Ex-CEO of FTX Involved in a Fraud Connecting with Securities Sales in Texas

The former CEO of FTX, Sam Bankman-Fried, has been involved in a fraud in connection with the offer or sale of securities in Texas, according to the Texas State Securities Board.

Sam Bankman-Fried is a founder and has controlled, either directly or indirectly, various companies and businesses involved in the financial services and digital assets markets. These entities include West Realm Shires Services Inc. dba FTX US, FTX Capital Markets, LLC, and FTX US Derivatives LLC fka LedgerX. 

FTX US was purportedly regulated as a Money Services Business with FinCEN and as a money transmitter with various states and touted these licenses when offering Texans the opportunity to deposit fiat or cryptocurrencies in accounts that generated yield (EARN accounts). 

The Texas State Securities Board noted that the EARN accounts are investment contracts, evidences of indebtedness, and notes and are therefore regulated as securities. However, Sam offered and sold securities in Texas that were not registered or permitted for sale in Texas. He also offered and sold securities in Texas without first being registered as a dealer or agent.

The regulator says that, in connection with the offer of EARN accounts in Texas, Respondent intentionally failed to disclose material facts, including but not limited to the amount of money or cryptocurrency devoted to permissive uses, the identity, nature, and creditworthiness of borrowers, the type and nature of transactions involving digital assets, equities, options, and futures, the risks associated with individual digital assets, equities, options, and futures, the profits and/or losses derived from transactions, and financial information reflecting the assets and liabilities and cashflow.

The regulator seeks a proposal for cease and desist order for decision for the entry of a Cease and Desist Order, an order assessing an administrative fine, and an order for paying refunds against Sam Bankman-Fried.