Per an Oct 14 court filing, the Texas State Securities Board (TSSB) has commenced an investigation into the crypto exchange FTX. The probe aims to address possible securities violations and extends to the US division FTX.US and CEO Sam Bankman-Fried. Joseph Rotunda, the regulator’s Director of Enforcement, submitted the complaint to the bankruptcy court in charge of FTX’s acquisition of Voyager Digital’s assets.
Illegal Access to FTX’s Yield Program
Joseph Rotunda has accused the crypto exchange of breaching state policy by providing unregistered securities to customers in the US. According to the filing, FTX provides yield-bearing services which Rotunda compared to Voyager’s yield-generating depository accounts.
In his complaint, Rotunda, who resides in Texas, explained that he had downloaded the FTX trading app. He reportedly proceeded to open an account with the firm and fund the account. However, despite Texan laws, the TSSB Director claims the exchange’s yield-bearing services were available to him. Rotunda’s account on the app was eligible to generate yield on his deposits.
The board director insists he had undergone KYC verification on the app and thus shared his full name and address. Regardless, while FTX’s terms and conditions claimed that US residents could not access a yield-bearing account, Rotunda was able to.
FTX May Be in Violation of State Laws
Joseph Rotunda classifies the yield offering as an investment contract. Generally, the state considers investments that guarantee returns under management securities. Rotunda took care to note that FTX as well as FTX US are not authorized to provide securities in the state of Texas.
Thus, the filing noted, both the parent company and subsidiary may have breached the Texas Securities Act. Furthermore, Rotunda pointed out that FTX has not registered the yield program with the relevant authorities. This classifies as another violation as the exchange may be offering unregistered securities.
Rotunda also made accusations of fraud as he asserted that both FTX and FTX US had withheld information about the yield program.
TSSB Probes into the Exchange
Notably, the filing alleged that Bankman-fried, FTX co-creator Gary Wang and head of engineering Nishad Singh may have broken disclosure agreements. As such, the TSSB’s enforcement division is looking into FTX trading, FTX US, and its executives.
Recently, FTX made a successful bid to purchase Voyager Digital assets. However, Rotunda called for the deal to be halted as the state regulator carries out its investigation.
An FTX representative commented on the case saying the firm had applied for a license, but the application was still pending. FTX believes, however, that their services were fully covered by state policy.
We look forward to continue working with Texas,” they said.
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