The Federal Deposit Insurance Corporation (FDIC) slapped the Sam Bankman-Fried-owned cryptocurrency exchange FTX with a cease-and-desist order over “false and misleading statements” that suggest its assets are FDIC-insured. The FDIC doesn’t cover stocks or crypto, and only safeguards funds held in insured bank accounts.
In a letter to the exchange, the FDIC points to a now-deleted tweet from FTX president Brett Harrison, which states “direct deposits from employers to FTX US are stored in individually FDIC-insured bank accounts in the users’ names.” The referenced tweet also says that “stocks are held in FDIC-insured and SIPC [Security Investor Protection Corporation]-insured brokerage accounts.” The FDIC claims this falsely represents that FTX and the funds invested by users are FDIC-insured when they’re really not.
While not flagged in the FDIC’s letter, users have also pointed out another potentially misleading tweet from Harrison that says “cash associated with brokerage accounts is managed into 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 that crypto/non-fiat assets, benefit from FDIC insurance. I hope that this clarifies our intentions. These important topics are my pleasure.
— Brett Harrison (@Brett_FTX) August 19, 2022
1) Communication is key; don’t be late!
FTX doesn’t have FDIC insurance. We’ve never stated this on our website.However, the banks we work for have FDIC insurance. We meant it as such and we apologise if anyone has misunderstood it. https://t.co/MHMSMDE8Le
— SBF (@SBF_FTX) August 19, 2022
Harrison has been with us ever since. issued a response to the FDIC’s letter, explaining that FTX “really didn’t mean to mislead anyone,” and claims FTX “didn’t suggest that FTX US itself, or that crypto/non-fiat assets, benefit from FDIC insurance.” FTX CEO and founder Bankman-Fried provided further clarification as well, stating that while “FTX does not have FDIC insurance,” the banks it does business with do. Bankman-Fried adds that it may “explore potential ways that individual accounts using direct deposit… could, in the future, be used to further protect customers,” and that FTX “would be excited to work with the FDIC on that.”
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’s name, advertisements, or other documents.” The FDIC is giving FTX 15 days to provide confirmation that it has removed or corrected any alleged misrepresentations. FDIC issued cease-and-desist notices to four other companies in addition to FTX. These included Cryptosec.info and SmartAsset.com.
The FDIC declined to comment beyond the contents of its letter, and FTX didn’t immediately respond to The Verge’s request for comment.
FTX, like Robinhood, now offers both traditional stock and cryptocurrency trading options. In May, crypto billionaire Bankman-Fried disclosed a 7.6 percent stake in Robinhood, and he’s reportedly looking into purchasing the trading platform.
Even with the so-called crypto winter driving several crypto companies to bankruptcy, FTX and Bankman-Fried’s crypto trading firm Alameda Research have somehow managed to stay afloat. To help struggling crypto companies weather the uncertain economy, Bankman-Fried extended credit lines to them. Reuters he has “a few billion” more for future bailouts. CNBC documents show that FTX generated $1.02 Billion in revenue in 2021, and $270 M in the first quarter in 2022.
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