Crypto Exchange FTX US Under Investigation by Texas Regulator Over Securities Allegations

The state securities regulator's director said he set up a yield-bearing account on FTX US, despite identifying his address as being located within the U.S.

AccessTimeIconOct 17, 2022 at 3:49 p.m. UTC
Updated Oct 17, 2022 at 4:26 p.m. UTC

The Texas State Securities Board is investigating FTX US over allegations it offers unregistered securities products in the U.S. through its yield-bearing service, according to a recent court filing.

TSSB Director of Enforcement Joseph Rotunda made the allegation in a filing to the bankruptcy court overseeing the potential sale of Voyager Digital's assets to the FTX crypto exchange, FTX US' parent. He said FTX US may be violating state law governing the registration and sale of securities products because it is currently offering a yield-bearing product to U.S. customers.

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.

He went on to explain that he downloaded the FTX app to his phone, created an account and transferred money through a bank transaction and an Ethereum transaction to that new account. Moreover, the app said he was eligible for a yield-bearing account, despite the company's terms and conditions saying FTX will not provide services to U.S. residents.

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," he 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.

In a statement, an FTX spokesperson said the company had already been "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.

Tracy Wang contributed reporting.


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Nikhilesh De

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.

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