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‘This is really a scam first’

With calls to regulate crypto in the wake of the mounting FTX meltdown, a legal expert says those demands are misplaced.

“When it comes to space regulation in general, I know a lot of people are asking about it,” Cathy Yoon, chief legal officer at MPCH, told Yahoo Finance Live (video above). “They want immediate action, but I think at the heart of what we need to remember is that this is fraud first and foremost, and not necessarily something that affects the entire crypto space at large.”

Yoon’s comments come as court documents filed by Bahamas liquidators late Wednesday said there are signs “serious fraud and mismanagement” occurred at FTX.

On Thursday, the newly installed FTX CEO also criticized the company’s “complete failure of corporate controls” and “complete absence of reliable financial information” in a document filed with US bankruptcy court.

MIAMI, FLORIDA - NOVEMBER 14: A detailed view of the FTX backboard prior to a game between the Phoenix Suns and Miami Heat at the FTX Arena on November 14, 2022 in Miami, Florida.  NOTE TO USER: User expressly acknowledges and agrees that by downloading and/or using this photo, User agrees to the terms of the Getty Images License Agreement.  (Photo by Megan Briggs/Getty Images)

A detailed view of the FTX backboard prior to a game between the Phoenix Suns and Miami Heat at the FTX Arena on November 14, 2022 in Miami, Florida. NOTE TO USER: User expressly acknowledges and agrees that by downloading and/or using this photo, User agrees to the terms of the Getty Images License Agreement. (Photo by Megan Briggs/Getty Images)

Yoon doesn’t think much of the legislation that former FTX CEO Sam Bankman-Fried supported will survive.

Bankman-Fried vigorously lobbied the Commodities Futures Trading Commission for an automated collateral system for digital assets in futures markets. The proposal requires clients to deposit collateral and have enough funds to cover the margin requirements that are automatically calculated. If the margin got too low, an automatic sales process for the investment would start. Since the bankruptcy, FTX has pulled its filing from the CFTC.

“There are a lot of other bills in Congress,” Yoon said. “I don’t think we’ll see them moving forward anytime soon. There are many questions that people want answers to.”

Yoon said people want their money and belongings returned. “So it’s really kind of balancing between thoughtful regulation and legislation and trying to protect consumers.”

“I would really like to hope that there isn’t a knee-jerk response here that we won’t get overly onerous legislation to deal with this,” Yoon said. “We definitely don’t want innovation to be destroyed, squashed in the United States.”

Senator Cynthia Lummis (R-WY) told Yahoo Finance Live this week that she doesn’t think lawmakers should do some kind of “near-reaction” but that they should examine things in a careful and considered manner next year. Lummis is co-authoring a comprehensive bill to regulate crypto with Senator Kirsten Gillibrand (D-NY), which she is reexamining in light of the collapse of FTX.

Leading Senate Agriculture Committee member Senator John Boozman (R-AR) said he and Senator Debbie Stabenow (D-MI) are also rethinking their bill to regulate crypto, making the CFTC the primary regulator for crypto. That’s something the industry prefers because it could provide a lighter regulatory touch since it’s a smaller agency than the Securities and Exchange Commission with a smaller budget.

Jennifer covers the Federal Reserve, cryptocurrencies, and the intersection of business and politics. Follow her on Twitter @Jenniferisms.

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