The Federal Deposit Insurance Corporation (FDIC) slapped Sam Bankman-Fried-owned cryptocurrency exchange FTX with a cease-and-desist order over “false and misleading statements” suggesting its assets are FDIC-insured. The The FDIC does not cover stocks or crypto, and only protects funds held in insured bank accounts.
In a letter of exchange, the FDIC points to a now-deleted tweet from FTX President Brett Harrison, which states that “direct deposits from employers to FTX US are stored in individually FDIC-insured bank accounts on behalf of users.” The referenced tweet also states that “the shares are held in companies insured by the FDIC and SIPC [Security Investor Protection Corporation]-insured brokerage accounts. The FDIC says this misrepresents that FTX and funds invested by users are FDIC insured when they really are not.
Although not reported in the FDIC letter, users also pointed to another potentially misleading tweet from Harrison who says that “cash associated with brokerage accounts is managed in FDIC-insured accounts” at FTX’s “partner bank”.
We really didn’t mean to mislead anyone, and we didn’t suggest that FTX US itself, or crypto/non-fiat assets, have FDIC insurance. I hope this clarifies our intentions. Glad to work directly with the FDIC on these important matters.
— Brett Harrison (@Brett_FTX) August 19, 2022
1) Clear communication is really important; Sorry!
FTX does not have FDIC insurance (and we never said so on the website, etc.); the banks we work with do. We never meant otherwise and we apologize if anyone misinterpreted it. https://t.co/MHMSMDE8Le
— SBF (@SBF_FTX) August 19, 2022
Harrison has since published a response to the FDIC letter, explaining that FTX “really didn’t want to mislead anyone”, and asserts that FTX “has not suggested that FTX US itself, or crypto/non-fiat assets, have FDIC insurance”. CEO and Founder of FTX Bankman-Fried provided further clarification also, stating that while “FTX does not have FDIC insurance”, the banks it does business with do. Bankman-Fried adds that he may “explore potential ways to utilize individual accounts using direct deposit…in the future to further protect customers,” and that FTX “would be happy to work with the FDIC on this.” topic”.
As noted by the FDIC, the Federal Deposit Insurance Act (FDI Act) prohibits companies “from implying that their products are FDIC insured by using ‘FDIC’ in the company name, advertisements, or other documents”. The FDIC gives FTX 15 days to confirm that it has removed or corrected any alleged misrepresentation. In addition to FTX, the FDIC has issued cease and desist warnings to four other companies, including Cryptonews.com, Cryptosec.info, SmartAsset.com and FDICCrypto.com.
The FDIC declined to comment beyond the content of its letter, and FTX did not immediately respond to The edgerequest for comment.
Like Robinhood, FTX started offering both traditional stocks and crypto trading options. In May, crypto billionaire Bankman-Fried disclosed a 7.6% stake in Robinhoodand he would have consider buying the trading platform.
Even with the so-called crypto winter driving several crypto companies bankrupt, FTX and Alameda Research, the crypto trading company of Bankman-Fried, managed to stay afloat. Bankman-Fried has extended lines of credit to many struggling crypto firms to help them through the uncertain economy, and Told Reuters he has “a few billion” more for future bailouts. According documents obtained by CNBCFTX generated $1.02 billion in revenue in 2021 and $270 million in Q1 2022.