The Federal Deposit Insurance Corporation (FDIC) hit 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 FDIC does not cover stocks or crypto, and only protects 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 said “direct deposits from employers to FTX US are held in individual FDIC-insured bank accounts in the names of users.” The referenced tweet also states that “stocks are held in FDIC insured and SIPC [Security Investor Protection Corporation]- insured brokerage accounts.”[ads1]; The FDIC claims that this falsely represents that FTX and the funds invested by users are FDIC insured when in fact they are not.
Although not flagged in the FDIC’s letter, users have also pointed to another potentially misleading tweet from Harrison stating “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 clarifies our intentions. Pleased to work directly with the FDIC on these important topics.
— Brett Harrison (@Brett_FTX) 19 August 2022
1) Clear communication is very important; Pardon!
FTX does not have FDIC insurance (and we never said so on the website, etc.); banks we work with do. We never meant otherwise, and apologize if anyone misinterpreted it. https://t.co/MHMSMDE8Le
— SBF (@SBF_FTX) 19 August 2022
Harrison has since provided a response to the FDIC’s letter, explaining that FTX “truly did not mean to mislead anyone,” and claims FTX “did not imply that FTX US itself, or that crypto/non-fiat assets, benefit from FDIC insurance.” FTX CEO and founder Bankman-Fried given further clarification too, saying 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 be used in the future to further protect customers,” and that FTX “would be happy 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 gives FTX 15 days to certify that it has removed or corrected any alleged misrepresentations. In addition to FTX, the FDIC 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 contents of the letter, and FTX did not immediately respond The Vergeits request for comment.
Like Robinhood, FTX has started offering both traditional stock and crypto trading options. In May, crypto billionaire Bankman-Fried revealed a 7.6 percent stake in Robinhood, and he is reportedly looking to buy the trading platform.
Even with the so-called crypto winter driving several crypto companies into 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 a number of struggling crypto firms to help them cope with the uncertain economy, telling Reuters he has “a few billion” more for future rescue packages. 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.