Cryptocurrency exchange FTX, its FTX US division, and founder and CEO Sam Bankman-Fried are being investigated by Texas regulators over potential securities violations, according to a state filing.
Regulators are probing whether yield-bearing accounts offered by FTX US should be considered unregistered securities, as described in a filing related to the bankruptcy proceedings of Voyager Digital. FTX recently won the bid to acquire the assets of the firm. Barron’s first reported the news.
"The Enforcement Division is now investigating FTX Trading, FTX US, and their principals, including Sam Bankman-Fried," wrote Joseph Jason Rotunda, director of enforcement for the Texas State Securities Board.
In a statement shared with Decrypt, an FTX spokesperson said that the firm has been in communication with Texas regulators.
“We have been in talks with the Texas state regulator for a while,” the FTX statement reads. “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. We look forward to continue working with Texas.”
In the filing, Rotunda writes that he was able to set up an account through the FTX app to earn yield on his deposit of Ethereum, as well as funds transferred from his linked bank account.
FTX lets users earn yield—or a portion of crypto staking rewards, similar to interest in a savings account—on deposits, up to 8% APY on the first $10,000 deposited and up to 5% APY on amounts above $10,000 but less than $10 million. Rotunda notes that FTX US has not registered to offer or sell securities in Texas.
“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,” Rotunda wrote in the filing.
Voyager Digital filed for bankruptcy in July after the crypto market lost significant value this summer. Sam Bankman-Fried had offered Voyager a $500 million line of credit in June. Bankruptcy filings revealed that crypto trading firm Alameda Research, which Bankman-Fried also co-founded, separately owed Voyager $377 million. Alameda will ultimately repay about $200 million to Voyager.
In September, FTX won the top bid to buy out Voyager Digital for $1.4 billion, beating out Binance and Wave Financial in the process. As the spokesperson mentioned, FTX seeks to return crypto funds to Voyager users that were impacted by the firm’s sudden closure.
As Rotunda noted, Voyager is also under investigation by Texas regulators over its yield-bearing accounts, which may be deemed unregistered securities. Voyager and rivals like Celsius and BlockFi have seen increased interest from regulators regarding their respective yield products.
Celsius also recently filed for bankruptcy, while BlockFi—which also took a bailout from FTX—paid $100 million in fines to the SEC and 32 states in February, and said that it would stop offering yield-generating accounts to U.S. residents and register any future lending products with the SEC.
Editor's note: This article was updated after publication to provide additional details regarding the filing and to include comment from an FTX representative.