Anthony Scaramucci, founder of SkyBridge Capital, has called for the repeal of New York’s Martin Act, an anti-fraud statute enacted in 1921, citing concerns about its potential misuse and legal overreach.

What Is the Martin Act?

The Martin Act is a New York state law that grants the Attorney General broad authority to investigate and prosecute financial fraud. Unlike other statutes, the Act does not require proof of intent to establish fraud, making its standard of proof comparatively low. Critics, including Scaramucci, argue that this broad scope can lead to abuses of power.

Why Is Scaramucci Calling for Repeal?

Scaramucci’s comments come after the New York Attorney General (NYAG) reached a $200 million settlement with Galaxy Digital. The case centers around allegations of financial misconduct related to the marketing of the now-collapsed LUNA token, a product of the Terra blockchain ecosystem.

In a recent post on X (formerly Twitter), Scaramucci referred to the Martin Act as a “dangerously powerful” law that enables legal overreach. He criticized the NYAG’s application of the Act, stating that it amounts to “lawfare pure and simple.” According to Scaramucci, the settlement with Galaxy Digital demonstrates how the Act’s low standard of proof can be exploited.

“It’s [lawfare] pure and simple due to an obscure but dangerously powerful New York law known as the Martin Act. The law has no need to prove intent, creating a low standard of proof that can open the door for abuse like this. It shouldn’t exist.”

Conflict With Federal Authorities

Scaramucci also highlighted inconsistencies between the NYAG’s actions and those of federal agencies like the U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DOJ). Both federal entities have been pursuing legal actions against Do Kwon, the founder of Terraform Labs, and his company, which played a significant role in the collapse of LUNA and TerraUSD (UST).

“This makes no sense and is completely at odds with the SEC and DOJ, which have been pursuing actions against Do Kwon and Terraform,” Scaramucci noted.

The Collapse of LUNA

LUNA’s downfall in May 2022 wiped out over $40 billion in market value, causing widespread financial losses for retail investors. The NYAG alleged that Galaxy Digital’s marketing of LUNA contributed to the harm experienced by these investors. However, Scaramucci defended Galaxy Digital and its CEO, Michael Novogratz, stating they were victims of deception by Terraform Labs and Do Kwon.

“Novogratz is a dear friend and one of the smartest investors I know. Everything he ever said about LUNA was because he thought it was true, based on the deception perpetrated by the real bad actors here, Do Kwon and Terraform Labs.”

Criticism From the Crypto Community

Despite Scaramucci’s defense of Novogratz, his remarks have sparked criticism on social media. Many in the cryptocurrency community argue that Galaxy Digital profited from promoting LUNA, as alleged in the NYAG’s investigation. The firm’s involvement in the token’s marketing has led to accusations of negligence and opportunism.

Key Takeaways

  • The Martin Act allows the New York Attorney General to pursue fraud cases with a low standard of proof, raising concerns about potential abuse.
  • Scaramucci believes the law should be repealed, citing its misuse in the Galaxy Digital settlement related to LUNA’s collapse.
  • Federal agencies like the SEC and DOJ are separately investigating Terraform Labs and Do Kwon, adding complexity to the legal landscape.
  • The collapse of LUNA caused significant financial harm, affecting retail investors and tarnishing the reputations of companies associated with the token.

As debates about regulatory frameworks in the cryptocurrency industry continue, Scaramucci’s call to repeal the Martin Act underscores the growing tension between state and federal authorities and the need for clear, fair regulations in the digital asset space.

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