US regulators in distress cryptocurrency exchange FTX.com is investigating whether it mishandled client funds and is examining the company’s relationships with other members of Sam Bankman-Fried’s crypto empire.
US Officials Examine How Cryptocurrency Exchange FTX Handles Client Funds
Investigations by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are related to the liquidity crisis that has pushed FTX to the brink, according to three people familiar with the matter in Bloomberg’s first report.
Two people who are not authorized to speak publicly on the matter said the SEC’s review began months ago as an investigation into FTX US and crypto lending activities.
FTX’s turmoil has been caused by rival exchange Binance Holdings Ltd. has initiated a temporary bailout proposal by FTX, but that proposal may be withdrawn as the extent of FTX’s distress becomes more apparent.
The two said that American regulators are also examining the platform’s relationship with the US counterpart, FTX US, and Bankman-Fried’s trading house Alameda Research.
The problems at FTX.com come after massive crashes by crypto firms this year that prompted calls for more US regulation.
While various institutions in Washington have claimed this, debate continues over who should oversee trading platforms.
The CFTC’s jurisdiction over crypto is generally limited to derivatives, but it can impose sanctions if the institution believes there is fraud or manipulation in the underlying market. The SEC requires oversight over digital currencies that qualify as securities under its rules. Both regulators oversee investment firms.
According to two sources, regulators recently requested details about the governance structure of FTX US and FTX.com, which caters to non-American customers.
Regulators are concerned with any overlap between management and board structures and the financial relationship between the two entities. One of these individuals said that institutions also asked for details about whether client accounts were properly segregated and the composition of the investor base at FTX.com.
*Not investment advice.
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