In recent days, reactions fuse around the fall of FTX. Some (if not the majority) think it is a case similar to Lehman’s. The collapse of the FTX empire would then be due to excessive risk taking as well as unethical management practices. Larry Summers, former Secretary of the Treasury, however, disagrees. According to him, the fall of FTX is comparable to that of Enron. It is a Houston-based energy provider.
The case of FTX is comparable to that of Enron?
Larry Summers shares his thoughts on the collapse of FTX. During’an interview granted to Bloomberg Television, he compared the fall of FTX to that of Enron. It was a company based in Houston and specialized in the distribution of gas and electricity. Its executives hid billions of dollars in debt from shareholders. This was possible through illegal management practices.
With Enron, unlike the case of the investment bank Lehman, the errors were not only financial. Larry Summers speaks rather of “fraud”. It is for this reason that the former secretary of the Treasury calls for an increase in the number of forensic accountants. This is more important to FTX’s case than increased regulation, according to Larry Summers.
FTX’s fall should serve as a lesson for regulators
According to Larry Summers, regulators should focus more on accounting after this fall of FTX. The former Treasury Secretary argues that regulators will have to learn two main lessons from recent events:
- The first: the importance of the roles of forensic accountants who should detect problems both at the company level and at the national level.
- The second lesson: for anything related to finance, those in positions of responsibility should take one to two weeks off. The goal is to completely disconnect from work. Thus, they will have all the necessary capacities to detect certain problems earlier.
Until now, no one can really tell if FTX’s downfall was the result of financial error or fraud. One thing is certain: it is high time to regulate the cryptocurrency market.
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