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The collapse of FTX – once one of the most dominant cryptoasset exchanges worldwide – has raised concerns among investors, consumers, industry participants and regulators alike. There were earlier talks – and a signed letter of intent – that indicated fellow crypto exchange Binance would acquire FTX. Shortly thereafter, news broke that the contract would be abandoned entirely due to the severity of FTX’s internal mismanagement.
A Binance spokesperson told the media: “As a result of corporate due diligence, as well as recent reports regarding improper client funds and alleged investigations by US agencies, we have decided not to proceed with the potential acquisition of FTX.com. ”
While these initial discussions of Binance’s takeover of FTX raised concerns about antitrust laws going into effect, the regulatory conversation has since turned far murkier, with talk of possible fraud. Late last week, the Bahamas Securities Commission announced that it had frozen the assets of FTX Digital Markets and related entities. The statement published on the Commission’s website states:
“The Commission is aware of public statements suggesting that client assets were mishandled, mismanaged and/or transferred to Alameda Research. Based on the Commission’s information, any such action would be contrary to normal management, without the consent of the client and potentially illegal.
“Since the unfolding of events involving FDM (FTX Digital Markets), the Commission has proactively addressed the situation and continues to do so. The Commission found that the prudent course of action was to place FDM into provisional liquidation in order to preserve assets and stabilize the company.
“The commission is committed to working with the provisional liquidator to achieve the best possible outcome for FTX’s customers and other stakeholders.”
As noted in the statement above, regulators are particularly concerned about the possibility that FTX mismanaged or misallocated client funds to its other ventures, such as Alameda Research, a quantitative trading firm also owned by FTX CEO Sam Bankman- Frieda. The Royal Bahamas Police Force (RBPF) is reportedly cooperating with investigators on potential misconduct.
In another shocking turn of events, just 24 hours after FTX filed for Chapter 11 bankruptcy, more than $663 million in various tokens on Ethereum, Binance Smart Chain (BSC) and Avalanche were spent from FTX wallets. Of that, $477 million is suspected to have been stolen, while the rest is believed to have been moved to a secure warehouse by FTX, according to the Elliptic report.
Interestingly, this is not FTX’s first run-in with the law. It was previously named in a United States Bankruptcy Court, Southern District of New York filing against Voyager Digital Holdings.
The filing states: “FTX Trading, together with West Realm Shires Services Inc. dba FTX US (‘FTX US’), may offer unregistered securities in the form of income-bearing accounts to residents of the United States. These products appear similar to yielding depository accounts offered by Voyager Digital LTD and others, and the Enforcement Division is now investigating FTX Trading, FTX US, and their principals, including Sam Bankman-Fried.”
Law enforcement officials, policymakers and regulators around the world are scrambling to investigate and remediate this case, which seems to be growing more complex and layered by the hour. To this day, it remains unclear whether criminal charges will be filed and what the details will be, but it is certain that this story is just getting started.
Yet another almost-guaranteed outcome of this scandal further underscores the need for clear and firm guidelines for dealing with cryptoassets in the US – something members of Congress are being urged to speed up. Senator Pat Toomey decried the lack of action by Congress, noting that it has caused companies like FTX to move their operations to jurisdictions with more favorable regulations.
Senator posted on Twitter: “The Impact of Today’s Bankruptcy on Americans [FTX] it might be mitigated if there was a reasonable, legally sanctioned, US regulatory framework for digital assets.”
Abu Dhabi launches new cryptoasset and blockchain group
Abu Dhabi Global Market (ADGM) recently announced the launch of the Middle East, Africa and Asia Crypto and Blockchain Association (MEAACBA). According to the organization’s website, it is a non-profit organization “whose purpose is to support, enable and develop blockchain-crypto ecosystems in key regions of the Association”. The establishment of the MEAACBA is another recent move aimed at raising the profile of crypto and blockchain as a region.
MEAACBA describes its mission as educating “the general public about blockchain and cryptocurrency to increase adoption and support, represent and promote the blockchain and cryptocurrency industry in creating a fit-for-purpose and standards-compliant ecosystem.”
As stated on the website: “The association operates according to the Statute signed by the members of the founding board. The charter sets five basic goals of the Association, [which] are:
- Educating the community and wider participants about blockchain ecosystems and cryptocurrencies.
- Facilitating regulatory interaction to influence and deliver coherent and pragmatic regulatory regimes.
- Providing a forum for coordination and collaboration between banks, compliance advisors, law firms, tax, audit and technology development companies.
- Creating a ‘Moonshot Laboratory’ that promotes innovation through research and development, collaboration and information sharing.
- Coordination with law enforcement and other government bodies to support the prevention of financial crime and other illegal activities.”
ADGM Chairman Ahmed Jasim Al Zaabi says: “Abu Dhabi and the UAE [are leaders] in developing innovative and aligned crypto and blockchain businesses, showing how they can be part of a progressive financial services sector. We are pleased to support MEAACBA, which will contribute to the development of this dynamic sector.”
The SEC won the case against LBRY
The Securities and Exchange Commission (SEC) has won a case against New Hampshire-based technology company LBRY. This lawsuit was originally brought by the SEC in March 2021 due to LBRY’s alleged sales of unregistered security tokens, which together resulted in over $12.2 million in illegal profits for the company.
The SEC’s statement said that “from at least July 2016 through February 2021, LBRY, which provides a video-sharing application, sold crypto-asset securities called ‘LBRY Credits’ to numerous investors, including US-based investors .
The complaint alleges that it was an offer and sale of securities under federal securities laws and that LBRY failed to file an offering registration statement. The complaint further alleges that by failing to file a registration statement, LBRY denied potential investors the information necessary for such an offering to the public.”
Regulation on compliance with the law
