Crypto firm FTX gets warning from FDIC to stop ‘misleading’ consumers about deposit protection
Sam Bankman-Fried, founder and chief executive officer of FTX Cryptocurrency Derivatives Exchange, speaks during an interview on an episode of Bloomberg Wealth with David Rubenstein in New York, US, on Wednesday, Aug 17, 2022.
Jeenah Moon | Bloomberg | Getty Images
FTX, the crypto exchange controlled by Sam Bankman-Fried, received a cease-and-desist warning on Friday from the Federal Deposit Insurance Corporation, telling the company to stop “misleading” consumers about the insurance status of their funds.
The FDIC issued letters to five crypto companies, including FTX US. Unlike deposits held at U.S. banks, cryptocurrencies stored with brokerages are not protected by the government.
“Based upon evidence collected by the FDIC, each of these companies made false representations —including on their websites and social media accounts — stating or suggesting that certain crypto-related products are FDIC-insured or that stocks held in brokerage accounts are FDIC-insured,” the regulator said in a press release.
In addition to FTX US, the FDIC notified Cryptonews.com, Cryptosec.info, SmartAsset.com and FDICCrypto.com. The FDIC said the companies must “take immediate corrective action to address these false or misleading statements.” The agency said knowingly misrepresenting or implying that an uninsured product is FDIC-insured is prohibited by the Federal Deposit Insurance Act.
In the letter specifically to FTX, the FDIC said it appeared that on July 20, Brett Harrison, the president of FTX.US, published a tweet stating that direct deposits from employers are stored in FDIC-insured accounts in the user’s name.
Harrison tweeted on Friday that he deleted that post and didn’t mean to indicate that crypto assets stored in FTX are insured by the FDIC, but rather “USD deposits from employers were held at insured banks.”
“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,” Harrison wrote.
FTX.US is a U.S. cryptocurrency exchange owned by FTX, which is based in the Bahamas and has been largely focused on building its business outside of the U.S.
The FDIC also said that the websites for SmartAsset and CryptoSec identify FTX as an “‘FDIC-insured’ cryptocurrency exchange.”