FTX and its kingpin CEO Sam Bankman-Fried (SBF) have found themselves in hot water with regulators… only this time, it’s not from the usual suspect, the SEC.
Instead, it’s regulators from the home of the extremely average Dallas Cowboys – Texas.
Let’s break down what’s happening.
The story begins with FTX’s buyout of Voyager. Unfortunately, what was a great win for FTX was also the thing that caught the Texas regulators’ attention, as they were already knee-deep into investigating Voyager.
The regulators’ issue with Voyager and now FTX is over yield-bearing accounts. These accounts reward depositors with earnings similar to interest in a savings account.
Regulators don’t like yield-bearing accounts because they:
“…appear to be an investment contract, evidence of indebtedness and note, and as such appears to be regulated as a security in Texas.”
Basically, Texas is accusing FTX of offering unregistered securities, and as part of this accusation, they are attempting to block the Voyager sale until the investigation is concluded.
These concerns over yield-bearing accounts are nothing new. Earlier this year, for example, BlockFi ate $100 million in fines just to get the SEC off its back. That money sure would have been helpful over the summer when they were desperately trying to avoid going under, but we digress.
FTX isn’t in any danger of going under, but you can bet the farm they don’t want to pay a similar fine. We expect them to settle with the regulators, which is apparently what they are currently attempting to do.
We are more concerned about the yield-bearing accounts becoming collateral damage. In the BlockFi settlement, the company agreed to not offer yield-bearing accounts to US customers. If FTX does the same, then that’s one less option for people in the US to earn a decent yield, and it’ll only be a matter of time until the regulators come for all exchanges that offer yield-bearing products.
In a time of crippling inflation and a weak economy, people need more earning options, not less. Hopefully, the powers-to-be recognize this and cut FTX and its peers some slack.