US SEC calls FTT a security, Sam Bankman-Fried former associates plead guilty

The US Securities and Exchange Commission (SEC) filed charges against bankrupt FTX, alleging that the now bankrupt exchange’s native token FTT is a security. The US financial regulator explained that Samuel Bankman-Fried’s cryptocurrency exchange sold FTT as an investment contract, and the former CEO’s associates did not contest the charges. 

Also read: Samuel Bankman-Fried’s bankrupt FTX exchange executives find $1.24 billion cash, not enough to pay creditors

US SEC believes FTX exchange native token FTT is a security

The US SEC, in its role of financial regulator, argues that bankrupt FTX exchange’s native token FTT is a security. Samuel Bankman-Fried’s co-founded FTX exchange is now bankrupt and undergoing financial restructuring under new CEO John Ray III and his team. SBF’s associates Caroline Ellison and Gary Wang did not contest the charges by the SEC. 

The Securities and Exchange Commission filed a complaint on Wednesday, arguing that FTT was sold by the exchange as an “investment contract.” This makes the token a security. This move has a wide-ranging impact on the crypto industry. 

In its complaint, the US financial regulator wrote, 

If demand for trading on the FTX platform increased, demand for the FTT token could increase, such that any price increase in FTT would benefit holders of FTT equally and in direct proportion to their FTT holdings. The large allocation of tokens to FTX incentivized the FTX management team to take steps to attract more users onto the trading platform and, therefore, increase demand for, and increase the trading price of, the FTT token.

The SEC added these claims to the complaint filed against FTX co-founders Gary Wang and former Alameda Research CEO Caroline Ellison. 

FTX exchange used proceeds from FTT token sale to fund development

The US Securities and Exchange Commission highlighted that the FTX exchange would use proceeds from its token sale to fund marketing, development, business operations and growth. This makes FTT an investment contract with a profit potential. 

FTT’s program of “buy and burn” was mentioned as an initiative similar to stock buyback, where revenues are used to re-purchase and burn the asset and increase its value. Sam Bankman-Fried’s former associates Caroline Ellison and Gary Wang did not contest the regulator’s allegations according to the SEC’s press release, since holders of the FTT token had a reasonable expectation of profiting from the exchange’s efforts to deploy investor funds and bring demand and value to the common enterprise. 

FTT price hit a new all-time low following the recent updates and new charges brought by the US SEC. FTX exchange’s native token is trading at $0.8840 at press time.