U.S. crypto regulation ‘problematic’ given global nature of blockchain, fmr. SEC exec says

Fmr. SEC Senior Trial Counsel Howard Fischer joins Yahoo Finance Live to discuss regulatory considerations for reining in the crypto industry.

Video Transcript

AKIKO FUJITA: So is the idea that existing rules are fit to regulate crypto, like putting a square peg in a round hole? Let’s bring in the– more on the conversation, a closer look at the SEC’s approach with Howard Fischer. He’s a former senior trial counsel for the agency and a partner at Moses Singer. Howard, I mean, I don’t know which slice of all those regulations she just laid out we want to tackle, but I want to start with this point that we just heard from Yanis Varoufakis and Hilary Allen in our panel in the last block who said essentially, you know, there are so many tokens out there. Some should just be left to burn, that they shouldn’t necessarily have to be regulated. How do you respond to that?

HOWARD FISCHER: That’s one of the big questions that people are considering. And there are people who say let’s not regulate it at all. Let it collapse. If it does, no real harm. I mean, the harm is to the crypto environment. But as long as the crypto collapse doesn’t cause contagion to the traditional legacy financial structure, there are a lot of people who say let it live or die on its own merits or lack of them.

And as you point out, there are so many coins. It’s impossible to keep track of them. Some of them are trading at fractions of fractions of a cent. And so there are many people who say, why should the government expand the time and the resources in dealing with this issue? Let it deal with itself either by collapsing or by prospering.

AKIKO FUJITA: And Howard, you know, what’s interesting to me is looking at just how fragmented the regulatory landscape is.

HOWARD FISCHER: Yeah.

AKIKO FUJITA: You know, you’ve got the US discussion, which is already fragmented. You’ve got what’s happening in places like China. You’ve got what’s happening in El Salvador. I mean, how does that all come together when so many of these exchanges operate in different jurisdictions? How effective can the policy really be?

Story continues

HOWARD FISCHER: Well, that’s a great point. And if you want to trade crypto, all you really need is a computer connection. And you have companies like FTX who left the US and went to jurisdictions which are perceived to have a– let’s just call it a lighter regulatory touch. And unless there’s really some kind of internationally agreed protocol on how to handle crypto assets and how to handle crypto trading and how to handle crypto customers and how we treat their assets, it’s problematic because, as you point out, even if we have the best regulation in the US, what does that help if someone will just go on their computer and trade through a platform located in Singapore or Hong Kong or the Bahamas or Aruba or somewhere where they don’t have that regulatory protection?

So I think you’re right to point that out. I think the answer is not just regulation on a national scale but on an international scale as well. So if you think it’s going to be hard to get Congress to agree on something, just imagine the difficulties in getting regulators of multiple jurisdictions to agree. Good luck on that.

AKIKO FUJITA: Yeah, let’s hone in more on what played out with FTX. Obviously Sam Bankman-Fried being arrested over in the Bahamas earlier this week. I heard you say something that was kind of interesting about the timing of all of this, how quickly this all came together in that it was potentially the work of insiders, former executives that could have flipped on Sam Bankman-Fried that allowed prosecutors to go after him. What do you mean by that?

HOWARD FISCHER: Yeah so– yeah, so when I was at the SEC and investigating a large case, there was always a lot of pressure to wrap it up as quickly as possible, but these complex cases take a lot of time. There are a lot of documents. There are a lot of trading records. There are complicated issues, and it could take months, sometimes years to bring charges.

The fact that the various agencies were able to bring charges so quickly in this case suggests to me several things– first of all, that the current management is cooperating very closely with the government and is providing them access that they wouldn’t have had if Sam Bankman-Fried had stayed in charge. Second, that there are probably people on the inside– and I say people because it’s probably more than one– that are cooperating in exchange for leniency in how they are treated.

The third thing is that it may be the case that there were already investigations in place, that there were already agencies– maybe the Department of Justice, maybe the SEC– looking into aspects of FTX’s operations for months, maybe longer, and that one reason they were able to do this– do these cases and file them so quickly is that it wasn’t just a month. It has been maybe more. And we don’t know that. We might never know that. But I think the speed suggests at least that as well.

AKIKO FUJITA: Yeah, we’re certainly going to learn more here, but good to get your insight today, Howard Fischer, partner at Moses Singer and former senior trial counsel for the SEC.