Digital Asset Firm FTX Is Reportedly Being Investigated by Texas Regulators

Regulators in Texas are reportedly probing cryptocurrency platform FTX and company CEO Sam Bankman-Fried.

The state securities regulator is looking into whether FTX has offered unregistered securities to Texas residents, which could potentially be a violation of state law.

According to reports, Texas’ securities regulator is investigating crypto trading platform FTX and billionaire founder, Sam Bankman-Fried, for allegedly selling an investment product that may have violated state law.

The investigation, announced this past Friday via a filing by the Texas State Securities Board enforcement director Joe Rotunda, looks into whether FTX has been unlawfully providing Texas’ residents accounts that pay interest on their digital currency deposits.

Rotunda has reportedly said that the accounts are somewhat like securities and that FTX should have registered with the state of Texas prior to signing up customers. It’s the most recent attempt by the state regulatory authority to really crack down on crypto firms as federal lawmakers still remain uncertain about how to develop an appropriate regulatory framework for the nascent industry.

This recent probe could be a potential barrier or roadblock to Bankman-Fried’s plans to acquire crypto-assets from firms that had struggled to remain afloat during the unprecedented cryptocurrency market downturn in 2022.

The FTX Chief executive recently managed to win an auction for the assets of now-bankrupt and once-leading cryptocurrency lender Voyager Digital with a sizable $1.4B bid.

However, Rotunda noted in the filing that the New York bankruptcy court managing Voyager’s case should block that sale or transaction. He added that FTX’s yield-bearing accounts are somewhat like an offering from Voyager that led to cease-and-desist orders from Texas and other US states prior to the company filing for bankruptcy.

FTX’s management noted that the firm has been holding discussions with Texas regulators for quite some time now.

FTX representative Patrick Jordan remarked:

“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.”

The firm claims it has been “working exceptionally hard to ensure Voyager customers get to the best possible outcome — which [they] believe will happen if [their] bid to give assets back to users is approved by the Voyager bankruptcy court.”

Rotunda in his filing added that he had reportedly tested FTX’s product on his own mobile phone. He claims to have downloaded the firm’s trading app, then linked it up to a personal banking account and deposited Ethereum, which then began earning yield.

It’s worth noting that state regulators have been increasingly targeting cryptocurrency platforms providing these types of services, and alleged that by generating returns from such deposits, the investments do qualify as securities and need to be regulated as such.

Texas and several other US states have been leading these efforts. Along with Voyager, they had reportedly submitted cease-and-desist orders against Celsius Network and with the US Securities and Exchange Commission reached a massive $100 million settlement with digital asset lender BlockFi.

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