- The U.S. Securities and Exchange Commission claimed in a lawsuit that FTX’s exchange token FTT is a “security” because it was promoted as an investment contract.
- The accusation was made by the SEC in a complaint filed against Gary Wang, the co-founder of FTX, and Caroline Ellison, the former CEO of Alameda Research.
In a lawsuit submitted on Wednesday, the U.S. Securities and Exchange Commission said that FTX’s exchange FTT token was advertised as an investment contract and therefore a security, an allegation that is likely to have a big impact on the market.
The SEC claimed in its lawsuit that as trading on the FTX platform became more popular, so would demand for the FTT token. As a result, any price gain in FTT would advantage holders of FTT evenly and in exact correlation to their FTT holdings.
The huge token distribution to FTX encouraged the management team of FTX to take actions to enhance user traffic to the trading platform, which in turn increased demand for and raised the trading price of the FTT token.
The claim was made by the SEC in a legal complaint against Gary Wang, the co-founder of FTX, and Caroline Ellison, the former CEO of Alameda Research.
The SEC issued a press release stating that Ellison and Wang have both admitted guilt to all of the charges levied against them and have not refuted the SEC’s assertions.
The complaint emphasised that FTX would utilise the proceeds from the token sale to finance the creation, promotion, and expansion of FTX while using wording to stress that FTT is a “investment” with the possibility for profit.
FTT investors “had a realistic belief of profiting from FTX’s efforts to deploy investor funds to develop a purpose for FTT and supply demand and value to their collaborative venture,” the SEC claims.
In the allegation, it was stated that “the FTT materials made apparent that FTX’s core management team’s efforts will drive the growth and ultimate success of FTX.”
In its filing, the SEC mentioned that anti-fraud sections of the Securities Act of 1933 and the Securities Exchange Act of 1934 were broken by Wang and Ellison, who both entered guilty pleas.
Both executives were accused by the SEC of participating in a “multiyear plan” to mislead stock investors in FTX.
The Justice Department and the Commodity Futures Trading Commission (CFTC) are also pursuing legal action against the two for their respective acts at FTX and Alameda.