According to a complaint filed late Wednesday, the US Securities and Exchange Commission claims that FTX’s exchange token FTT has been sold as an investment contract and deemed a security. This decision is certain to have a significant impact on the industry as a whole.
The SEC has stated that FTT tokens have been offered and sold to investors as investment contracts since its launch in 2019. This makes them securities under federal law.
The Securities Watchdog claims that in the event that the demand for trading on the FTX platform increases, the demand for the FTT token will also rise, which means that any increase in the price of the FTT token will benefit holders of FTT in direct proportion to their holdings of the token.
In addition, the Commission said FTT’s large distribution to FTX “incentivized” the exchange’s management to improve the trading platform’s user engagement, consequently boosting FTT’s trading price and demand.
The SEC reports that FTT was used as an investment opportunity by FTX using token proceeds to fund the exchange’s development, marketing, business operations, and growth.
According to the regulator, the FTT whitepaper clarified that FTX would grow and succeed through the efforts of its core management team.
“FTT investors had a reasonable expectation of profit from FTX’s efforts to create demand and value for FTT and bring value to their common enterprise.” SEC said.
There was also mention of FTT’s “buy-and-burn” program. Many exchange tokens use this concept, similar to a stock buyback, in which revenues from FTX are repurchased and burned to increase the value of FTT.
Ellison and Wang admitted to being guilty of fraud
The SEC noted in its filing that both Wang and Ellison had pleaded guilty to violating the Securities Act of 1933 and the Securities Exchange Act of 1934.
The SEC charged both executives for participating in a “multiyear scheme” to defraud equity investors in FTX.
A number of prosecutors in the United States are also investigating Ellison and Wang for fraud-related charges, including the Justice Department and the Commodity Futures Trading Commission (CFTC).
In addition, Sam Bankman-Fried (SBF), the disgraced founder of the FTX exchange, will be extradited from the Bahamas to the United States, where he is charged with multiple fraud offenses.