FTX sued for market manipulation & unregistered securities

Today, Samuel McCulloch posted on twitter photos of a $150 million lawsuit against FTX derivatives exchanges. FTX is a U.S. geo-restricted exchange associated with hedge fund Alameda Research, operated by Sam Bankman-Fried.

Unregistered Securities

Like many crypto derivative exchanges, FTX blocks and bans any U.S. IP address attempting to use features of the site. This is very easy for Americans to get around by using a VPN, and setting their IP address to be in Mexico or Canada.

The derivatives pairs that FTX facilitates are not registered in the U.S. and typically, Americans aren’t allowed to use leverage higher than 6x their margin. This is where part of the lawsuit comes from.

Unlike BitMEX, FTX only allows $2000 of withdrawals per day unless the user has proven their residency. It is unclear whether that feature is supposed to stop U.S. regulators to go after them.

Market Manipulation 

FTX is also being accused of creating a “pump-and-dump” scenario, which many crypto traders know to be a “Bart” pattern. An image of Bart Simpsons head is used in the legal filing to demonstrate what they allege FTX did.

At prices that are highly resisted or supported, traders place limit orders that automatically go off if price passes through the area. The filing alleged that FTX sold around $2.6 million worth of futures contracts on Binance during a low volume trading time, because they knew that it would have a large impact on price.

The document claims that the attempts to manipulate price were caught by Binance’s market surveillance functionality.

This type of price action happens on almost a daily basis in Bitcoin, and it is very uncommon to see any legal action taken. Market manipulation is one of the primary reasons there hasn’t been an ETF passed in the states.

Since Binance prices according to an index, not their own futures market, no liquidations occurred.