Daily Maverick
Dailymaverick logo

Business Maverick

This article is more than 3 years old

Business Maverick

FTX Meltdown Has ‘Whiffs’ of Enron-Like Scandal, Summers Says

Former Treasury Secretary Lawrence Summers called for an expansion in the number of forensic accountants -- though not necessarily an increase in regulation -- in the wake of the meltdown in Sam Bankman-Fried’s crypto empire.
FTX Meltdown Has ‘Whiffs’ of Enron-Like Scandal, Summers Says Staffers with the House Energy and Commerce Committee review Enron Corporation documents in a House Office Building on Capitol Hill in Jan. 2002.
Bloomberg
By Bloomberg
11 Nov 2022
Facebook
0

“A lot of people have compared this to Lehman. I would compare it to Enron,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin. “The smartest guys in the room. Not just financial error but -- certainly from the reports -- whiffs of fraud. Stadium namings very early in a company’s history. Vast explosion of wealth that nobody quite understands where it comes from.”The FTX.com crypto exchange, along with trading firm Alameda Research Ltd., have filed for bankruptcy in the wake of a race by FTX users to withdraw their assets. The exodus came amid a plunge in the digital coins issued by the exchange, and after Bankman-Fried took to Twitter to counter the circulation of “unfounded rumors.”

Read more news and analysis on the latest in the world of cryptocurrency

As part of the bankruptcy filings, John J. Ray III was appointed as the new chief executive of FTX Group. Ray previously served senior roles in bankruptcies -- including Enron Corp.

“The regulatory community ought to draw two lessons from this” episode, said Summers, a Harvard University professor and paid contributor to Bloomberg Television. First is the need for “more forensic accountants” to help detect issues at both the corporate and national level, he said.

Second, there should be a rule for “everything that touches finance” that people in positions of responsibility take a week or two off each year, disconnected from their work. Other observers have pointed out that individuals engaged in financial malfeasance need constant monitoring of their positions to keep problems hidden.

“This is probably less about the complexities of the nuances of the rules of crypto regulation” than it is about classic financial fraud, Summers said.

[embed]https://www.dailymaverick.co.za/article/2022-11-10-cryptoverse-rocked-by-massive-implosion-and-the-reverberations-still-linger/[/embed]

Comments

Scroll down to load comments...