The U.S. government’s criminal and civil actions against Samuel Bankman-Fried (“SBF”) reveal a novel coordination and collaboration among three government agencies and use of various jurisdictional bases and anti-fraud statutes in an attempt to hold SBF criminally and civilly liable in the aftermath of the collapse of his cryptocurrency trading firm. It remains to be seen, of course, whether the Department of Justice (“DOJ”), the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Commodity Futures Trading Commission (“CFTC”) will prove their claims, but their actions¹ against SBF reveal a coordination of three federal agencies most interested in controlling, if not suppressing, the phenomenon of cryptocurrency.

As for the DOJ, we have previously noted that the fraudulent sales of cryptocurrencies are subject to existing statutory prohibitions, particularly the standard federal criminal provisions.² Irrelevant to the these statutes is what you offer and sell, but what is critical—other than the minimal interstate commerce hurdle—is what you say in offering and selling whatever it is you sell and the mechanisms by which you sell. The DOJ’s indictment of SBF uses these well-worn provisions, leading with criminal wire fraud and conspiracy to commit wire fraud, to which the indictment adds counts of conspiracy to commit securities and commodities fraud and to defraud lenders, as well as money laundering and campaign finance violations.

Unlike the DOJ, the SEC’s jurisdiction does depend on what you offer and sell and the public market that relies on what you say about your operations. The what must be a “security,” as defined in statutes and judicial decisions. The SEC’s complaint against SBF alleges that the security here is a standard equity security—stock—and that SBF defrauded buyers and holders of the stock of FTX Trading Ltd. (“FTX Trading”): the company of which SBF was co-founder and CEO that capitalized, constructed, and owned the cryptocurrency-trading platform. FTX Trading filed for bankruptcy in November 2022. Interestingly, the SEC does not allege fraud against SBF for issuing or selling FTX’s own cryptocurrency beginning in 2019, the digital tokens called FTT, or for the trading of cryptocurrencies on the platform. In short, the agency did not choose—or found it unnecessary—to characterize the cryptocurrency as a “security,” as it has been doing since 2018 in other cases.

Like the SEC, the CFTC has jurisdiction that is based on what you offer or sell: it must be a contract of sale of a “commodity” for future delivery. As has been widely reported,³ the CFTC views cryptocurrencies (particularly bitcoin and ether) as commodities subject to its oversight. The CFTC complaint in this matter explicitly notes that certain cryptocurrencies trading on FTX Trading platform, such as bitcoin and ether, are indeed “commodities,” but it fails to state whether FTT, which also traded on the platform, is a “commodity.” Again, this appears to have been unnecessary to the agency’s aims in this case. By characterizing the other cryptocurrencies as commodities, the CFTC asserted jurisdiction over FTX Trading and Alameda Research LLC, allowing it to sue for defrauding customers who traded these cryptocurrencies and over SBF because he allegedly directed the fraudulent activity.

What we find most interesting, however, is the SEC’s omission of claims of any registration violations under the Securities Act of 1933. These claims would require that the cryptocurrency, FTT, be characterized as the “security” and require that FTT fall within the definition of “security.” For this purpose, the SEC has previously used the “investment contract” term to capture what, as we have argued before, are certainly not securities. Given the various difficulties of “registering” these cryptocurrencies with the SEC’s Division of Corporation Finance, they are seldom if ever registered, making for easy lawsuits against the cryptocurrency producer. These alleged registration-violation cases, which included the attendant financial penalties (civil money penalties and disgorgement) have kept the agency busy for more than four years. In numerous non-fraud matters, the agency has claimed that the offer and sales of cryptocurrencies—including Grams,⁴ XRP,⁵ and LBC ⁶—were unregistered offerings and violated Section 5 of the Securities Act.

Like these other matters, SBF’s company, FTX Trading, Ltd. (“FTX Trading”), produced and sold digital tokens (the “FTT” cryptocurrency) that financed FTX Trading,⁷ and similarly did not register the tokens with the SEC. The SEC’s complaint, however, does not include any registration-violation claims against FTX Trading, which is noteworthy. Typically, the SEC has no problem adding claims for registration violations to claims for violations of its anti-fraud provisions, particularly because the registration claims can increase penalties for liable defendants.

We can discern no principled basis to distinguish the “security” aspects of FTT from other digital tokens that have ceased to exist as a consequence of registration-violation lawsuits brought by the SEC. The SEC’s use of the most iconic type of security—stock—in this matter and its non-reference to FTT tokens as also being a security may seem to be a mystery. This mystery, however, may be solved by considering the indisputable fact that FTT tokens were assets on the left side of the FTX Trading’s balance sheet—not claims against those assets on the right side of the balance sheet, which is what securities are. Assets, of course, can include securities (of other issuers), but the SEC likely did not wish to highlight the incongruity of claiming that the FTT digital token is, in effect, the equivalent of treasury stock. That is, if one treats an FTT token as FTX Trading’s “investment contract,” it can only appear as a “treasury” security, preventing its value from appearing as an asset.

SEC Chairman Gary Gensler (who used to chair the CFTC), has proclaimed that virtually all cryptocurrencies besides bitcoin or ether (and maybe even ether as well) are “securities” subject to SEC jurisdiction. This matter, however, may reveal the incoherence of the SEC’s theory that an enterprise’s digital tokens, which can be, as they were for FTX trading, treated as assets on the left side of its balance sheet, are almost always securities that belong on the right side of an enterprise’s—or most enterprise’s—balance sheet.