SBF wins Texas case alleging violations of securities laws via FTX offerings

For­mer FTX CEO Sam Bankman-Fried gained an ear­ly vic­to­ry in a case con­cern­ing Texas secu­ri­ties laws, accord­ing to Bloomberg News report­ed Feb. 2.

The Texas State Secu­ri­ties Board (TSSB) filed alle­ga­tions against Bankman-Fried last Octo­ber. At that time, the reg­u­la­tor said that Bankman-Fried had vio­lat­ed state secu­ri­ties law when FTX US pro­vid­ed yield-bear­ing prod­ucts to cus­tomers in the Unit­ed States.

Today, Texas judge Sarah Starnes ruled that the state secu­ri­ties reg­u­la­tor does not have juris­dic­tion over Bankman-Fried, who is not a res­i­dent of Texas.

Judge Starnes can­celed a hear­ing sched­uled for today that would have seen Bankman-Fried give tes­ti­mo­ny on the mat­ter. The judge will also allow the TSSB to con­test the deci­sion by fil­ing an amend­ed com­plaint before March 1. Bloomberg said the agency has not indi­cat­ed whether it will chal­lenge today’s outcome.

Pri­or to the judge’s rul­ing, Bankman-Fried’s lawyers crit­i­cized the TSSB’s stance, argu­ing that its alle­ga­tions only stat­ed that Bankman-Fried con­trolled FTX’s var­i­ous enti­ties. Because oth­er mem­bers of FTX may have failed to dis­close infor­ma­tion to cus­tomers, Bankman-Fried did not nec­es­sar­i­ly vio­late Texas reg­u­la­tions himself.

Joe Rotun­da, the Texas Secu­ri­ties Board’s Direc­tor of Enforce­ment, said oth­er­wise. He argued that Bankman-Fried had cho­sen for his com­pa­ny to sell secu­ri­ties to Texas res­i­dents and that he, there­fore, “sub­ject­ed him­self to the juris­dic­tion of Texas’ courts” ⁠— an asser­tion that Judge Starnes appar­ent­ly dis­agreed with today.

The TSSB ulti­mate­ly aimed to pro­vide refunds to affect­ed FTX users by impos­ing penal­ties. Had it suc­ceed­ed, Bankman-Fried may have faced fines up to $20,000 per state law vio­la­tion and fines up to $250,000 for each Texas res­i­dent affect­ed above the age of 65.

The TSSB’s case is sep­a­rate from the fed­er­al government’s ongo­ing crim­i­nal case against Bankman-Fried. Rotun­da pre­vi­ous­ly said that his agency’s actions would not inter­fere with the crim­i­nal case. He also said that the TSSB brought its case for­ward because Bankman-Fried is not per­son­al­ly bank­rupt ⁠— unlike his com­pa­ny, FTX, which is bankrupt.

Bloomberg not­ed that oth­er state reg­u­la­tors have large­ly refrained from tak­ing action due to Bankman-Fried’s crim­i­nal case and FTX’s bank­rupt­cy case.