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One Man Connects FTX, Citadel and the Crypto Market Crash

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The FTX collapse has reminded investors of a number of points in economic history. One might immediately draw comparisons to the Terra (LUNA-USD) implosion earlier this year. Others might notice the similarities with Enron, all the way down to John Ray III’s role in both bankruptcies. But there are new comparisons that don’t look at the past but, rather, to the future. Many investors are pointing to the similarities between FTX and Citadel. One of many common threads between the two companies is that of Brett Harrison. Who is Harrison? And how does he connect one of Wall Street’s most controversial hedge funds with one of crypto’s most controversial exchanges?

Citadel has become a major topic of conversation through the FTX saga. The company is structured much like Sam Bankman-Fried’s universe of companies. Citadel LLC is a hedge fund, while Citadel Securities is one of the largest market makers available for stock brokers. The two companies are separate, complete with their own executive teams. However, they are both founded by and majority owned by Citadel CEO Ken Griffin. This is very similar to FTX and Alameda Research. Alameda is a private equity company, and FTX is an exchange. While both companies were founded and owned by Sam Bankman-Fried, they were separate entities.

The similarities might seem to end there. As FTX descended into bankruptcy, Citadel was posting a record year. But, there is one key figure that links the two in Brett Harrison.

Who Is Brett Harrison?

It is not at all an unusual occurrence for a Wall Street all-star to take their talents to the crypto space. The allure is irresistible for many: unblazed trails, gains many times higher than traditional stocks and a chance to be the Warren Buffett of the digital age. Brett Harrison was one of the many who took this leap. Now, he’s one of the most controversial names in the space.

Before moving into his position at FTX, Harrison spent two years at Citadel Securities, Griffin’s market-maker company. Here, Harrison took on two roles — as head of exchange-traded fund (ETF) technology and head of semi-systematic technology. In these roles, Harrison would lead Citadel Securities teams in managing quantitative trading strategies and increasing the company’s profits through optimization.

These skills would lend themselves favorably to Harrison as he departed Citadel Securities — right in the middle of its controversial role in the GameStop (NYSE:GME) saga — for a job at FTX.US. Harrison would become the first president of the U.S.-based company, reuniting the executive with Sam Bankman-Fried for the first time since the pair worked at Jane Street together.

Of course, from there, investors know how Harrison’s time has gone. In just over a year, FTX.US flamed out thanks to mismanagement by FTX global and Alameda Research. Harrison jumped ship just over a month before the company’s precarious financial situation became public knowledge, stepping away from his role and playing advisor to the soon-bankrupt company.

In the weeks since Harrison’s departure, he has stayed busy. He is attempting to raise funds for a new crypto-trading software startup — one that would provide optimized trading for larger investors. Meanwhile, Citadel Securities has made several large investments in this exact space. These include an investment in retail broker-backed crypto exchange EDX, as well as a partnership with Virtu Financial to build a crypto-trading platform of its own.

Similarities Between FTX and Citadel Go Deeper Than One Executive

Harrison is just one common thread linking FTX and Citadel. Indeed, the line between crypto and Wall Street continues to blur as more stories like Harrison’s play out. But Citadel CEO Ken Griffin seems to think the FTX saga has accelerated this collision of two worlds even more.

Griffin has shown his fair share of concern about the future of the stock market amid the FTX implosion. In an interview with Bloomberg, Griffin complained that the FTX saga undermines the investing world as a whole, particularly in the eyes of young investors. “Billions of dollars have been lost here [in crypto], and the confidence of a financial generation has also been shaken,” Griffin says. “If they [crypto investors] don’t believe or trust in financial markets, this is a huge problem.”

Of course, Citadel Securities took a lot of criticism during this time for its relationship with Robinhood (NASDAQ:HOOD), whose trading floor welcomed much of the GME trading. It was also Robinhood who halted this trading, seemingly to aid struggling hedge funds at the behest of Citadel. Citadel employees, like FTX’s, even faced questioning by Congress over the allegations investors had mounted against it. These accusations have not been solidified as fact. Though, they continue to permeate discussion around the company’s relations with retail investors.

In sum, Citadel’s and FTX’s solar systems of corporations bear many more similarities than once perceived. Both are prominent market makers in their respective spaces. Both have a slurry of controversies to their names. And, both shared a key executive. It’s easy for investors to look at FTX and say it’s reminiscent of Terra or Three Arrows Capital. However, these similarities are also causing investors to look with concern to Citadel. 

Comedian and political commentator Jon Stewart began this speculation on his podcast, where he discussed FTX and immediately called forward the implications for companies like Citadel. “How is [FTX’s business] any different than Ken Griffin running a hedge fund at Citadel and also being the most gigantic market maker that we have?” questions Stewart. Since these comments, comparisons of Citadel and FTX have run rampant across Twitter.

On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Brenden Rearick is a Financial News Writer for InvestorPlace’s Today’s Market team. He mainly covers digital assets and tech stocks, with a focus on crypto regulation and DeFi.





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