The Texas State Securities Board is investigating crypto exchange FTX US, its parent company FTX and its founder, Sam Bankman-Fried, over potential securities violations related to FTX’s $1.42 billion bid to purchase Voyager Digital.
Joseph Rotunda, the regulator’s director of enforcement, said FTX and Bankman-Fried are under scrutiny as to whether yield-bearing accounts offered by FTX US are unregistered securities, according to a New York bankruptcy court filing Friday. Voyager, too, is under investigation for failing to register with the Texas Department of Banking despite storing customers’ digital tokens.
"As such, FTX US should not be permitted to purchase the assets of the debtor unless or until the Securities Commissioner has an opportunity to determine whether FTX US is complying with the law," Rotunda wrote.
In the filing, Rotunda said he was able to download the FTX Trading app, set up an account and link it to his personal bank account from his home in Austin. He was able to deposit money and Ethereum into the FTX account, and the app showed he was eligible to earn a yield — crypto rewards akin to interest in a savings account — on his deposits.
“The FTX Trading App now shows that I am earning yield on the ETH. The yield is valued at 8 percent [annual percentage rate]. Based upon my earning of yield and an ongoing investigation by the Enforcement Division of the Texas State Securities Board, the yield program appears to be an investment contract, evidence of indebtedness and note, and as such appears to be regulated as a security in Texas,” he wrote in the filing. “At all times material to the opening of this FTX account, FTX Trading and FTX US have not been registered to offer or sell securities in Texas.”
Neither Rotunda nor FTX responded to a request for comment by press time. An FTX spokesperson, however, told Decrypt that the firm has been in talks with Texas regulators “for a while.”
“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,” the FTX spokesperson said. “We look forward to continue working with Texas.”
FTX is hardly the first crypto platform to run afoul of securities regulators. Texas and at least one other state issued cease-and-desist orders to BlockFi last year to prompt the company to stop offering state residents interest-bearing accounts. The company agreed to pay $100 million to the Securities and Exchange Commission (SEC) and 32 states in a February settlement. Under the deal, BlockFi agreed to stop selling the interest-bearing account and sell a new one, BlockFi Yield. That offering is tailored to the Securities Act of 1933.
Rotunda’s supplemental declaration was attached to an objection of the FTX-Voyager transaction filed Friday by the Office of the Texas Attorney General, in which the state claimed that Voyager and FTX are out of compliance with state law, specifically stemming from Voyager not registering as a securities dealer in the state.
Voyager filed for bankruptcy in July amid a downturn in the market. Bankman-Fried had offered Voyager a $500 million line of credit in June, but the offer wasn’t accepted. FTX won the bid to purchase Voyager’s assets in September. Voyager’s ability to exit bankruptcy is contingent on the sale, though the pushback it’s received spans several parties, including its unsecured creditors committee.