The United States Securities and Exchange Commission (SEC) claimed that FTX Token (FTT), the native cryptocurrency of bankrupt crypto exchange FTX, is a security.
The claim was made in a complaint filed late Wednesday in the United States District Court for the Southern District of New York against former Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang.
According to the document, FTX’s management team sold FTT as an investment contract from its inception. The company then used proceeds from its token sale to fund the exchange’s business operations, growth, and development.
The SEC cited the FTT whitepaper and information posted on FTX’s website, which described the asset as “the token powering the FTX ecosystem.”
The Commission said the whitepaper highlighted the profit potential of the token, while the website made investors expect a share in the appreciation of the value of FTT.
“FTT was marketed as an investment that would appreciate in value as it grew and expanded in other ways. FTX represented that it ‘carefully designed incentive schemes to increase network effects and demand for FTT, and to decrease its circulating supply’,” the document read.
The SEC also alleged that the promise of returns incentivized investors to buy more tokens. Additionally, clients who held their assets for a longer period were promised lower FTX futures fees, and this was also designed to increase the demand for FTT.
“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 complaint explained.
Furthermore, the securities watchdog accused Ellison, Alameda, and Sam Bankman-Fried (SBF), the founder and former CEO of FTX, of manipulating the price of FTT to keep its value afloat and immune to external conditions.
Ellison and Wang have pleaded guilty to the charges against them, while SBF will face trial in the U.S. after his extradition from the Bahamas.