The Federal Deposit Insurance Corporation (FDIC) slapped the Sam Bankman-Fried-owned cryptocurrency alternate FTX with a cease-and-desist order over “false and deceptive statements” that recommend its property are FDIC-insured. The FDIC doesn’t cover stocks or crypto, and solely safeguards funds held in insured financial institution accounts.
In a letter to the exchange, the FDIC factors to a now-deleted tweet from FTX president Brett Harrison, which states “direct deposits from employers to FTX US are saved in individually FDIC-insured financial institution accounts within the customers’ names.” The referenced tweet additionally says that “shares 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 customers are FDIC-insured once they’re actually not.
Whereas not flagged within the FDIC’s letter, customers have additionally identified one other potentially misleading tweet from Harrison that claims “money related to brokerage accounts is managed into FDIC-insured accounts” at FTX’s “companion financial institution.”
We actually didn’t imply to mislead anybody, and we didn’t recommend that FTX US itself, or that crypto/non-fiat property, profit from FDIC insurance coverage. I hope this offers readability on our intentions. Joyful to work immediately with the FDIC on these necessary subjects.
— Brett Harrison (@Brett_FTX) August 19, 2022
1) Clear communication is de facto necessary; sorry!
FTX doesn’t have FDIC insurance coverage (and we have by no means mentioned so on web site and so forth.); banks we work with do. We by no means meant in any other case, and apologize if anybody 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 “actually didn’t imply to mislead anybody,” and claims FTX “didn’t recommend that FTX US itself, or that crypto/non-fiat property, profit from FDIC insurance coverage.” FTX CEO and founder Bankman-Fried provided further clarification as nicely, stating that whereas “FTX doesn’t have FDIC insurance coverage,” the banks it does enterprise with do. Bankman-Fried provides that it might “discover potential ways in which particular person accounts utilizing direct deposit… might, sooner or later, be used to additional shield prospects,” and that FTX “could be excited to work with the FDIC on that.”
As famous by the FDIC, the Federal Deposit Insurance coverage Act (FDI Act) prohibits firms from ”implying that their merchandise are FDIC–insured through the use of ‘FDIC’ within the firm’s identify, ads, or different paperwork.” The FDIC is giving FTX 15 days to offer affirmation that it has eliminated or corrected any alleged misrepresentations. Along with FTX, the FDIC doled out cease-and-desist warnings to 4 different firms, together with Cryptonews.com, Cryptosec.information, SmartAsset.com, and FDICCrypto.com.
The FDIC declined to remark past the contents of its letter, and FTX didn’t instantly reply to The Verge’s request for remark.
Like Robinhood, FTX has started offering both traditional stock and crypto buying and selling choices. In Could, 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 a number of crypto companies to bankruptcy, FTX and Bankman-Fried’s crypto buying and selling agency Alameda Analysis have by some means managed to remain afloat. Bankman-Fried has prolonged traces of credit score to quite a few struggling crypto corporations to assist them climate the unsure financial system, and told Reuters he has “a few billion” more for future bailouts. In keeping with documents obtained by CNBC, FTX introduced in $1.02 billion in income in 2021 and $270 million within the first quarter of 2022.