The US Federal Deposit Insurance Corporation issued warning letters to FTX and four other crypto firms.
The letters from the FDIC demanded that the exchange stop making false claims about deposit insurance. The FDIC alleged that the companies made false representations, leading customers to believe that their crypto products were FDIC-insured.
Cease Misleading Consumers
The most notable of the companies receiving the FDIC warning is the Sam Bankman-Fried-led FTX crypto exchange. The exchange received a cease-and-desist letter from the corporation, telling the exchange to stop misleading consumers regarding the insurance status of their funds. The claims can be deemed misleading because, unlike deposits held by US banks, cryptocurrencies stored with brokerages and exchanges are not protected or insured by the government.
The regulator issued a press release stating,
“Based upon evidence collected by the FDIC, each of these companies made false representations —including on their websites and social media accounts — stating or suggesting that certain crypto-related products are FDIC-insured or that stocks held in brokerage accounts are FDIC-insured. The Federal Deposit Insurance Act (FDI Act) prohibits any person from representing or implying that an uninsured product is FDIC-insured or from knowingly misrepresenting the extent and manner of deposit insurance. The FDI Act further prohibits companies from implying that their products are FDIC-insured by using ‘FDIC’ in the company’s name, advertisements, or other documents.”
The FDIC had previously ordered now-bankrupt Voyager Digital to stop claiming that implied customer deposits with the platform were insured by the FDIC. The FDIC only ensures regulated bank accounts to the tune of $250,000 per account.
Other Companies Warned By The FDIC
FTX was not the only company that received letters from the FDIC, with other companies in the crypto space such as Cryptosec.info, SmartAsset.com, FDICCrypto.com, and Cryptonews.com also receiving letters from the FDIC. The FDIC stated that the companies receiving the letter must implement immediate corrective actions to address misleading statements from the company or individuals associated with the company. Additionally, the agency also reminded the companies that wilfully misrepresenting information and implying that uninsured products are FDIC insured is prohibited by the Federal Deposit Insurance Act.
FTX Issues Clarification
In its letter directed specifically at FTX, the FDIC mentioned FTX US president Brett Harrison’s tweet, which stated that direct deposits are stored in FDIC-insured accounts. Harrison clarified that he had since deleted the tweet and was not meant to indicate that crypto assets stored with FTX are FDIC-insured.
“We really didn’t mean to mislead anyone, and we didn’t suggest that FTX US itself, or that crypto/non-fiat assets, benefit from FDIC insurance. I hope this provides clarity on our intentions. Happy to work directly with the FDIC on these important topics.”
Accusations Against FDIC
The FDIC has previously been accused of taking extra steps to ensure that banks don’t work with cryptocurrency companies. These accusations against the FDIC were made by Republican Senator Pat Toomey, accusing the corporation of stifling banks and their efforts to expand and cater to the crypto space. Senator Toomey stated in a letter addressed to the Acting Chairman of the FDIC, Martin Gruenberg, that whistleblowers in the senator’s office have come forward to state that the FDIC may be,
“improperly taking action to deter banks from doing business with lawful cryptocurrency-related (crypto-related) companies.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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