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.
“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. recently 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.”
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.
Amid FTX’s collapse last week, its founder and CEO, Sam Bankman-Fried (SBF) rapidly transformed from a crypto industry icon and so-called “savior” into an ignominious figure, responsible for potentially billions of dollars’ worth of customer losses. He has apparently lost his whole fortune in the process, as well.
The implosion of Bankman-Fried’s cryptocurrency exchange had already cost customers billions of dollars in lost crypto deposits, setting off law-enforcement investigations that could lead to criminal charges, the New York Times had reported.
But the full impact of FTX’s dramatic collapse was only beginning to take shape. In his relatively short time as a multibillionaire, Bankman-Fried built up an astonishingly broad business empire, with investments in dozens of smaller crypto firms and partnerships with businesses as varied as Anthony Scaramucci’s investment firm SkyBridge Capital and the N.B.A.’s Miami Heat. He also became an influential Democratic Party donor, promising to spend as much as $1 billion during the 2024 election cycle.
