FTX founder Sam Bankman-Fried faces lawsuit alleging he violated Texas securities laws after a judge ruled that state regulators lacked jurisdiction to act against him stopped.
The judgment was handed down in a lawsuit asserted by the Texas Securities Commission. Bankman-Fried Offers Unregistered Securities Through FTX’s yielding cryptocurrency account, he currently owes a refund to an investor in Texas.
Administrative Law Judge Sarah Stearns canceled Thursday’s hearing in which Bankman-Fried was ordered to testify, giving brokers until March 1 to file an amended complaint.
The agency’s executive director, Joe Rotunda, said: No messages were returned seeking comment on the ruling, and it is not clear whether it will be resubmitted.
But the incident reflects early efforts by some states to recover funds from FTX and Bankman-Fried after the crypto exchange collapsed in November. -Fried criminal fraud prosecution and growing FTX bankruptcy case.
“We will not take any action to obstruct criminal proceedings,” Rotunda said last month in an interview before the January 19 sentencing. “But at the same time, we have work to do.”
“We are very pleased that the SEC has moved so quickly on FTX,” he added, referring to the U.S. Securities and Exchange Commission. “But we didn’t know how it would turn out and we knew Sam Bankman-Fried himself wasn’t bankrupt, so we filed a lawsuit.”
Due to twin federal incidents, state securities regulators have significantly delayed their own investigations into FTX in recent years, despite playing a leading role in cryptocurrency enforcement over federal authorities. . For example, the California Department of Financial Protection and Innovation launched an investigation in November, but has yet to take public enforcement action.
Two major state regulators, Alabama and New Jersey, have also not announced public action against FTX. “Bankruptcy trumps just about everything,” said Joe Borg, director of the Alabama Securities Commission, when it came to the state’s investigation. His department is monitoring the proceedings with the aim of advocating for individual recovery, but has postponed taking action for now.
Texas and Wisconsin are so far the only states trying to intervene in federal bankruptcy cases. The state of Texas has filed a petition in a lawsuit seeking the appointment of a third-party observer.
State securities regulators often coordinate their efforts in law enforcement cases and let the state or another state take the lead, mainly for savings.
Attorneys for Bankman-Fried, who pleaded not guilty in the criminal case, said the state commission said he “controls various FTX entities and that certain FTX principals may not have disclosed material information to FTX customers.” and that he did not violate it. Texas securities regulation is his own.
Stearns agreed, writing an order that the state commission had failed to meet the requirements to establish personal jurisdiction over residents outside Texas.
Rotunda told Judge Bankman-Fried that he “subjected himself to the jurisdiction of the Texas courts when his business decided to offer and sell securities to Texas residents.”
He added that he himself was one of its residents and had purchased it as part of an investigation.
Rotunda revealed Texas probe in October court filings Bankruptcy of Voyager Digital Holdingshe opposed FTX’s bid to acquire Voyager.
By initiating an administrative hearing, Rotunda said the board would be able to seek a refund from the client without having to raise the issue in civil court.
His agency implicates Texas residents of up to $20,000 for each violation of state securities laws, in addition to seeking the return of principal to Texans who invested in allegedly unregistered accounts. It demanded fines of up to $250,000 for each misconduct the old decided by a judge.
“A lot of people are hurt,” Rotunda said. “But the impact on Texas, which is also considerable in her other 49 states, is much more than what we’ve seen on Voyager, what we’ve seen in Celsius, and he’s been infiltrated for two months. It will be small.”
Bankman-Fried faces trial in October. Meanwhile, he has been released on bail and lives with his parents in California.
The Texas case is Texas Securities Commission v. Sam Bankman-Fried, 312-23-06226, Texas Administrative Hearing.
Madeleine Mekelberg, Neil Weinberg, Austin Weinstein, Bloomberg
