FTT, the native token of the now-defunct cryptocurrency exchange FTX, has been categorized as a security by the U.S. SEC in a recent complaint.
The SEC said in a complaint filed late Wednesday that FTX’s exchange token FTT was promoted as an investment contract and thus is a “security.” According to the regulatory watchdog, FTT benefited from an increase in demand for trading on FTX, “such that any price increase in FTT would benefit holders of FTT equally and in direct proportion to their FTT holdings.” It continued:
“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 stated that the profits from the FTT sale were utilized to fund FTX’s development, marketing, business operations, and expansion. “The FTT materials made it obvious that the efforts of FTX’s core management team would drive the growth and ultimate success of FTX,” the complaint stated.
The agency also referenced FTT’s “buy-and-burn” policy, equating it to a stock buyback in which FTX revenues would be repurchased and burned, raising FTT’s worth.
The allegations were stated in a complaint filed by the SEC against FTX co-founder Gary Wang and former Alameda Research CEO Caroline Ellison. The agency had earlier charged FTX’s discredited founder, Sam Bankman-Fried, with “orchestrating a plot to defraud stock investors in FTX.”
Sam Bankman-Fried was arrested in the Bahamas earlier this month, as previously reported. A court in the Bahamas granted SBF’s request to be extradited to the United States during a hearing on Wednesday. The bitcoin CEO reportedly arrived in New York on Wednesday night at Westchester County Airport.
Impact on other exchange tokens
The SEC’s recent decision will probably have far-reaching consequences for similar tokens. Tokens are issued by almost all cryptocurrency exchanges. Some of the more prominent crypto marketplaces, such as Binance and OKX, also feature a “buy-and-burn” program, which the SEC has criticized.
According to Bloomberg, the SEC is investigating whether Binance’s 2017 initial coin offering of its BNB cryptocurrency was an unregistered security offering that should have been registered with the regulatory agency.
However, Binance CEO Changpeng “CZ” Zhao has maintained that “BNB is not a security” in response to SEC’s probe. In a recent interview, he stated that the SEC frequently inquires about Binance and its product, saying that BNB is not comparable to FTX’s FTT coin.
Notably, the Justice Department, the Commodity Futures Trading Commission (CFTC), and the Internal Revenue Service are all investigating the world’s largest cryptocurrency exchange in the United States.
Furthermore, the SEC is apparently looking into CZ-related market-making companies. The agency is looking into market makers’ ownership positions on Binance.US and whether the exchange has engaged in a broker-dealer activity.
