when they make statements, people tend to listen to them.

You asked earlier about the pig butchering stuff. A lot of the people that are saying things have vested interests in the industry. We vetted our paper with lots of academic audiences. We're very careful in our assumptions and so forth. And we're comfortable with what we're saying. We're going to say what we want to say. And we're not going to worry about trying to please everybody.

Ben Felix: That crypto stuff, amazing, fascinating. I do want to move on to the work you've done on the Paycheck Protection Program, which was one of the ways that the US government distributed cash to businesses I think during COVID. Can you talk about how prevalent fraud was in the PPP in the US?

Prof. John Griffin: This is work I've done with Sam Kruger as well as Prateek Mahajan. We actually have three papers on it now. But the first paper was just measuring the magnitude of fraud. We developed a lot of – we call it like open source forensics. We take many databases. And Prateek did an amazing job here of taking many different databases. Crossing those databases. Checking for indicators of things that would potentially be fraudulent. Not all the claims are going to be fraudulent.

We have some estimates where we can pinpoint things at the loan level. And there's other estimates where we can pinpoint not necessarily every loan. But we can pinpoint at the county or zip code level that this fraction of the loans are fraudulent. When we do that second method, the number that we come up with, the larger number is around $117 billion of a $800 billion program.

That number does seem large. And, again, we have a lot of people push back on that depending on which side of congress you're on and which administration. You want to blame it on the other administration. We're kind of equal opportunity offenders. We found that the fraud was rampant. Was there at the beginning during the Trump Administration. But it ramped up during the Biden Administration. Even after the program been around for a year and they had a chance to close some of these loopholes, it just increased.

We think the $117 billion figure is an estimate. There's actually been some other estimates when they audit programs like unemployment insurance for instance on limited scale where they find around 20% of the loans are fraudulent. And some of the estimates coming out of the government are very close to ours actually and some of their audits. They took them a while afterwards. But some of their estimates have been very close to our numbers. We would say that probably the 100 to 120 billion range is probably a good number to start with.

Cameron Passmore: And what role did fintech lenders play in the propagation of PPP fraud?

Prof. John Griffin: That was a surprise to us that most of the fraud concentrated in the highest levels at least in these fintech lenders. And these lenders, you might ask, "Well, why is that? We've talked to many people in industry. It's not exactly in the paper. But if you talk to people at the traditional banks, they seem to use the vetting procedure that they'd always use for the SBA in terms of they have, "Hey, give us your tax return. And let's verify what the income could be. And we'll put the loan in for that."

Whereas these fintech lenders didn't have the rigorous history. According to our understanding, they did employ monitoring. They had monitoring services. They had everything set up. But they tended to either ignore that monitoring or insufficient monitoring. And you can imagine they had an incentive to turn the blind eye to this because they were making so much in fees for each loan. If 35% of your loans are fraudulent or 33% we found on one lend was fraudulent, then that would be a lot of fees you'd leave at the table if you employed monitoring.

Ben Felix: Crazy. What did people's social connections have to do with their propensity to engage in PPP fraud?

Prof. John Griffin: In a follow-up paper, we really asked the question of how did this fraud spread? Because one of the things that was interesting about it is we found it was hugely geographically concentrated. In certain ZIP codes, certain areas. And so one of the hypothesis is that, well, maybe it spread door-to-door. You telling your neighbor and so forth about it. But actually when we tested Facebook connections and we tested those versus geographic connections, the Facebook social connections completely beat out in a horse race all the physical connections, which kind of makes sense if you think about today's world. You probably don't interact as much talking to your person that lives five doors down the street as if you do on social media or even text message with some friend of yours.

We found that these social media post, in one part of the paper we actually tracked, we were able to download people that were on these social media networks, social media posts. And then we were looking at unique names of people that took out loans. And we could match them at the loan level. And we could see that, in fact, the people that were on these fraudulent posts were much more likely to take a fraudulent loan.

We also found that there was a huge correlation between not just the PPP program. But, geographically, there was a huge correlation between the unemployment insurance and the EIDL program, which was set up to also hand out COVID funds between the geographic fraud and all three of those programs. Those programs were all correlated in terms of the amount of fraud. It concentrated very heavy geographically. And those seemed to be strongly related to the social connections.

Ben Felix: That is so crazy. Fraud is contagious or something.

Prof. John Griffin: In the old days, there were some older academic papers and they showed how some measures of fraud spread from year-to-year. And it spread geographically. And it grew slowly over time. Whereas most of this happened in less than a year. And our paper shows that the initial levels of fraud were very slow and then it just ramped up throughout the program.

And so, it seems like word got out on social media. And we collected a lot of social media posts that were basically encouraging you to do fraud. They were saying things like, "Well, everybody's doing it. You got to do it." Justifying. There was actually some interesting ones where it got into more philosophical, "The rich are taking money from you. It's your opportunity to take it back," kind of things.

Cameron Passmore: What effect did PPP fraud have on real estate prices?

Prof. John Griffin: As I mentioned earlier, we found this huge geographic concentration. And not just at the county level, but even down to the ZIP code level. And so, we wanted to see what effect that had, if any, on real estate prices. We started by just looking at this detailed ZIP code level measure of fraud and looking at whether the zip codes that received the most fraud, did those have real estate prices that went up more.

And we found a very strong effect. Now, we all know that there's a variety of other things going on at the same time in terms of people moving, stay at home, and so forth. We collected data on all the other papers in the literature and we ran horse races. And a lot of those other measures are useful in explaining home prices as well. But we found that the ZIP code level fraud measures were one of the strongest in a variety of horse races in terms of explaining when home prices went up.

You might say what's the mechanism here? We pinned it down again with loan-level. People that receive fraudulent loans were much more likely to go out and spend that money on a vehicle or on a house. Now you might imagine like, "Well, wait. Wait a second." Imagine two people, one of them got a $100,000 loan for their business. They use that to pay payroll because their business was shut down. So they didn't really receive a windfall $100,000. But the other person just committed rampant fraud and they got $100,000. And probably that second person was not as wealthy as the first person either. They received $100,000. Previously they had maybe $10,000 sitting in the bank or nothing. And now they got $100,000 windfall. What do they do with that money?

We find that down with name matching and in a couple different samples that they were much more likely, over twice as likely to buy a house as the individual that received the loan legitimately. Non-fraudulent loan.

Ben Felix: Is there a recourse? You can track these people. You've done it in your paper. Is the government going to do the same thing?

Prof. John Griffin: I would hope that the government is doing more to look at this. And I know that they are investigating. We've seen some people, the extreme examples, be put into jail. I think it's a matter of if someone committed fraud with a large amount, they're taking interest in those cases and they are prosecuting those cases. Congress did extend the statute of limitations for 10 years, which is good.

My read of the situation from talking to a variety of people is that perhaps law enforcement is just simply overwhelmed by the magnitude. Think of this, over hundred billion dollars of fraud, is it economic for them to go out and prove these small cases and prosecute people that took $10,000? Maybe they've got to start somewhere in a threshold. Maybe they're working their way down the list. I think it could be done more efficiently. I think it could be done in large scale. There was no reason you had to forgive all these loans.

Our paper came out and we said that a lot of these loans were fraudulent. And what did the SBA do afterwards? They just forgave a large fraction of loans. They could have just flagged those loans. They could have created measures similar to ours. Flagged loans and said we're not going to forgive these loans until we do further due diligence on them. But instead they forgave most of the loans. So now it makes it harder to claw back the money.

Ben Felix: The people making those social media posts saying that this is your chance to take money from the rich ended up being right. Even if they were morally wrong maybe, they ended up being right.

Prof. John Griffin: Yeah. I think some subset of them are being put in jail. The people that did extreme things on social media, I think they're prosecuting them. I think law enforcement is doing good work here on that front. I don't want to belittle that. Because I do think they're trying hard.

I think in general that US should allocate more resources to fighting fraud. You have a huge program that doled out all this money. Why didn't they set aside large amounts of it? A fraction of it? Even just 5% of it and use it efficiently in terms of going about prosecuting this. I think it would have more than paid for itself terms of the funds that they recoup.

Ben Felix: Based on your research on how PPP went, what do you think the implications are for how a major financial relief effort like that should be executed?

Prof. John Griffin: I'm not a policy-maker. I think most of those things are made by people with political connections and the just a very few schools or even just no academics making those decisions. I do think our paper shows that this notion that you shouldn't put many guards on the program on the front end and just clean up on the back end. That that is wrong.

And that was specifically the way the program was set up to get the money out the door quickly. But was the world going to fall apart if people didn't get their check, they got their check another 30 days later? In fact, most of the fraud happened in the later stages of the program. They had ample time, more than enough time to set up some safeguards. Why weren't tax returns required?

The old SBA program had the companies. They were responsible for a fraction of the loans if the loans defaulted. They had skin in the game. They had an incentive. And they still should have had skin in the game. There's no reason why they shouldn't have had skin in the game. Maybe the loans would have taken slightly longer. But the fraud was not all about what happened in April 2020. That's not where most of the fraud happened. Most of the fraud happened in 2021 and later in 2020.

I think these programs should think carefully about fraud on the front end, fraud prevention. Set aside more money for law enforcement to go after these things. More rigorous monitoring systems. Have third-party. I do think one thing the SBA program did right or they did right with this was putting the data in the public realm. Because if you look at what's happening, what numbers do we have from the government in terms of exactly how much frauds happen so forth? The programs happened a while ago. There has been some audits, some numbers put forward. But our paper I believe is the most comprehensive in terms of understanding various aspects of it. And that's because I believe academics have the tools available to them to answer these questions.

And so, I think they did do something right by putting the data in the public realm. And I think more data should be put out there in the public realm and not left to government agencies who oftentimes are controlled by political parties or have people with political interest that are wanting them to release or not release paper.

I've talked to many people in the government, academics that worked with government data, and they've wanted to release some data, wanted to release some statistics, but they've been stifled. It's happened at the FED. It's happened at the IRS. And so, censoring is a real deal.

Our paper in Forensic Finance talks about this a lot. I mean, it's a huge deal in China. Pretty much everything's censored. And things that you wouldn't think should be politically sensitive, people can't even write about those things. But it also happens for academics that are working at government agencies. SEC, the FED, IRS, all of those agencies. People have told me that I had this interesting finding but I couldn't move forward on it. Somebody's worried it's going to offend somebody.

Ben Felix: You're independent. I think I read somewhere that you're one of the most cited academics in SEC rule-making. Something like that.

Prof. John Griffin: I didn't set out to get cited in academic rule-making. But I think they cite our papers because they say, "Well, this market is flawed. And here's some evidence that it's flawed. And here are some of the problems with it." And I think it's a first step. You need to understand what the problems in the market are before you come up with a policy solution. What went wrong in the market previously? You have to really understand that. And I think a lot of policies are made without understanding what went wrong previously.

Cameron Passmore: Final question for you, John, to cap this incredible conversation, how do you define success in your life?

Prof. John Griffin: When I was a young man, I didn't realize what I was doing. But I thought that success could be obtained by achievements, achieving more things, working harder and making money. What I found was that when I started achieving some limited measures of success, I found that I either needed to double down on those things or do something differently because it wasn't working for me. And I had a lot of dissatisfaction in those pursuits.

And so, over a period of time in reflection, that actually led me to become a Christian. And so, when that happened, my purpose shifted to wanting to live for God and wanting to help fellow man. But as an academic, and I still felt called to continue as an academic, I had a struggle seeing what that connection was. Because, honestly, some of my papers, even though it was helping my career and was getting published and maybe presented at some industry conferences, I didn't think that it had much practical value for society.

And over a period of time, I seized on this verse in Ephesians and it said, "Do not engage in the unfruitful works of darkness. But instead, expose them." And was interesting to me about that is, oftentimes, people think of like, "Oh, don't do bad things yourself." And we're often focused on that. That's good. But there's an element in which it also gives us license to look into the darker things and push those things out in the light and to fight against those things. And things aren't necessarily left just to law enforcement.

And that actually played a little bit to my personality and my Texanist. I saw many things going on. And there's apparently a strong Canadian-Texan connection. I hope you guys can relate. I saw many things going on in the financial markets that seemed potentially wrong and not many people investigating those things. And so, I began to look into those things. Wanting to investigate them. Push harder. And that's where my research developed.

At least in my professional career, I see success as an opportunity to fight and uncover those things that are potentially not right in finance. I also have to remind myself, I live in a fallen world. A world where there's a lot of brokenness and a world where there's lots of fraud, waste, abuse. I have to temper my expectations on the results of that and just kind of live the results of that into God's hands.

I have been much more energized in my career by seeing this connection between my faith and my work. There's other aspects to your question in terms of my personal life and so forth. That's what drives my academic work and mission to uncover fraud and aid the defrauded, hopefully.

Ben Felix: Man, that is a deep and incredible answer to that question.

Prof. John Griffin: Thanks much. It's been great podcast. Y'all ask extremely insightful questions.

Ben Felix: Awesome. Well, this has been a great conversation, John. I think the audience is going to really appreciate it. We really appreciate you coming on.

Prof. John Griffin: Thanks so much. Thanks for having me. You've got a great podcast. And it was a pleasure to talk to both of you today. Thank you.

Cameron Passmore: Indeed. Thanks, John.

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