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 this provides clarity on our intentions. Happy to work directly with the FDIC on these important topics.
— Brett Harrison (@Brett_FTX) August 19, 2022
1) Clear communication is really important; sorry!
FTX does not have FDIC insurance (and we’ve never said so on website etc.); banks we work with do. We never meant otherwise, and apologize if anyone misinterpreted it. https://t.co/MHMSMDE8Le
— SBF (@SBF_FTX) August 19, 2022
Harrison has 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. In addition to FTX, the FDIC doled out 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 contents of its letter, and FTX didn’t immediately respond to The Verge’s request for comment.
Like Robinhood, FTX has started offering both traditional stock and crypto 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. Bankman-Fried has extended lines of credit to numerous struggling crypto firms to help them weather the uncertain economy, and told Reuters he has “a few billion” more for future bailouts. According to documents obtained by CNBC, FTX brought in $1.02 billion in revenue in 2021 and $270 million in the first quarter of 2022.