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Securities Regulators investigating FTX

Wednesday 16 November 2022

FTX, a cryptocurrency exchange,  is being investigated for possible criminal misconduct. 

This comes just a week after the Australian Securities and Investments Commission highlighted crypto and crypto-related scams as high on their enforcement priorities.

ASIC has suspended FTX Australia’s financial license until next May. 

The  Australian securities and investments regulator also published a
top ten ways to spot a crypto scam for Scams Awareness Week. 

The regulator said in an official statement this week, “Until 19 December 2022, FTX Australia can continue to provide limited financial services that relate to the termination of existing derivatives with clients.”

Earlier this year the Australian Prudential Regulation Authority set out their risk management expectation for the crypto assets:

  • Conduct appropriate due diligence and a comprehensive risk assessment before engaging in activities associated with crypto-assets, and ensure that they understand, and have actions in place to mitigate, any risks that they may be taking on in doing so;
  • Consider the principles and requirements of Prudential Standard CPS 231 Outsourcing or Prudential Standard SPS 231 Outsourcing when relying on a third party in conducting activities involving crypto assets; and
  • Apply robust risk management controls, with clear accountabilities and relevant reporting to the Board on the key risks associated with new ventures.2 A high-level summary of the potential prudential risks to be considered for specific activities is provided in Annex A.
The prudential regulator also indicated that consultation on a prudential framework for this space is under development.
CoinDesk reports US Regulators and law enforcement the Department of Justice (DOJ), the Securities Exchange Commission (SEC) along with Bahamian regulators will be conducting a joint investigation into FTX.

Just this week the SEC published their enforcement results, highlighting three successful prosecutions in the crypto space:

  • Charges against BlockFi Lending LLC for failing to register the offers and sales of its retail crypto lending product, and, in a first-of-its-kind action against crypto lending platforms, for violating the registration requirements of the Investment Company Act of 1940.
  • Charges against 11 individuals for their alleged roles in creating and promoting Forsage, a fraudulent crypto pyramid and Ponzi scheme.
  • Insider trading charges against Ishan Wahi and his associates, alleging that Wahi obtained material non-public information in his former role as a product manager at a crypto asset trading platform and tipped his associates ahead of multiple announcements regarding crypto asset securities that would be made available for trading on the platform, in advance of which his associates traded.
The Securities Commission of Bahamas froze the assets of FTX last week. 

The Bahamian securities regulators said in a formal statement, “The Commission is aware of public statements suggesting that clients’ assets were mishandled, mismanaged and/or transferred to Alameda Research. Based on the Commission’s information, any such actions would have been contrary to normal governance, without client consent and potentially unlawful.”

ASIC has indicated that they are cooperating with international regulators and administrators.