Sam Bankman-Fried, the founder of cryptocurrency derivatives trading platformFTX, was recently found guilty on all counts of a fraud trial focused on the exchange’s operations. The alleged fraud occurred between October 2018 and March 2019, according to the case’s documentation.
The verdict was released by a California jury after hearing six months of testimony and studying evidence presented by the Securities and Exchange Commission (SEC). The SEC alleged that Bankman-Fried violated securities laws by operating FTX as an unregistered security exchange. Specifically, Bankman-Fried was accused of failing to register as a national securities exchange, not having adequate anti-fraud policies in place to protect investors, and providing inaccurate information to customers.
The jury found that Bankman-Fried had illegally sold securities by providing inaccurate and incomplete disclosures to customers, while also withholding fees from some customers who attempted to sell their tokens on the exchange. Bankman-Fried also was accused of not properly registering FTX as a required security exchange.
The cryptocurrency market is largely unregulated, as most tokens operate outside of the scope of traditional securities laws. However, as cryptocurrency markets have matured and become more mainstream, regulators have started to more closely scrutinize exchanges — especially those that operate outside of the US.
At the close of the trial, the jury unanimously found Bankman-Fried guilty on all counts. As a result, he now faces a potential prison sentence, fines, and other punishments associated with violating securities laws.
The SEC’s decision to bring a case against Bankman-Fried serves as a stark reminder to crypto exchanges and other cryptocurrency startups that they should abide by all applicable securities laws. The cryptocurrency industry is still relatively new, and as it continues to mature, it is likely that regulators will become increasingly vigilant about ensuring that exchanges and other services register and comply with the rules.
The Bankman-Fried case could have a broader impact on the crypto industry as a whole, as it sends the signal that regulators are serious about enforcing securities laws and protecting investors. It will be interesting to see what measures crypto exchanges take to better protect their customers in the wake of the decision.