Former U.S. Treasury Secretary Larry Summers Compares FTX Collapse to Enron Fraud
Former US Treasury Secretary Lawrence Summers has compared crypto exchange FTX to Enron, noting that it’s about classic fraud rather than the complexities of cryptocurrency regulation. He said the regulatory community should learn two lessons from FTX’s collapse.
Larry Summers compares FTX to Enron
Former Treasury Secretary Lawrence Summers shared his views on the need for cryptocurrency regulation after the collapse of Sam Bankman-Fried’s FTX crypto empire in an interview with Bloomberg Television on Friday. Summers served as US Treasury Secretary from 1999 to 2001. He is currently the Charles W. Eliot Professor at Harvard University.
“A lot of people compared it to Lehman. I would compare it to Enron,” he began, adding:
The smartest guys in the room. Not just a financial mistake but… puffs of fraud. Stadium names very early in a company’s history. Vast explosion of wealth that no one really understands where it comes 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 in December 2001, revealing massive accounting and corporate fraud.
“I think the regulatory community should take two lessons from this. First, if we had a few fewer economists and quants and a few more forensic accountants, I think that would help us detect what is happening in countries and in companies. The more I look, the more… forensic accounting seems to be important,” he detailed.
“The other is, I think, we should have a rule in all things finance that anyone who has anything to do with it in a position of responsibility should be entirely out of the office, away from their phone, away from any device and connected to the system for a week or two continuously every year. I suspect this would be very helpful in bringing up some of these issues sooner,” Summers added.
The former treasury secretary pointed out:
It’s probably less about the complexity of the nuances of the rules of crypto regulation and more about some very basic financial principles that date back to the financial scandals that took place in ancient Rome.
FTX announced on Friday that it has filed for Chapter 11 bankruptcy as users rushed to withdraw their assets after the fall of the FTX (FTT) token. As part of the bankruptcy filings, John J. Ray III was named the new chief executive of FTX Group after Bankman-Fried resigned. Ray was the lawyer hired to clean up Enron.
What do you think of former Treasury Secretary Larry Summers’ comments on the FTX collapse and its comparison to the Enron fraud? Let us know in the comments section below.
Kevin Helms
An economics student from Austria, Kevin discovered Bitcoin in 2011 and has been an evangelist ever since. His interests include Bitcoin security, open source systems, network effects, and the intersection between economics and cryptography.
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