The Department of Justice and the Securities and Exchange Commission are investigating FTX, a crypto platform that halted withdrawals on Tuesday, according to a new report from the the wall street journal. And while the SEC investigation has reportedly gone on “for months”, the agency’s scrutiny only extended this week following the liquidity crisis at FTX, which caused the collapse of the entire cryptocurrency market.
The SEC investigations relate to the US FTX exchange, FTX.us, and the coins listed there, according to the the wall street journal. The SEC is also considering whether FTX loan products could qualify as securities, which would require the company to register them with the SEC.
The debate over whether crypto tokens are securities or currency has raged for years, with crypto advocates trying to argue that crypto like Bitcoin is currency. If crypto is indeed a currency, it means that investors would not face serious tax consequences, just as people are generally not taxed for holding US dollars. But if it’s securities, as SEC chief Gary Gensler once argued, then Bitcoin can be regulated like stocks you might buy on a stock exchange, with the tax implications of any other security.
It’s unclear if the DOJ investigation has been ongoing for some time, though investigators are apparently in contact with the SEC, according to the the wall street journal. It’s also unclear if FTX’s sister organization, Alameda Research, is part of any possible criminal investigation. Alameda Research was backed by at least $4 billion in FTX funds, according to a new report from Reutersaccording to Alameda made bad bets on things like crypto lender Voyager Digital, which recently filed for bankruptcy. The Justice Department did not respond to a request for comment early Thursday.
The CEO by FTX and AlamedaSam Bankman-Fried, hasn’t been seen for a few days, with rumors on social media of where he may be hiding – the Bahamas is a popular rumor on Twitter, although there are no evidence suggesting he actually fled the US mainland But after Binance made a brief move to potentially buy the businessonly to cringe after seeing the books, it’s no surprise that SBF, as it’s often called, wants to lay low for a while.
FTX has reportedly tried to secure a bailout from Wall Street firms to the tune of around $1 billion, although it has come up empty-handed so far. Most of FTX’s legal and compliance teams apparently resigned on Tuesday, according to a news outlet Traffic lightswhich certainly raises questions as to whether FTX will ever be able to get back on its feet.
The straw that apparently broke the camel’s back at FTX was Binance CEO Changpeng Zhao, also known as CZ,’s decision to sell off a huge cache of FTX’s native token, FTT. Zhao bought a 20% stake in FTX in 2019, but Zhao and Bankman-Fried fell out in mid-2021 when FTX was trying to get a financial license to operate in Gibraltar, according to Reuters. Regulators had requested financial information from major shareholders, including Zhao, but Binance’s CEO apparently did not want to hand over the documents.
Following Zhao’s stonewalling, Bankman-Fried bought out Zhao for around $2 billion, which included a lot of FTT tokens, according to Reuters. Zhao’s decision to start selling around $580 million of the coin this week, which he publicly announced on Twitter, is when the shit hit the FTX fan.
The news of the investigations at the DOJ and SEC comes as the entire cryptocurrency market has collapsed, weighed down by general skepticism about digital counterfeit money and now FTX issues. It was just last February when FTX was running ads during the Super Bowl featuring a humorously skeptical Larry David. The ads sought to cast crypto skeptics as unnecessarily cautious of the industry, not seeing the genius in investing in coins like Bitcoin and Ethereum. In retrospect, Larry David’s character was the smartest.
Bitcoin is currently trading at around $16,580, down 8% from just 24 hours ago and a two-year low for the cryptocurrency. Bitcoin’s all-time high was exactly a year ago, when it traded above $69,000. Ethereum, the second most popular cryptocurrency, is currently trading at $1,180, down about 7% from the previous day.
FTT, the native token of FTX, is currently trading at just $2.95, down 33% from 24 hours ago and down 88% from a week ago. FTT was trading at $60.16 a year ago today.
Several other cryptocurrency platforms and coins have imploded over the past year, including Celsius, which halted withdrawals in June before filing for bankruptcy and owes users $4 billion. Luna, the cryptocurrency launched by Do Kwon, has become worthless back in may. Freeway, a UK-based crypto platform that promised returns like raised to 43%also imploded last month.
What’s next for FTX and will people who put their money on the platform ever see their coins again? Unfortunately, no one knows the answer to these questions yet. But every day that passes without a massive corporate bailout is a bad sign.
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