Former U.S. Treasury Secretary Lawrence Summers has compared the crypto-currency exchange FTX to Enron, noting that the case is a classic fraud rather than the complexities of crypto-currency regulation. He said the regulatory community should learn two lessons from the FTX collapse.
Larry Summers compares FTX to Enron
Former Treasury Secretary Lawrence Summers shared his views on the need for regulation of crypto-currencies following the collapse of Sam Bankman-Fried’s FTX crypto empire in an interview with Bloomberg Television on Friday. Lawrence Summers served as U.S. Treasury Secretary from 1999 to 2001. He is currently the Charles W. Eliot Professor at Harvard University.
“A lot of people have compared this to Lehman. I would compare it to Enron” he began, before elaborating:
The smartest guys in the room. Not just financial mistakes but…hints of fraud. Stadium names very early in a company’s history. Vast explosion of wealth that no one really understands where it came from.
Enron was an energy company based in Houston, Texas. Its executives hid billions of dollars in debt from shareholders through multiple illegal accounting practices. The company filed for Chapter 11 bankruptcy protection in December 2001, revealing massive accounting and business fraud.
“I think the regulatory community should learn two lessons from this case. One, if we had a little less economists and quants and a little more forensic accountants, I think that would help us detect what’s going on in countries and companies. The more I look, the more … forensic accounting seems to be important” he detailed.
“The other is, I think, that we should have a rule in everything that has to do with finance that anyone who has anything to do with finance and is in a position of responsibility has to be completely away from the office, away from their phone, away from any device, and away from any connection to the system for one or two weeks without interruption every year. I think that would be very helpful in bringing some of these issues to light sooner“, added Lawrence Summers.
The former Treasury Secretary noted:
It’s probably less about the complexities of the nuances of crypto-currency regulation and more about some very basic financial principles that go back to the financial scandals that took place in ancient Rome.
FTX announced Friday that it has filed for Chapter 11 bankruptcy as users rushed to withdraw their assets after the FTX (FTT) token plunged. As part of the bankruptcy filing, John J. Ray III was named the new CEO of FTX Group after Sam Bankman-Fried left. Ray was the attorney in charge of cleaning up Enron.