FTX was one of the largest overseas crypto exchanges, based on a Caribbean island with a friendly regulatory regime, and arguably beyond the reach of U.S. rules that govern how trading firms deal with investors and consumers, the Wall Street Journal reported. The lawsuits filed yesterday show how U.S. regulators have found a way to police global crypto conduct they don’t closely regulate. The Commodity Futures Trading Commission alleged, for instance, that Bahamas-based FTX affected the price of commodities sold in the U.S. That gave the CFTC authority to file a civil fraud lawsuit against FTX founder Samuel Bankman-Fried and his companies. Crypto exchanges including FTX don’t register with U.S. regulators such as the CFTC or the Securities and Exchange Commission and aren’t subject to inspections that check for compliance with American rules. But they are still subject to U.S. laws that prohibit fraud if they deal with local customers or work inside the U.S. The CFTC wields another advantage in fraud cases, thanks to a change in law that Congress passed in 2010. The newer statute says the CFTC doesn’t need to prove market manipulation. Instead, regulators only have to show that a defendant committed fraud and that the conduct affected commodity prices. The CFTC’s lawsuit alleges that FTX misused customer money to fund its sister trading firm, Alameda Research, and made misleading statements about the firms’ financial stability and risk-management practices. When the exchange collapsed last month, the price of bitcoin futures fell more than 23%, the CFTC said. The agency alleged a clear connection between FTX’s conduct and the price of digital commodities such as bitcoin and ether.
