Former Treasury Secretary Larry Summers has suggested cryptocurrency exchange FTX’s collapse could have similarities to energy trader Enron's scandal in the early 2000s.
Summers, who held positions in the Clinton and Obama administrations, noted in a "Wall Street Week" interview with Bloomberg that "a lot of people have compared this to Lehman."
Lehman Brothers was the largest bankruptcy of its time. The investment bank collapsed in September 2008. Its liquidation took 14 years. Trustee James W. Giddens was ultimately able to return of more than $115 billion to customers and creditors.
Summers, however, would instead compare FTX to Enron, he said in a clip posted to social media Friday.
Enron pursued bankruptcy protection in 2001, the year it was discovered the massive firm had engaged in shady off-the-books business and accounting practices, FOX Business previously reported. The energy and commodities company ultimately collapsed, costing $74 billion in shareholder funds and sending thousands of employees to the unemployment line.
The former treasury secretary went on to list various aspects that seemingly factored into his reasoning for the comparison: "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."
Enron signed a $100 million, 30-year sponsorship deal with the Houston Astros to name their stadium Enron Field. FTX signed a $135 million, 19-year deal to put its name on FTX Arena, home of the NBA's Miami Heat.
The cryptocurrency exchange announced Friday morning that it, Alameda Research, West Realm Series and 130 affiliated companies had filed for Chapter 11 bankruptcy. Founder and CEO Sam Bankman-Fried also resigned, with former Enron liquidator John J. Ray III taking over the role, according to the crypto exchange's press release.
Binance, another cryptocurrency exchange, pulled out of an agreement to purchase FTX on Wednesday, saying its corporate due diligence had raised some red flags.
"This is probably less about the complexities of the nuances of the rules of crypto regulation and more about some very basic financial principles that go back to financial scandals that took place in ancient Rome," Summers said in the Bloomberg interview.
He also said regulators should "draw two lessons" from FTX’s current situation, one of which was there should be "a few fewer economists and quants" and "a few more forensic accountants running around." More accountants, he argued, would help "detect what was going on in countries and in companies."
"I think we ought to have a rule in everything that touches finance, that everyone who has anything to do with it in a position of responsibility has to be entirely away from the office, away from their phone, away from any device and connection to the system for a week or two continuously each year," he added.
He said he thought such a measure would likely "be very helpful in causing some of these problems to come to light sooner."