Former Treasury Secretary Larry Summers likened the swift collapse of Sam Bankman-Fried’s crypto trading platform FTX to the infamous Enron scandal of more than 20 years ago, saying that both involved cases where people detected “whiffs of fraud.”
“A lot of people have compared this to Lehman. I would compare it to Enron,” Summers told Bloomberg News.
“The smartest guys in the room. Not just financial error but — certainly from the reports — whiffs of fraud.”
Enron was the Texas-based energy trader and supplier that used off-the-books accounting practices to fool regulators into thinking it was more profitable than it actually was.
Enron’s collapse put more than 5,000 people out of work, wiped out more than $2 billion in employee pensions and rendered worthless $60 billion in Enron stock.
Lehman Brothers was once the fourth largest investment bank in the US. In 2008, it filed for bankruptcy after it was involved in the subprime mortgage crisis that triggered a collapse in the housing market and a worldwide recession.
FTX filed for bankruptcy protection on Friday after Bankman-Fried allegedly used customer funds initially earmarked for crypto investments to make risky bets through a sister company, Alameda Research.
Bankman-Fried stepped down as CEO. He and his company are now under federal investigation.
Summers also cited “stadium namings very early in a company’s history” as well as “vast explosion of wealth that nobody quite understands where it comes from.”
The former Clinton administration official was referring to the FTX Arena, the home of the Miami Heat basketball team.
The Heat and Miami-Dade County released a joint statement on Friday announcing that they ended their business ties to FTX and would be looking for a new naming partner.
In March of last year, FTX acquired the naming rights to the arena, which for years was known as American Airlines Arena, for $135 million.
As part of the deal, the FTX logo was painted onto the roof of the building.
“The reports about FTX and its affiliates are extremely disappointing,” the team and the county said in their statement.
“Miami-Dade County and the Miami HEAT are immediately taking action to terminate our business relationships with FTX, and we will be working together to find a new naming rights partner for the arena.”
The move comes after Bankman-Fried’s $16 billion fortune was whittled down to 0 in just a matter of days — a stunning collapse that has elicited comparisons to Lehman Brothers and Enron.
Bankman-Fried founded FTX in 2019, and it grew rapidly. It was recently valued at $32 billion.
The son of Stanford University professors, who was known to play the video game “League of Legends” during meetings, Bankman-Fried attracted investments from the highest echelons of Silicon Valley.
Sequoia Capital, which invested in Apple, Cisco, Google, Airbnb and YouTube, described their meeting with Bankman-Fried as likely “talking to the world’s first trillionaire.”
Several of Sequoia’s partners became enthusiastic about Bankman-Fried following a Zoom meeting in 2021. After several more meetings, Sequoia decided to invest in the company.
“I don’t know how I know, I just do. SBF is a winner,” wrote Adam Fisher, a business journalist who wrote a profile of Bankman-Fried for the firm, referring to Bankman-Fried by his popular online moniker. The article, published in late September, was removed from Sequoia’s website.
Sequoia has written down its $213 million in investments to zero. A pension fund in Ontario, Canada wrote down its investment to zero as well.
With Post Wires