The move by the U.S. Securities and Exchange Commission to classify FTX’s exchange token FTT as a “security” after alleging that it was advertised as an investment contract will undoubtedly have a major impact on the market.
The SEC complained that any price increase in FTT would benefit holders of FTT equally and in direct proportion to their FTT holdings. “If demand for trading on the FTX platform increased, demand for the FTT token could increase,” the SEC wrote in its complaint. The large token allocation to FTX encouraged the management team of FTX to take actions to increase user traffic to the trading platform, which in turn increased demand for and raised the trading price of the FTT token.
The claim was made by the SEC in a complaint filed against Gary Wang, the co-founder of FTX, and Caroline Ellison, the former CEO of Alameda Research.
The SEC issued a press release stating that Ellison and Wang have both admitted guilt to all of the charges levied against them and have not refuted the SEC’s assertions.
The Justice Department and the Commodity Futures Trading Commission (CFTC) are also pursuing legal action against the two for their respective actions at FTX and Alameda.
According to the SEC, “FTT investors had a reasonable expectation of benefiting from FTX’s efforts to deploy investor funds to create a use for FTT and bring demand and value to their common enterprise.”