FTX Faces Scrutiny From SEC Over Potential Securities Law Violation: WSJ

  • The SEC has expanded its investigation into the dealings of troubled crypto exchange FTX.
  • The regulator believes that some assets on FTX may qualify as securities.
  • SEC officials have contacted the exchange’s lawyers for documents regarding its relationship with FTX US.
  • FTX may be in violation of U.S securities law. 
  • The exchange is already facing an investigation over the alleged mishandling of customer funds. 

Problems are piling on for Sam Bankman-Fried’s Bahamas-based exchange. Things have been looking bad for FTX on the corporate side, with its token FTT losing more than 85% of its value in 24 hours, along with the CEO’s net worth plunging a record 94% in a day. 

Potential violation of securities law by FTX

The exchange is now facing heat on the legal front as well. Barely hours after reports came out that FTX is facing an investigation by the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) over alleged mishandling of customer funds, a new report by the Wall Street Journal reveals that the SEC has expanded its investigation into the exchange.

The investigation in question is reportedly related to a violation of U.S securities law by the exchange’s American subsidiary, FTX U.S. According to a person familiar with the matter, the wall street regulator believes that some of the exchange’s assets, including their lending product, may qualify as securities under U.S law. If that is the case, then the SEC may accuse the crypto exchange of failing to register said assets with them, leading to a violation of securities law. 

According to the report, SEC officials have contacted the exchange’s lawyers to get a closer look at their documents, especially those pertaining to the relationship with its U.S subsidiary.

SEC and CFTC launch investigation 

Bloomberg revealed earlier today that the Bahamas-based crypto exchange is facing an investigation by the SEC as well as the CFTC over alleged mishandling of customer funds. In addition to that, the exchange’s relationship with Sam Bankman-Fried’s other ventures including Alameda Research and FTX US are also under scrutiny.  

As per the report, SEC’s probe began months before the exchange’s current predicament related to liquidity. The CFTC’s oversight over crypto is limited, however, upon discovery of market manipulation or fraud, enforcement actions can be ordered. 

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