Is FTX US safe? American subsidiary under SEC, Justice Department scrutiny
The downfall of what was once the third-largest cryptocurrency exchange has sent the crypto market into a tailspin over the last three days.
In just 72 hours, FTX’s native ftx token (FTT) has lost more than 75% of its value. There have been rumours reported by Bloomberg that the company is at risk of bankruptcy after founder and CEO Sam Bankman-Fried saw nearly $16bn wiped from his networth overnight.
FTT to USD
Several FTX users are said to have been denied access to their accounts with withdrawals still suspended or taking longer on the exchange. But does this impact FTX.US?
FTX.US operates as a seperate exchange and although it is a subsidiary of FTX, the two firms have always operated seperately due to regulatory differences and jurisdictions.
However, new reports published by the Wall Street Journal claim that FTX.US is now being investigated by the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) over whether FTX had correctly handled its clients’ funds.
The investigation has not been publicly disclosed, although according to Bloomberg began “months ago”, due to close links between FTX and FTX.US as well as trading firm Alameda Research.
Binance bailout off the cards
On Monday, Bankman-Fried, also known as SBF, reassured users in a stream of Tweets that FTX and its assets were “fine”. Just 24 hours later, SBF and Binance CEO Changpeng ‘CZ’ Zhao announced that the two firms had signed a non-binding letter of intent for Binance to acquire FTX.
CZ confirmed that he had been asked by FTX to step in, and that the deal would be subject to strict due diligence checks.
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
— CZ ???? Binance (@cz_binance) November 8, 2022
But Binance walked away from the deal 24 hours later, with CZ confirming reports of “mishandled customer funds” and that the decision had been swayed by alleged US agency investigations.
“In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” said Binance on Wednesday.
After the bailout was off, Bankman-Fried reportedly told investors that FTX needed $8bn to continue operating.
As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of https://t.co/FQ3MIG381f.
— Binance (@binance) November 9, 2022
Concerns about FTX’s liquidty issues spurred users to withdraw more than $6bn of funds in the 24 hours since Binance announced it would divert all of its FTT holdings.
Call for regulatory action
In a press release, US House Representative Patrick McHenry called on Congress to better protect US citizens exposed to digital assets.
“It’s imperative that Congress establish a framework that ensures Americans have adequate protections while also allowing innovation to thrive here in the US,” McHenry said.
“I look forward to learning more from FTX and Binance in the coming days about these events and the steps they will take to protect customers during the transition.”
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