Trust issues: Can crypto regulation stop those who ‘bamboozle and defraud’?

Crypto cons are frequent, and the sector’s loudest and most well-known leaders have faced substantial legal trouble in recent years.

You know the names:

• Sam Bankman-Fried, sentenced to 25 years
• Changpeng Zhao, released after four months
• Nader Al-Naji, arrested and (if convicted) faces a maximum sentence of 20 years in prison
• Arthur Hayes, six months of home confinement
• Do Kwon, arrested and could potentially face significant jail time
• Mark Karpeles, arrested in Japan over Mt. Gox legal trouble
• Alex Mashinsky, arrested in 2023 and is currently on trial
• Charlie Shrem, pleaded guilty in 2015 and served a year in prison

Crypto.news collected some commentary about whether the crypto industry has a serious leadership problem, or simply suffers from a few bad apples. At a glance, it does seem like fertile ground for shady goings-on.

But then again, “is it worse than anything else that’s out there?” asks Anthony Scaramucci, founder of SkyBridge Capital.

“You could say there are bad apples in other parts of finance,” Scaramucci told us via Saxo. “I would maintain it’s not worse than anything else. I would say that we’re in the process of cleaning this up.”

Table of Contents

• Biden was ‘overly aggressive’
• Trump does a 180
• Advice for Harris

Biden was ‘overly aggressive’

Scaramucci, whose hedge fund embraced Bitcoin (BTC) as an offering in2020, has a prolific career in finance, having spent seven years at Goldman Sachs.

He was also a former White House communications director for 11 days under ex-President Donald Trump.

Scaramucci has since soured on Trump and endorsed Vice President Kamala Harris for the 2024 presidential election. He even revealed at the TOKEN2049 conference in Singapore that he and other cryptocurrency advocates are collaborating with the Harris campaign to shape more industry-friendly policies should she win on Election Day, Nov. 5.

For crypto investors, it’s exactly what they’re looking for: an inside man who knows the industry and can carve inroads with Washington, D.C. Up until now, their big gripe is with the Biden administration and the current leadership within the U.S. Securities and Exchange Commission (SEC).

In 2023, SEC Chair Gary Gensler, a Biden appointee, brought a total of 46 cryptocurrency-related enforcement actions. That’s up 53% from 2022, according to Cornerstone Research.

Lawmakers were perhaps “embarrassed” by FTX founder Bankman-Fried, Scaramucci adds. Bankman-Fried was convicted of embezzling an estimated $10 billion of his customer’s deposits (Scaramucci’s SkyBridge suffered a hit when FTX collapsed).

The SEC’s enforcement actions grew more strict. Since FTX, Gensler has taken action against major players such as Binance, Coinbase, Ripple, and Terraform Labs. This has sparked numerous legal battles, including ongoing high-profile cases against Ripple and other big-name firms in the industry.

Most cryptocurrency tokens qualify as securities under U.S. law and, as a result, fall under SEC oversight.

“I thought that they [the Biden administration] were overly aggressive in terms of their anti-crypto positioning,” Scaramucci says. “It was unnecessary to be that aggressive.”

Other crypto pros share a similar sentiment. Tim Kravchunovsky, founder and CEO of decentralized telecommunications company, Chirp, argues that those enforcement actions by the SEC felt more like attacks rather than constructive oversight.

“Crypto investors were met with confusion, inconsistent policies, and outright hostility at times,” Kravchunovsky said of the past four years. “Instead of fostering innovation or providing clarity, the [Biden] administration’s actions raised anxiety, leaving investors guessing about the future of the space.”

You might also like: Scaramucci: Bitcoin and crypto regulation must be bipartisan

Trump does a 180

Crypto’s PR nightmare continued last week when U.S. prosecutors brought charges against 15 people across four companies: Gotbit, ZM Quant, CLS Global and MyTrade.

The firms engaged in fraudulent practices designed to manipulate the market, according to the FBI.

But scenarios like this “don’t represent all of crypto,” Kravchunovsky insists.

“The industry doesn’t have a leadership problem—it has a trust problem,” he says. “Every time someone like Sam Bankman-Fried makes headlines for fraud, the media paints the entire industry with the same brush. But remember, in any sector where money flows, so do opportunists and criminals. It’s not unique to crypto.”

Indeed, crime permeates all corners of finance. In 2023, more than three trillion dollars in illicit funds reportedly flowed through the global financial system. This trend is expected to continue, driven largely by the rise in digital technologies, which provide new avenues for criminals.

“It’s unfortunate that there has been a growing list of arrests and charges amongst high-profile crypto leaders,” David Morrison, Senior Market Analyst at Trade Nation, says. “Some have clearly been bad actors who have bamboozled and defrauded their customers, broken regulations deliberately for their own gain, and so on. But this is not unusual where new technologies and money collide.”

It’s a bad look, but one Morrison expects to improve “should regulation continue to develop in ways helpful to the sector as a whole.”

“That will require regulators and policymakers with a genuine interest and understanding of cryptos, valuing its importance while welcoming its potential,” he said.

It’s no wonder the industry looks to Trump’s possible re-election as a silver lining. The 78-year-old candidate saw an opportunity to court a passionate portion of the electorate that had grown frustrated with the Biden administration. Gemini co-founders Tyler and Cameron Winklevoss are two of his biggest donors.

Once a crypto skeptic, the twice-impeached Trump is now amongst the industry’s most ardent cheerleaders. He’s even gearing up for the public sale of his own token under the banner of World Liberty Financial, a firm he launched with his three sons, starting Tuesday, Oct. 15.

Polymarket, a platform that allows gamblers to bet on real-world events using crypto, has him currently leading Harris in a 2024 presidential prediction by more than eight percentage points.

But in an industry marred by illegalities, is Trump — the first former U.S. president to be convicted of felony crimes — crypto’s best bet? Even the Republican’s most staunch supporters have a bad feeling about World Liberty Financial.

“Whether you like Trump or not, his World Liberty Financial venture shows he’s not shying away from crypto,” Kravchunovsky says. “Say what you will about the hype, but at least he’s not trying to kill the industry with endless regulations.”

Advice for Harris

Crypto is one area Harris has seemingly deviated from Biden. Last month, at an event in Manhattan, the Democratic nominee stated that she wants to embrace “innovative technologies” like digital assets while also protecting consumers and investors.

Billionaires Mark Cuban and Ben Horowitz are both on board; so is Ripple co-founder Chris Larsen, who made his first recorded cryptocurrency donation to her campaign.

Should Harris win the election, Morrison offered some advice on behalf of his crypto peers: “If Ms. Harris wins next month, then please don’t relegate cryptocurrencies to the ‘Can’t be bothered’ bucket.”

Crypto has the potential to help the unbanked and “boost entrepreneurship in some of the poorest and most neglected places on our planet,” he adds. “Don’t write it off just because Donald Trump talks about it so much.”

Kravchunovsky agrees.

“If Harris takes office, she needs to understand that crypto isn’t just about speculation—it’s a transformative technology that could redefine industries,” he said. “But here’s the thing: She’s got to listen to people who actually understand blockchain, not just the hype artists or the bureaucrats who think in terms of control. This isn’t about shutting it down, it’s about creating a healthy environment for it to thrive responsibly. The U.S. can’t afford to let fear or misinformation drive policy.”

As Scaramucci puts it: “The best days for crypto are still ahead.”

Read more: Trump vs. Harris, Ripple cross-appeal, CZ to appear at Binance blockchain event, Satoshi drama | Weekly Recap

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