Texas’ securities regulator is investigating crypto trading platform FTX and its billionaire founder, Sam Bankman-Fried, for selling an investment product that potentially violated state law.
FTX, CEO Sam Bankman-Fried investigated by Texas securities regulator
Rotunda argues that the accounts are akin to securities and that the company should have registered with the state before the registered residents. It’s the latest attempt by state financial watchdogs to crack down on leading crypto players, as federal policymakers remain divided over how to write rules for the industry.
The investigation is a possible roadblock to Bankman-Fried’s bid to buy up digital assets from companies that have been under the weight of the downturn in the crypto market earlier this year.
The 30-year-old CEO last month won an auction of the assets of bankrupt crypto lender Voyager Digital with a bid of $1.4 billion. But Rotunda, in its filing, asked the New York bankruptcy court handling Voyager’s case to block that sale. He said FTX’s yield-bearing accounts resemble a similar offering by Voyager that drew cease-and-desist orders from Texas and other states before the company collapsed.
FTX said in a statement that the company has been in talks with the Texas regulator “for some time.”
“We have an active application for a license that has been pending and believe we are operating fully within the limits of what we can do in the meantime,” FTX spokesman Patrick Jordan said. “We look forward to continuing to work with Texas.” The company said it is “working exceptionally hard to ensure that Voyager customers get the best possible outcome – which we believe will happen if our offer to return assets to users is approved by the Voyager bankruptcy court.”
Rotunda in his submission said he tested FTX’s product on his own smartphone. He downloaded the company’s trading app, connected it to a personal bank account and deposited a small amount of ethereum, which later began to earn returns.
Government regulators have targeted crypto platforms that offer such programs on the grounds that the investments, by generating returns from pooled deposits, qualify as securities and must be registered. Texas and a handful of other states have been at the forefront of this push. In addition to Voyager, they filed cease-and-desist orders against Celsius Network and, with the Securities and Exchange Commission, reached a $100 million settlement with BlockFi.
