The Federal Deposit Insurance Corporation (FDIC) has issued a shutdown order for cryptocurrency exchange FTX, which is owned by Sam Bankman-Fried, over “false and misleading statements” suggesting its assets are FDIC-insured. The FDIC does not cover stocks or cryptocurrencies and only protects funds in insured bank accounts.
In a letter to the exchange, the FDIC points to a now-deleted tweet from FTX President Brett Harrison, stating that “Employer direct deposits to FTX US are held in individually FDIC-insured bank accounts in the name of the users.” The referenced tweet also says that “shares are held in FDIC Insured and SIPC” [Security Investor Protection Corporation]-insured securities accounts.” The FDIC claims that this falsely represents that FTX and the funds invested by users are FDIC-insured when in reality they are not.
While not highlighted in the FDIC’s letter, users have also pointed out another: possibly misleading tweet van Harrison who says that “cash linked to brokerage accounts is managed in FDIC-insured accounts” with FTX’s “partner bank”.
We really didn’t mean to mislead anyone, and we didn’t suggest that FTX US itself, or those crypto/non-fiat assets, benefit from FDIC insurance. I hope this clarifies our intentions. Please work directly with the FDIC on these important topics.
— Brett Harrison (@Brett_FTX) August 19, 2022
1) Clear communication is very important; Sorry!
FTX does not have FDIC insurance (and we never said that 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) August 19, 2022
Harrison has since has replied to the letter from the FDIC, explaining that FTX was “really not meant to mislead anyone,” claiming that FTX “was not suggesting that FTX US itself, or those crypto/non-fiat assets, benefit from FDIC insurance.” FTX CEO and Founder Bankman-Fried further clarification given also, stating that while “FTX does not have FDIC insurance,” the banks it does business with do. Bankman-Fried adds that it can “explore potential ways in which individual accounts using direct deposit … could be used in the future to further protect customers,” and that FTX “would be thrilled to partner with them.” working with the FDIC.”
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 name of the company, advertisements, or other documents.” The FDIC gives FTX 15 days to confirm that it has removed or corrected alleged misrepresentations. In addition to FTX, the FDIC issued stop-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 did not immediately respond The edge‘s request for comment.
Like Robinhood, FTX has started offering both traditional stock and crypto trading options. In May, crypto billionaire Bankman-Fried announced a 7.6 percent stake in Robinhood, and is reportedly considering buying the trading platform.
Even with the so-called crypto winter that has driven several crypto companies to bankruptcy, FTX and Bankman-Fried 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, telling 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.