Crypto exchange FTX faces an investigation by the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) into its mismanagement of customer funds and the firm’s relationships with FTX.US and Alameda Research.
The SEC first began looking into FTX US’s crypto lending activities and operations months ago, Bloomberg first reported, citing anonymous sources.
Now, the CTFC is getting involved with the SEC and investigating FTX in addition to FTX.US, looking into the relationships between the two exchanges and trading firm Alameda, Bloomberg reports.
The FTX liquidity crisis has raised a concern and a call for more regulation and oversight for which agency should oversee trading platforms like FTX.
The CTFC typically has only maintained oversight over derivatives in the crypto markets, but that may change if it believes fraud or manipulation is occurring. The SEC, on the other hand, oversees any token that is a security — another area that has lacked oversight and guidance and has raised concerns around Bitcoin and Ethereum’s status under the SEC’s Howie test. Regulators currently oversee crypto investment firms.
This past week, regulators requested details about the ownership structure of FTX.US and FTX. Both regulators are actively searching for any management or executive board overlaps. In addition, they are looking into any financial ties between the two separate exchanges, according to Bloomberg.
This is not the first time either commissions have expressed concerns around cryptocurrencies. Gary Gensler, chair of the SEC, has voiced multiple warnings about crypto exchanges like FTX. His concerns center around security law violations with unregistered tokens offered to U.S. citizens that may classify as securities. Gensler has brought up other potential violations such as exchanges front-running customer transactions, loans and conflict of interest.
CFTC officials have discussed the mismanagement of customer funds in the past, citing cryptocurrencies as the top billing on its latest annual report on enforcement actions.
Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.
© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.