FTX is Under Investigation for its Trading Practices
- Binance CEO Changpeng Zhao has backed out of the deal to purchase FTX.
- Several agencies are investigating FTX’s management of customers’ funds.
- Regulators will most likely increase their scrutiny of the crypto industry.
Former crypto heavyweight FTX met an untimely end this week after experiencing a liquidity crunch and granting Binance the right to purchase it. However, the US Securities and Exchange Commission is reportedly investigating how FTX handled customers’ funds. Sources familiar with the matter claim authorities are also investigating FTX’s lending activities.
The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are looking into FTX’s relationship with FTX US and its sister company, Alameda Research. According to Bloomberg, the inquiries that haven’t been made public started months ago as an examination into FTX US and its crypto-lending practices.
The SEC has tightened its surveillance of the cryptocurrency sector in recent months. Gary Gensler, the chair, has previously expressed worries about whether cryptocurrency platforms are appropriately separating assets.
However, other governmental organizations are investigating FTX besides the SEC and the CFTC. FTX, FTX US, and CEO Sam Bankman-Fried are the targets of an investigation by the Texas Securities Board over potential securities breaches.
What’s Going on With FTX?
Sam Bankman-Fried’s Alameda Research, a cryptocurrency trading company, was thrust into the spotlight this week when its leaked balance sheet financials showed abnormally close relationships with FTX via the exchange’s native FTT token.
Binance CEO Changpeng Zhao later tweeted that his company, an early investor in FTX and a significant holder of its tokens, would liquidate its position in FTT. The announcement sent shockwaves across the cryptocurrency community.
Following the tweet, FTT holders began to offload their tokens, leaving FTX on the brink of collapse. Then, according to Zhao, Bankman-Fried called and urged Binance to save the struggling exchange. Both Binance and FTX disclosed that Binance had signed a non-binding letter of intent, giving it a choice to purchase FTX. However, Binance announced today that it had walked out of the deal after due diligence.
FTX’s decline is seen as a threat to the broader crypto market. The embattled exchange received huge support from investors, but most of these investors are set to suffer losses. Experts believe FTX’s collapse will make it difficult for crypto projects to attract investors, plunging the industry into further darkness.