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The SEC stated that the operations of the FTT token and the buy-and-burn program initiated by crypto exchange FTX are synonymous with stock buyback and thus constitute the behavior of securities.
In a complaint filed late Wednesday, December 21, the US Securities and Exchange Commission (SEC) said that crypto exchange FTX sold its native FTT tokens as an investment contract and is a “security”.
Is FTT a Security?
The massive selling of FTT tokens by Binance and others triggered a major downfall for the crypto exchange FTX. Since the FTX crisis unfolded in early November, the price of FTT tokens collapsed by a staggering 98% so far. In its recent analysis, the US SEC noted:
“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 made this claim in the complaint filed against Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang. The complaint filed by the SEC notes that crypto exchange FTX would use the proceeds from the token sale to fund the development, business operations, marketing, and growth of FTX. The SEC has clearly mentioned that FTT is an “investment” with profit potential.
“The FTT materials made clear that FTX’s core management team’s efforts would drive the growth and ultimate success of FTX,” said the SEC. Besides, the SEC has also mentioned the “buy and burn” program initiated by crypto exchange FTX.
The securities regulator said that this initiative was akin to many other crypto exchange tokens and similar to stock buyback where revenues from FTX would repurchase and burn FTT while increasing their value.
Alameda CEO Pleads Guilty
Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang have pleaded guilty to criminal charges by the US Southern District of New York. Damian Williams, the attorney for the Southern District of New York said that Ellison and Wang were charged “in connection with their roles in the frauds that contributed to FTX’s collapse.”
Both have declared to cooperate with the prosecutors who are investigating the collapse of FTX and Sam Bankman-Fried. In action against SBF and his companies, the CFTC has also charged Ellison and Wang with charges of fraud.
At the same time, the SEC has charged the duo in a multi-year scheme of defrauding equity investors on FTX.