The complaint against Caroline Ellison of Alameda and Gary Wang of FTX alleges that FTX’s exchange token, FTT, is an investment contract.
The U.S. Securities and Exchange Commission said in a complaint filed late Wednesday that FTX’s exchange token FTT was sold as an investment contract and is a “security,” in a move that is sure to have a wide-ranging impact on the industry.
“If demand for trading on the FTX platform increased, demand for the FTT token could increase,” the SEC wrote in its complaint. “The large allocation of tokens to FTX incentivized the FTX management team to take steps to attract more users onto the trading platform, increasing demand for, and trading price of, the FTT token.”
The SEC made the claim in a complaint filed against former Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang.
The complaint stated that the proceeds from the token sale would be used to fund the development, marketing, business operations, and growth of FTX, while also emphasising that FTT is a “investment” with profit potential.
“The FTT materials made it clear that the efforts of FTX’s core management team would drive the growth and ultimate success of FTX,” the complaint stated.
The “buy-and-burn” programme of FTT was also mentioned. This initiative, which is used by many other exchange tokens, is similar to a stock buyback in which FTX revenue is used to repurchase and burn FTT, increasing its value.
Ellison and Wang have both pled guilty to the various charges brought against them and are not contesting the SEC’s allegations, according to a press release from the agency.
The two are also facing charges from the Justice Department and the Commodity Futures Trading Commission (CFTC) for their actions at FTX and Alameda, respectively. “FTT investors had a reasonable expectation of profiting from FTX’s efforts to deploy investor funds to create a use for FTT and bring demand and value to their common enterprise,” according to the SEC.
Other exchange token prices do not appear to be moving in response to the news. According to CoinDesk data, the price of Binance’s BNB token remained unchanged after the news broke, falling 0.17% to $248 during the Asia morning. The HT token on Huobi is down 2% to $5.29, while the OKB token on OKX is up 1.3% to $22.82.
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