Conveyed FTX Investment, Twice, Says Former Treasury Secretary Mnuchin

Former US Treasury Secretary Steven Mnuchin believes the correction in stock markets has turned positive, especially for tech companies that had “gone crazy” and now present some good opportunities. But one overpriced tech bet he never liked was bankrupt cryptocurrency trading firm FTX, which collapsed spectacularly from a $32 billion valuation to a bankruptcy and criminal investigations amid allegations of misuse of client assets.

“We looked at the investment twice and approved both times,” Mnuchin said on CNBC. Technology Executive Council Summit in New York on Tuesday.

Mnuchin, who has managed private equity investments since leaving the Trump administration, stressed that his decision was unrelated to ongoing allegations that FTX misappropriated client funds, which he described as “troubling” but said he learned about it from first time in the press. “There are a lot of things that need to be understood and now I’m just looking outside. I didn’t expect it to be fixed so quickly, and if client funds were misused, those are very serious problems,” he said.

Mnuchin declined to elaborate on his decision-making on FTX in a TEC Summit interview with CNBC’s Melissa Lee, but said the second time he stopped making an investment, the cryptocurrency trading firm was “five times the assessment” that had been before.

“We were a bit surprised by the overall level of valuation,” Mnuchin said.

Last week, the venture capital firm Sequoia reduced its investment in FTX to zero, among the major institutional investors caught in the meltdown. Mnuchin said major investors trapped in fear of missing out on the hype cycle is nothing new. “We’ve seen a lot of technology companies where we had very smart investors who invested at ridiculous valuations,” he said.

In the recent bull market, that FOMO extended well beyond cryptocurrencies. “There were people making an investment a day in technology,” Mnuchin said at the CNBC event. “I just don’t see how you can make 300 investments a year and think you can do due diligence on them and pick the winners from the losers,” he said. “Valuations reflected that all is perfect in the world.”

But now, he added, “it’s a much better environment to invest in.”

The former Treasury secretary believes that we have seen inflation peak and that the Fed’s rate hike cycle may end up a bit lower, at 4.5%, than the market’s worst-case scenario. Those rate hikes will still take a while to work their way into the economy and contribute to a potential further decline in markets, but the correction in stocks and technology stocks has been a healthy thing, said Mnuchin, whose private equity firm Liberty Strategic Capital has a focus on technology investments.

Mnuchin, who once held a high-tech position at Goldman Sachs, continues to believe in and invest in the underlying blockchain technology, which he says has exciting applications.

“We have been more focused on the infrastructure side of crypto than the assets and commercial side of the business,” he said.

He also believes that there is a middle ground on the regulation that will be reached in the wake of the FTX implosion.

“The problem is that there needs to be more clarity in regulation,” he said, pointing to a current US approach that delegates regulatory authority among entities like the FTC, SEC and Treasury, where he focused on transparency of the crypto market. and money laundering.

He also pointed to the offshore entities involved in the FTX situation, saying that while he had a US company, cryptocurrency is still an industry where “people move from one jurisdiction to another” in a game of “regulatory arbitrage.” “.

The most important result, Mnuchin said, is that the United States does not go from one extreme to the other, from lack of regulation to over-regulation. “There are very important innovations in this industry,” she said. Although he added that the allegations of misuse of client funds in the FTX case point to a fundamental principle in financial regulation. “We need to segregate client funds. It is one of the fundamental premises that we trust,” Mnuchin said.

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