California Announces Investigation into “Apparent Failure” of Crypto Exchange FTX

The California Department of Financial Protection and Innovation (DFPI) is investigating the “apparent failure” of the FTX crypto trading platform.

DFPI is responsible for administering the state’s lending and banking laws, as well as the Consumer Financial Protection Act and state securities laws, which govern brokers, advisers in investment and raw materials.

“We expect any securities provider, lender or other financial services provider operating in California to comply with our financial laws,” the agency said in a statement Thursday.

The FTX crisis began last week after Binance CEO Changpeng Zhao announced that the world’s largest cryptocurrency exchange would liquidate its holdings of FTT, FTX’s native exchange token. Amid the sell-off, users started leaving FTX in droves, leading the exchange to suspend withdrawals.

Binance later said it would consider acquiring FTX, but pulled out of the deal on Wednesday, citing the company’s due diligence findings and reports of mishandled client funds.

Sam Bankman-Fried, the founder and CEO of FTX, later revealed that the company was trying to raise funds to make customers whole after a Bloomberg report said the company is $8 billion short.

DFPI provided little information on the details of the investigation, nor did it say whether the investigation involved Bahamas-based FTX or FTX.US, the exchange’s U.S. subsidiary.

Decrypt has contacted DPFI for additional comments.

DFPI warns of risks from crypto assets

DFPI also pointed out that “consumers and investors should be aware that crypto assets are high-risk investments and should not expect to be reimbursed for losses.”

“The Department is warning California consumers and investors that many crypto asset providers may not have adequately disclosed the risks customers face when depositing crypto assets on these platforms,” reads the statement.

DFPI added that providers of crypto assets are not governed by the same rules and protections as banks and credit unions, which are required to have deposit insurance, and encouraged those affected to file a complaint. .

There was another blow to FTX on Thursday when the Bahamian Securities Commission decided to freeze the exchange’s assets and related parties. FTX is headquartered in Nassau.

The agency also suspended registration of the company’s operations and asked the Supreme Court of the Bahamas to appoint a provisional liquidator.

In a separate development from events earlier this week, the US Securities and Exchange Commission (SEC) reportedly deepened its investigation into FTX, while the Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ) have launched their own investigations into the exchange. .

Last month, the Texas Securities Board also began investigating FTX, FTX US and CEO Sam Bankman-Fried over alleged securities violations.

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