Sure it would. He might have still been able to commit fraud to some extent the way, say, Madoff did (eg by thoroughly falsifying his trail and meticulously avoiding any alarm-raising cash/securities move); but definitely he would not have been able to corner the market with phantom bot accounts with no transaction fees with such ease.

For instance, if the exchange had been regulated as a Designated Contract Maker (DCM) by the US CFTC [1] (which by the way will most likely never happen), it would had been subject to very specific and strict disclosure/auditing, price discovery, capital, risk and monitoring requirements --including for instance strict limits on account aggregation, hard position limits for very large accounts, 'surprise' audits and automated 'alerts' to regulators [2].

Furthermore, if people's complaints or whistleblowers were to persuade CFTC they had a case, they would had had the authority to investigate them, prosecute them, pre-emptively close them down and freeze their assets, and even piercing the corporate veil (eg target Karpeles' individual assets, or even criminal liability) under their broad anti-market manipulation authority [3,4]. At the very least the prospect of harsh prosecution --as opposed to simply wash your hands by declaring bankruptcy and moving on-- should have affected his cost-benefit calculus.

Again this is not to say of course the regulations would have precluded any form of massive fraud or market manipulation (which happens all the time regardless; cf the recent Libor scandal), but definitely it would have made this particular scheme essentially unfeasible.

[1] http://www.cftc.gov/IndustryOversight/TradingOrganizations/D...

[2] http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&sid=7ccb37730775...

[3] http://www.cftc.gov/LawRegulation/DoddFrankAct/Rulemakings/D...

[4] http://www.cftc.gov/ucm/groups/public/@newsroom/documents/fi...