The SEC classifies FTX Exchange's FTT Token as security.

SEC Lawsuit Targets FTX's FTT Token as Security

In a lawsuit submitted late on Wednesday, the U.S. Securities and Exchange Commission said that FTX's exchange FTT token was advertised as an investment contract and therefore a security, an allegation that is certain to have a big impact on the market.

SEC identifies FTT Token as a Security

The SEC expressed concern that any increase in FTT's value would benefit FTT owners equitably and proportionately to their FTT holdings. Demand for the FTT token may increase if interest in trading on the FTX network increased, the SEC warned in its lawsuit.

Due to greater competition and higher trading prices for the FTT token as a result of the leadership team's initiatives to improve user engagement on the trading platform in response to the sizeable token distribution to FTX.

FTX to Employ Token Sale Profits

The SEC asserted in a lawsuit it filed against Caroline Ellison, the former CEO of Alameda Research, and Gary Wang, a co-founder of FTX, that FTX will use the proceeds from the token sale to support the development, promotion, maintenance, and growth of FTX and that FTT is a "investment" with the potential for financial gain. The FTT documents made it clear that the efforts of FTX's core management team will drive the company's growth and ultimate success.

Criticism of Ellison and Wang

Ellison and Wang, according to a news release from the SEC, have both pleaded guilt to the various charges levied against them and have not refuted the SEC's assertions.

The Justice Department and the Commodity Futures Trading Commission (CFTC) are also pursuing legal action against the two for their respective acts at FTX and Alameda. The SEC found that FTT investors had a reasonable expectation of profiting from FTX's efforts to use investor funds to create a purpose for FTT and generate demand and value for their joint venture.