Former Treasury Secretary Larry Summers has compared the sudden fall of cryptocurrency exchange FTX to energy trader Enron’s scandal in the early 2000s.
In a “Wall Street Week” interview with Bloomberg, he said that while “a lot of” people have compared this to Lehman, he believes it is more similar to Enron’s scandal.
Lehman Brothers was an investment bank that collapsed in 2008. It marks the largest bankruptcy of its time as its liquidation took 14 years. Trustee James W. Giddens was ultimately able to return more than $115 billion to customers and creditors.
On the other hand, the Enron scandal was an accounting scandal involving Enron Corporation, an American energy company, which declared bankruptcy in 2001 after it was discovered that the company had engaged in shady off-the-books business and accounting practices.
“A lot of people have compared this to Lehman. I would compare it to Enron,” Summers said, adding:
“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.”
Summers’ comparison between FTX and Enron comes as there are numerous similarities in the way they collapsed. For instance, Enron signed a $100 million, 30-year sponsorship deal with the Houston Astros to name their stadium Enron Field while FTX signed a $135 million, 19-year deal to put its name on FTX Arena, home of the NBA’s Miami Heat.
As reported, FTX’s desperate scramble for investors to repair its balance sheet eventually ended on Friday after the company filed for Chapter 11 bankruptcy, capping a sudden and startling downfall for one of the world’s largest cryptocurrency exchanges.
Notably, FTX US, the US arm of the crypto exchange, has also been included in the proceedings, despite claims by the former CEO that their US exchange was fine.
While many industry experts have warned that more regulatory scrutiny is coming following the FTX drama, Summers noted that the exchange’s fall is not much about lack of regulatory oversight, but rather about “very basic financial principles” that were ignored by FTX executives.
“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.