US SEC and CFTC Launch Probe into FTX's Handling of Customer Funds

US SEC and CFTC Initiated a Probe

As per the Bloomberg report, the US SEC is investigating if FTX mishandled customers’ funds. Additionally, they are also looking into FTX’s relationship with other firms of Sam Bankman-Fried including Alameda Research.

The liquidity crisis has put FTX on the brink. Its native cryptocurrency FTX token (FTT) has collapsed eroding more than $3 billion of market value. Crypto exchange Binance also withdrew the deal with FTX on Wednesday citing “mishandled customer funds and alleged US agency investigations”.

Along with the SEC, the US Commodities and Futures Trading Commission (CFTC) is also looking into the developments at FTX. People familiar with the matter said that the SEC started the probe into FTX US a few months ago while investigating its crypto-lending activities. Additionally, American regulators have also been looking into the operations of Sam Bankman-Fried’s trading house Alameda Research.

Representatives of the regulatory exchanges have refused to comment on these developments.

Demand for Clear Crypto Regulations

The massive liquidity crisis at the FTX exchange has prompted calls for clear regulations in the US crypto market. The recent developments have also drawn the attention of lawmakers. US Senator Elizabeth Warren wrote:

“The collapse of one of the largest crypto platforms shows how much of the industry appears to be smoke and mirrors. We need more aggressive enforcement and I’m going to keep pushing @SECGov to enforce the law to protect consumers and financial stability.”

The CFTC’s jurisdiction in the crypto space is currently limited to derivatives. However, the agency can take enforcement action in the case of fraud and manipulation in the crypto space. On the other hand, the SEC claims oversight on digital assets that would qualify as securities under the rule.

In recent days, both regulators have asked for details regarding the ownership structure at FTX.com and FTX US. As we know, FTX.com offers services to non-American clients. Regulators are interested in whether there’s any overlap in the management, board structures, or any financial relationship shared between the two entities. The agencies have also asked for details on whether the customer accounts of the two entities have been kept separate.

The CFTC has also expressed concerns regarding the mishandling of customer assets by crypto trading platforms. Last month, Democratic CFTC Commissioner Christy Goldsmith Romero said:

“There is not enough awareness or attention on this critical area where customer protections dovetail with financial stability risks”.

The FTX crisis has impacted the entire crypto space. The broader crypto market has lost nearly $200 billion in less than a week ever since the FTX crisis started unraveling.