FTX US received a cease-and-desist warning from the United States Federal Deposit Insurance Corporation on Friday, telling the crypto exchange to stop issuing “false” statements and “misleading” consumers about the insurance status of their products.
Four other crypto companies were given the warning by the FDIC. These are: SmartAsset.com, Cryptonews.com, Cryptosec.info, and FDICCrypto.com. The regulator claims that these companies misled consumers on the FDIC’s coverage of certain cryptocurrency-related commodities.
FDIC noted in a press statement that:
“As per evidence gathered by the FDIC, each of these companies made misleading claims, including on their websites and social media profiles, that certain crypto-related products or stocks held in brokerage accounts are FDIC-insured.”
FTX Crossed The Line?
According to a letter delivered by the FDIC to FTX US, the crypto exchange’s president Brett Harrison “crossed the line” with a tweet made on July 20:
“Direct employer deposits to FTX US are held in FDIC-insured bank accounts in the users’ names,” and “stocks are held in FDIC-insured and SIPC-insured brokerage accounts.”
Sam Bankman-Fried. Image: NDTV.com
Sam Bankman-Fried, a crypto billionaire, owns FTX.US, a U.S.-based cryptocurrency exchange. The exchange is headquartered in the Bahamas and has mostly concentrated on expanding its operations beyond the United States.
Per the FDIC’s instruction I deleted the tweet. The tweet was written in response to questions raised on twitter regarding whether direct USD deposits from employers were held at insured banks (i.e. Evolve Bank).
— Brett Harrison (@Brett_FTX) August 19, 2022
The FDIC asserts that FTX US and its affiliated organizations may have violated FDIC laws by making “directly or indirectly false and misleading claims concerning FTX US’s deposit insurance status.”
The FDIC has made it clear that it does not offer any sort of insurance, protection, or brokerage account, and that it does not cover stocks or cryptocurrencies.
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Possible Legal Action Vs. FTX
Therefore, the information being propagated by FTX US is completely incorrect, and legal action might be taken against the cryptocurrency exchange for misrepresenting the FDIC’s name.
Harrison tweeted on Friday in reaction to the FDIC’s warning:
“We did not want to mislead anyone, and we did not imply that FTX US or crypto/non-fiat assets are covered by FDIC insurance.”
The regulator has been outspoken about the lack of insurance coverage for non-bank organizations, such as crypto-focused enterprises.
FDIC issued a notification in July instructing U.S. banks that they must examine and manage risks associated with developing third-party agreements with crypto service providers.
The agency reaffirmed that while insured bank deposits are covered against default for up to $250,000, there is no equivalent protection for crypto companies.
BTC total market cap at $384 billion on the daily chart | Source: TradingView.com Featured image from Blue Diamond Gallery, Chart from TradingView.com