According to a second person with knowledge of the inquiry, the SEC is also looking into the executives of FTX, their knowledge of the management of client assets, and any potential violations of securities laws.
After a spectacular crypto exchange collapsed last week, regulators started an investigation. FTX and competing exchanges weighed in on cryptocurrencies on Monday in an effort to reassure uneasy investors of their own stability.
According to a source with knowledge of the investigations, the collapse of FTX, once the darling of the cryptocurrency industry with a $32 billion valuation as of January, has prompted inquiries from the U.S. Justice Department, the Securities and Exchange Commission, and the Commodity Futures Trading Commission.
According to a second person with knowledge of the inquiry, the SEC is also looking into FTX management, their knowledge of the handling of client assets, and any potential violations of securities laws.
Although the cryptocurrency industry has argued that digital assets are fundamentally distinct from traditional banking, Lael Brainard, vice chair of the Federal Reserve, said on Monday that the sector has shown itself to be vulnerable to the same hazards and should be governed by the same laws.
She reiterated a long-held belief when she told Bloomberg in an interview, “Crypto finance has to be under the regulatory perimeter because it is no different from traditional finance in the dangers that it presents.
Separately, Michael Barr, the senior regulatory officer at the Fed, gave a hint on Monday that more regulation of cryptocurrencies is on the way. Barr stated in written testimony that was made available before his hearing before the Senate Banking Committee on Tuesday that this includes “safeguards” to guarantee that cryptocurrency companies are subject to the same laws as other financial institutions. The committee’s Democratic chair, U.S. Senator Sherrod Brown, also spoke.
He claimed, “My focus has always been on the crypto industry’s fraud, scams, instability, and outright theft. The failure of FTX and the numerous other recent examples of instability have demonstrated the necessity for a thorough regulatory strategy that safeguards customers. In one of the most publicized cryptocurrency meltdowns, FTX filed for bankruptcy protection on Friday after irate traders withdrew $6 billion from the platform in just 72 hours and rival exchange Binance abandoned a rescue plan.
According to an interview with the New York Times that was published on Monday, Sam Bankman-Fried, the former CEO of FTX, said that his business had grown too quickly. After falling down below $16,000 early on Monday, Bitcoin, which reached a record high of $69,000 a year ago, recovered to trade at $16,401, up 0.56% at 5:56 p.m. EST (2256 GMT).
The sudden demise of FTX, formerly a savior for faltering crypto companies, sent shockwaves across the sector, which is preparing for further catastrophe. On Monday, LedgerX LLC, a division of FTX, withdrew its application from December of last year asking the U.S. Commodity Futures Trading Commission to permit it to market products that are not entirely collateralized.
The $400 million revolving credit facility that BlockFi, a cryptocurrency lender, agreed to offer FTX in exchange for an option to purchase it for up to $240 million has considerable exposure to FTX, according to the agreement.
In an effort to calm investor anxieties amid unsubstantiated claims, several cryptocurrency exchanges have begun providing information about their holdings and making more transparency promises.
The $700 million agreement to rename the Los Angeles Staples Center the Crypto.com Arena made news in 2021, but Kris Marszalek, the chief executive of Singapore-based cryptocurrency exchange Crypto.com, refuted claims that the company was in jeopardy. Marszalek claimed that the exchange always had reserves to match every currency that users owned on its platform in an “ask-me-anything” YouTube Livestream. He further claimed that audited evidence of Crypto.com’s
The action was taken after investors questioned a transfer of $400 million worth of ether tokens to the Gate.io exchange on October 21 on Twitter over the weekend. Although the Wall Street Journal reported that withdrawals at Crypto.com increased over the weekend, Marszalek tweeted on Sunday that the ether had been found and returned to the exchange.
If the platform’s outflows persisted on Monday, a Crypto.com spokeswoman did not reply to a request for comment. Although smaller than FTX and the industry leader Binance, Crypto.com is one of the top 10 such exchanges worldwide by turnover. On Sunday, a different cryptocurrency exchange, Kraken, said on Twitter that it has frozen the accounts of FTX, its linked crypto trading company Alameda Research, and its employees.
According to a Kraken spokeswoman, “We have closely followed recent events with the FTX estate, are in touch with law authorities, and have frozen Kraken account access to specific monies we think to be connected to ‘fraud, carelessness, or misconduct relating to FTX.” The CEO of Binance, the biggest cryptocurrency exchange in the world, Changpeng Zhao, announced that he would look to establish a fund to support companies that were “otherwise solid but in a liquidity problem.”
Last week, Binance agreed to a non-binding letter of intent to purchase FTX’s non-U.S. assets, but then backed out of the agreement, causing FTX to file for bankruptcy. Since then, Zhao has issued a “cascading” crypto crisis warning.
