The U.S. Securities and Exchange Commission stated in a lawsuit filed late Wednesday that FTX's exchange token FTT was promoted as an investment contract and is a “security,” in a move that is guaranteed to have a wide-ranging impact on the industry.
“If demand for trading on the FTX platform increased, demand for the FTT token may increase,” the SEC claimed in its lawsuit. “The significant distribution of tokens to FTX pushed the FTX management team to take steps to lure more users into the trading platform, increasing demand for, and trading price of, the FTT token.”
The SEC made the assertion in a complaint filed against former Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang.
The complaint stated that the profits from the token sale would be used to fund the development, marketing, business operations, and expansion of FTX, while also emphasizing that FTT is a “investment” with profit potential.
“The FTT materials made it obvious that the efforts of FTX's core management team would drive the growth and ultimate success of FTX,” the complaint stated.
The “buy-and-burn” policy of FTT was also mentioned. This program, which is used by many other exchange tokens, is similar to a stock buyback in which FTX revenue is used to repurchase and burn FTT, raising its value.
Ellison and Wang have both pleaded guilty to the various counts leveled against them and are not challenging the SEC's allegations, according to a news release from the agency.
The two are also facing accusations from the Justice Department and the Commodity Futures Trading Commission (CFTC) for their actions at FTX and Alameda, respectively. “FTT investors had a reasonable expectation of profiting from FTX's efforts to deploy investor monies to develop a use for FTT and bring demand and value to their common venture,” according to the SEC.
Other exchange token prices do not appear to be shifting in response to the news. According to CoinDesk data, the price of Binance's BNB token stayed unchanged after the news emerged, falling 0.17% to $248 throughout the Asia morning. The HT token on Huobi is down 2% to $5.29, while the OKB token on OKX is up 1.3% to $22.82.
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