The regulator made the claims in a lawsuit against FTX co-founder Gary Wang and Alameda Research’s former CEO Caroline Ellison.

SEC Identifies FTT as Security

The SEC stated that since its launch in 2019, FTT was offered and sold as an investment contract, which makes the token a security.

The securities watchdog claims that “if demand for trading on the FTX platform increased, demand for the FTT token could increase, such that any price increase in FTT would benefit holders of FTT equally and in direct proportion to their FTT holdings.”

The Commission added that the large distribution of FTT to FTX “incentivised” the exchange’s management to take steps to enhance users’ engagement on its trading platform, which consequently increased demand for and increased the trading price of FTT.

According to the SEC, FTX used the pooled proceeds from the token sales to fund the exchange’s development, marketing, business operations, and growth while highlighting FTT as an investment with profit potential.

The regulator stated that the FTT whitepaper clarified that “FTX’s core management team’s efforts would drive the growth and ultimate success of FTX.”

“FTT investors had a reasonable expectation of profiting from FTX’s efforts to deploy investor funds to create a use for FTT and bring demand and value to their common enterprise,” the SEC said.

Ellison and Wang Plead Guilty to Fraud Charges

In its filing, the SEC noted that Wang and Ellison have both pleaded guilty to violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.

The SEC charged both executives for their roles in a “multiyear scheme” to defraud equity investors in FTX.

Ellison and Wang are also facing fraud-related charges from several prosecutors in the United States, including the Justice Department and the Commodity Futures Trading Commission (CFTC).

Meanwhile, Sam Bankman-Fried (SBF), the disgraced founder of the FTX exchange, is set to be extradited from the Bahamas to the U.S., where he faces multiple fraud charges.

(By William A. Frederick)