FTX lawsuits shed light on how U.S. regulators can police overseas crypto exchanges
Leon Neal
The Securities and Exchange Commission and the Commodity Futures Trading Commission each filed charges against FTX (FTT-USD) founder Sam Bankman-Fried on Tuesday, in a move that sheds light on how U.S. regulators can effectively police offshore cryptocurrency exchanges, The Wall Street Journal reported Wednesday.
The SEC accused Bankman-Fried of engaging in a scheme to defraud investors in Bahamas-headquartered FTX as well as the platform's customers. Shortly thereafter, the CFTC charged the onetime billionaire and his companies in a civil fraud lawsuit for allegedly affecting U.S. commodity prices such as bitcoin (BTC-USD) and ethereum (ETH-USD), as well as the misuse of customer funds and misleading statements, according to a release.
Bitcoin (BTC-USD) dropped as much as 7.3% in the days following FTX's bankruptcy on November 11. To date, though, the token gained 4.5%, as seen in this chart.
The CFTC also alleged that FTX customer assets were "routinely accepted and held" by FTX's sister trading firm, Alameda Research, "and commingled with Alameda’s funds."
While FTX and other crypto exchanges don't register with U.S. regulators, including the SEC and CFTC, they are still subject to U.S. rules that disallow fraud if they either deal with U.S. customers or operate within the country, The WSJ explained.
The outlet also noted that regulators only need to prove that a defendant committed fraud that subsequently impacted commodity prices, thanks to a change in law that Congress passed 12 years ago. If that statute didn't take effect, the CFTC would also need to show evidence of market manipulation.
On Monday evening, SBF was arrested in the Bahamas after the United States filed criminal charges. A day later, a magistrate judge in the Bahamas reportedly denied $250K bail for the 30-year-old.