The US Securities and Exchange Commission (SEC) has launched its investigation into the embattled crypto exchange platform, FTX

The Justice Department is also beginning its own investigation into FTX after both departments were in close contact Wednesday, probing any potential securities violations that FTX had been involved in. 

According to the Wall Street Journal, the SEC is investigating FTX’s US subsidiary, FTX.US, and whether or not the cryptocurrency tokens listed on the site are unregistered before being sold. 

The Wall Street Journal also revealed a damning insight into FTX’s handling of consumer funds, which found that its CEO, Sam Bankman-Fried, had been using up to $10bn of FTX consumer funds to transfer over to its sister investment firm, Alameda Research. 

Alameda was found to have been solely reliant on FTX’s native token FTT in a report revealed by CoinDesk, which then began the realisation and snowball effect of FTX’s financial problems, with Binance announcing the liquidation of its $529m worth of shares in FTT.

SEC officials have contacted company lawyers and requested more documents that link FTX and FTX.US, as well as seeking information regarding the relationship between the crypto exchange and Alameda. 

SEC Chairman Gary Gensler, stated last Wednesday that the department will “continue to do our job as a cop on the beat”. 

Bankman-Fried issued a public apology via Twitter after the fallout of FTX’s financial collapse, as well as giving clarity to investors after Binance pulled out of a potentially ground-breaking deal to acquire its competitor. 

FTX investors are now left in limbo as to whether their shares and money are protected, as FTX’s solvency issues have caused a huge ripple effect across the cryptocurrency sector, causing up to $200bn to be wiped from the global crypto market. 

To gain further transparency from crypto exchanges, Gensler has been demanding from crypto firms to operate in a similar vein as traditional stock exchanges and to follow the same guidelines and regulations. 

FTX has not been the only crypto exchange platform the SEC has probed over the past several months, as Ripple Labs and Coinbase have been embroiled in battles against the department. 

The push back against Gensler and the SEC is an increasing demand for the regulator to outline a clear and defined framework of what constitutes as a crypto ‘security’ token. 

Coinbase has recently filed a friend-of-the-court brief to the federal court in support of Ripple Labs’ ongoing case with the SEC, citing the same issues other crypto executives have raised to the SEC. 

“The runway is getting shorter for some of these intermediaries,” stated Gensler. 

“And the intermediaries, so many of whom have hundreds of tokens on them, are noncompliant with the securities laws and noncompliant with the time-tested public policies.”