Crypto Exchange FTX Under Investigation by Texas Regulators

Texas regulators are investigating cryptocurrency exchange FTX and its founder Sam Bankman-Fried to determine whether or not they are offering unregistered securities products.

According to a recent court filing, the Texas Securities Commission is investigating FTX US for allegedly offering unregistered securities products in the United States through its financial services.

TSSB Enforcement Director Joseph Rotunda made the allegation in a bankruptcy court overseeing the potential sale of Voyager Digital’s assets to the exchange. He said that the exchange may have violated state laws governing the registration and sale of securities products because it currently offers profitable products to US clients.

FTX Allegedly Providing Illegal Services to Users in the US 

The document was added to the court record on Friday and filed ahead of a hearing to finalize the potential sale of Voyager’s assets to FTX.

“As more fully explained throughout this declaration, I am aware that FTX Trading, along with West Realm Shires Services Inc. dba 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 further explained that he downloaded the exchange app on his phone, created an account, and transferred funds to this new account via bank transactions and Ethereum transactions. Additionally, the app said he was eligible for a yield-bearing account, despite the company’s terms and conditions stating that the exchange would not provide services to US citizens.

“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. The exchange has not registered its yield program within the state.

FTX did not immediately respond to Gizmodo’s request for comment, but a company spokesman told Barron’s that they have “active applications” for the license and believe they are “well within what we can do during the transition period.”