Regulators Launches Investigation into FTX Cryptocurrency Exchange 

FTX US GAAP Audit Pass

October 18, 2022

Reading Time: 3 minutes

The State Securities Board of Texas has launched an investigation into Sam Bankman-Fried FTX alleging that it offers unregistered securities in the US through the FTX yield-bearing service.

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FTX US Accused of Offering Unregistered Securities

The information was revealed in a recent court filings by the TSSB Director of Enforcement Joseph Rotunda to the bankruptcy court overseeing the potential sale of insolvent Voyager Digital assets to FTX.

According to him, FTX.US is likely to be violating the state law guiding the registration and offering of securities products because it is currently offering a yield-bearing product to U.S. people.

The filing was added to the court docket on Friday, and was submitted ahead of a hearing to finalize the potential sale of Voyager’s assets to FTX. Barrons first reported the filing.

“As more fully explained throughout this declaration, I am aware that FTX Trading, along with West Realm Shires Services Inc. dba FTX US (‘FTX US’), may be offering unregistered securities in the form of yield-bearing accounts to residents of the United States. These products appear similar to the yield-bearing depository accounts offered by Voyager Digital LTD et al., and the Enforcement Division is now investigating FTX Trading, FTX US, and their principals, including Sam Bankman-Fried,” Rotunda wrote.

Rotunda furthered that he downloaded the FTX crypto exchange app to his device, created an account, and send money to the newly created FTX account through a bank transaction and Ether transaction to the account, according to him, the app said he was eligible for a yield-bearing account, despite FTX’s terms and conditions that the exchange will not provide services to US citizens.

FTX yield accounts can earn up to 8% APY on the first $10,000 submitted.

“Despite the fact I identified myself by name and address, the FTX Trading App now shows that I am earning yield on the ETH. The yield is valued at 8% APR,” Rotunda wrote.

This “appears to be an investment contract,” which in turn would be regulated as a security in Texas, he wrote. FTX US has not registered its yield program within the state.

As a response to this, a spokesperson for FTX said the company is already “in talks” with the TSSB.

“We have an active application for a license which has been pending, and believe we are operating fully within the bounds of what we can do in the interim. We look forward to continue working with Texas. In parallel, we are working exceptionally hard to ensure Voyager customers get to the best possible outcome – which we believe will happen if our bid to give assets back to users is approved by the Voyager bankruptcy court. We remain hopeful that all state regulators are working towards this same goal of getting assets back to users,” the spokesperson said.

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