- The fall of FTX is more akin to the Enron scandal, according to Larry Summers.
- That's because there were "whiffs of fraud" in the early days of FTX's rise.
The downfall of cryptocurrency exchange FTX is like the collapse of Enron, according to Larry Summers.
The former Treasury Secretary told Bloomberg on Saturday that early warning signs in the rise of Sam Bankman-Fried's empire, including "whiffs of fraud," led to the decline of the world's second largest crypto exchange.
Summers also added FTX lending its name to stadiums and a "vast explosion of wealth that nobody quite understands where it comes from" as reasons to support the comparison.
Enron began as an energy company in 1985 and notoriously duped financial regulators with artificial holdings that helped the company hide astounding levels of debt. Enron employed special purpose entities to attempt to shield the company from the immense financial risks of its investments.
The scandal that engulfed the company sent shares go from a peak of $90.75 to $0.26 by the time it filed for bankruptcy.
In the wake of FTX's collapse, Summers listed two key takeaways for regulators in the future, including beefing up the roster of forensic accountants.
"If we had a few fewer economists and quants and a few more forensic accountants running around, I think it would help us detect what was going on in countries and in companies," Summers said. "The more I watch, the more that field of forensic accounting seems to me important."
He also suggested a new set of rules for broader financial systems where "everyone who has anything to do with 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 said that such protocols would "be very helpful in causing some of these problems to come to light sooner."