Is FTX infringing on the law? Texas Regulator gives an answer

According to the Texas State Securities Board; they are.
A Texas regulator has charged FTX, FTX.US, and Sam Bankman-Fried with marketing unregistered securities and participating in fraud.
Despite being unregistered in Texas, the regulator declared that the bitcoin exchange’s yield-earning scheme was open to Texans.
The regulator also ruled that FTX’s agreement to buy Voyager’s assets should be put on hold until the exchange can explain its regulatory position with authorities.
FTX is marketing yield products to Texas citizens despite not having received clearance from the state’s regulator.

FTX in Toasty Waters
A Texas regulator is looking into Sam Bankman-enterprise.

Texas State Securities Board Director of Enforcement Division Joseph Rotunda thinks, according to a court filing filed late last week that FTX, FTX.US, and FTX founder Sam Bankman-Fried may be in violation of the Texas Securities Act by providing unregistered securities in the form of yield-bearing accounts Rotunda also warned that the site was likely involved in fraud.

Rotunda explained in his petition how, despite being in Austin, Texas, he was able to receive interest on deposits made to his account on the FTX Trading app. Rotunda had already provided his personal information, including his complete name and address, in order to meet the app’s Know-Your-Customer (KYC) standards.

Rotunda thinks the yield program is an investment contract, which would subject it to state securities regulation. He pointed out that neither FTX nor FTX.US (the bitcoin exchange’s US counterpart) had registered to offer or sell securities in Texas, and that the two entities may be in violation of the Texas Securities Act as a result. According to Rotunda, the yield program itself was not registered, making it a distinct violation to offer unregistered or unpermitted securities.
Rotunda further claimed that the FTX Trading app and FTX.US were probably not sharing enough information to its clients prior to creating accounts and delivering yield services, and hence were possibly participating in fraud. He accused Bankman-Fried, FTX co-founder Gary Wang, and FTX head of engineering Nishad Singh of breaking confidentiality agreements. Rotunda did not reach any final findings, noting the necessity for more research to determine if the accused parties were in fact breaching the Securities Act.

The View from Cryptominded

These latest allegations against FTX and the greater Bankman-Fried business are an intriguing development in a year in which US authorities and legislators have increased their regulatory efforts involving cryptocurrencies. The Securities and Exchange Commission (SEC) has been particularly active in recent months; nonetheless, the Commission’s primary concern has been the status of cryptocurrencies themselves. SEC Chair Gary Gensler appears to feel that most tokens, including possibly ETH, should be treated as securities and regulated accordingly. As a result, Gensler believes that FTX and other cryptocurrency exchanges such as Coinbase and Kraken should be regulated in the same manner that regular stock exchanges are.

The Rotunda and the Texas State Securities Board appear to be thinking in an opposite path.
At no time in his speech did Rotunda dispute the legality of cryptocurrencies; rather, he appears to be primarily concerned with FTX’s yield product offering. In this regard, his investigation varies significantly from other SEC investigations into cryptocurrency exchanges. It’s worth mentioning, though, that when Coinbase attempted to start its USDC reward program, it ran into serious regulatory roadblocks, forcing the exchange to abandon the initiative. If Rotunda is accurate in his assessment, centralized exchanges may need to substantially curtail, if not completely discontinue, their yield programs, at least for US users.

The petition was especially important since it addressed Voyager’s bankruptcy procedures. Voyager is a cryptocurrency exchange and loan firm that experienced a liquidity difficulty early this year owing to its holdings in the now-defunct crypto hedge firm Three Arrows Capital. After Voyager declared bankruptcy, FTX won an auction to purchase the company’s assets. Rotunda, on the other hand, pointed out that Voyager had already been accused of marketing unregistered securities. Rotunda claimed that because FTX and FTX.US were now accused of identical crimes, FTX should be barred from purchasing Voyager’s assets until their regulatory status was resolved.