US regulators’ investigations into FTX come to light

SEC and CFTC have begun examining the links between FTX and its U.S. subsidiary and Alameda Research. Bloomberg reports, citing people familiar with the matter.

The U.S. Department of Justice has also taken up examining the platform’s activities, according to other informed sources.

Regulators are interested in the extent to which client funds were involved in the exchange’s business operations, the composition of the investor base, and the degree of account segregation.

Also under scrutiny are the ownership structures of the legal entities, their financial relationships, and the overlap between management and the board among individuals.

The agency cautioned that investigations do not necessarily lead to charges.

The CFTC inquiries relate to the liquidity crisis that to seek support from Binance. The SEC began its investigation several months ago into the lending activities of its U.S. subsidiary.

The journalists noted that the CFTC has limited powers over crypto-market participants. The agency could take enforcement action if violations involve fraud or manipulation. The SEC may be interested in indicators of securities-law violations.

On November 6, Binance CEO Changpeng Zhao announced his aim to divest the exchange’s utility token FTX (FTT). The assets, together with BUSD, totaling about $2.1 billion, were the result of the company’s exit from its portfolio investment in the platform.

In light of concerns about FTX’s financial health, the price of the exchange’s FTT collapsed.

On November 8, Sam Bankman-Fried and Zhao announced a strategic partnership. It was intended to resolve the liquidity crisis and envisaged a possible acquisition of FTX.

On November 9, it emerged that Binance refused to acquire the troubled competitor.

As Coin Metrics noted, a possible cause of FTX’s collapse could have been “a large financial aid” that the company provided to Alameda Research in the second quarter of 2022.

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