FTX Parallels And Enron Echoes Are Set Up by the Wirecard Trial

Thursday is a big day in the history of fraud, the kind that hurts businesses and careers. No, not that exchange for crypto.

You could be forgiven if FTX was the first thing that came to mind, since it is still the most talked about cryptocurrency and the spectacular crypto collapse is still sending shockwaves through the digital asset ecosystem.

And yet, on Thursday (Dec. 8) in Germany, the trial of three former Wirecard executives starts. According to Reuters, the former CEO Markus Braun and two of his former coworkers could get up to 15 years in prison if they are found guilty.

Wirecard is not like crypto, which is a relatively new business. Instead, the German company had been focused on processing online payments for websites and businesses.

Aside from these differences, there are some similarities between Enron and FTX, which came before Wirecard.

One of the most important things is growth, especially through acquisitions. Wirecard bought several companies in Asia. Enron grew by buying companies that made and sold electricity. FTX tried to buy Voyager and put money into businesses like BlockFi and Robinhood.

All three firms have also been known for being secretive. In the case of FTX, customers’ money was reportedly loaned to Alameda. This is something that everyone now knows. Enron was a textbook example of how to set up and use entities that don’t show up on the balance sheet to get access to capital and manage trading risk.

In 2020, for example, auditors would not sign off on Wirecard’s financial statements because the company was missing cash balances worth €1.9 billion ($2.3 billion). It was said in the summer that the company made up data and documents. Even FTX seems to have lost track of about $8 billion, which founder Sam Bankman-Fried says was “misaccounted.”

Each company said it would shake up its chosen industry with scale, technology, and market share (and international reach). Each had been praised for having strong and charismatic leaders. The fall of Enron and the implosion of FTX are things of the past, and it’s still not clear what the legal consequences of FTX will be. Over the next few days or months, the former executives of Wirecard will find out what will happen to them.

Even though history doesn’t always repeat itself, it sure does rhyme. Saule T. Omarova, a law professor at Cornell University who specializes in the regulation of financial institutions, banking law, international finance, and corporate finance, said of FTX in a recent interview with Karen Webster:

“We should have seen something like this coming because of the incredible speed with which this market has grown and the lack of any legal or regulatory compliance culture in this new sector, run by a lot of interesting [sic] personalities who are not necessarily part of the financial establishment.”

There were also not enough controls inside the company. We’ve already seen this movie. And we’ll have to go through it again.