FDIC to FTX: Stop Making "False and Misleading Claims"
By Kathy Chu, TruthDAO
The Federal Deposit Insurance Corp. (FDIC) on Friday ordered crypto exchange FTX to stop making “false and misleading” claims about deposit insurance -- the banking regulator’s latest warning to consumers that funds held at crypto companies aren’t necessarily protected.
The FDIC order comes a week after TruthDAO's story highlighting FTX and other crypto companies' claims about deposit insurance. Three weeks ago, the FDIC issued a cease-and-desist letter to bankrupt crypto lender Voyager Digital for claims that depositors’ funds are insured if Voyager failed. Voyager, on its website, said it has worked with the FDIC to clarify its language about deposit insurance. The FDIC protects up to $250,000 in funds per depositor at each insured institution.
The back-to-back actions show that the “FDIC is serious about enforcing its rule, and doing it in a timely fashion to protect consumers,” said Alexandra Steinberg Barrage, a former FDIC associate director who now represents crypto companies as a partner at Davis Wright Tremaine law firm in Washington D.C.
In its letter to FTX, the FDIC referenced a tweet that Brett Harrison, president of FTX’s U.S. arm, sent out in July. The tweet said that direct deposits from employers to FTX US “are stored in individually FDIC-insured bank accounts in the users’ names,” and additionally noted that “stocks are held in FDIC-insured and SIPC-insured brokerage accounts.” At the time, Harrison's claims were challenged online by consumers and banking experts.
The FDIC took notice: Harrison’s July statements “appear to contain false and misleading representations that uninsured products are insured by the FDIC,” the FDIC’s letter said.
On Friday (8.19), Harrison said on Twitter that he deleted the tweet as ordered by the agency. He also attempted to further explain: “The tweet was written in response to questions raised on twitter (sic) regarding whether direct USD deposits from employers were held at insured banks (i.e. Evolve Bank),” Harrison wrote. “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.”
FTX Chief Executive Sam Bankman-Fried added in a tweet that, “Clear communication is really important; sorry!”
In May, the FDIC approved its first-ever rule dealing with false representations about deposit insurance. The move served to clarify how the agency would determine violations of the Federal Deposit Insurance Act, which applies to institutions insured by the federal agency. It also established a process for pursuing violators.
FDIC insurance, which has been around since the 1930s, protects deposits in case banks participating in the program fail. Protection does not extend to crypto companies, but some deposits may be eligible for so-called “pass-through” FDIC insurance if funds are held at institutions that are members of the FDIC. Each claim for pass-through insurance is analyzed by the FDIC on a case-by-case basis.
The FDIC on Friday also called out four online news and information sites -- CryptoNews.com, Cryptosec.info, SmartAsset.com and FDICCrypto.com -- for referencing crypto companies that supposedly have FDIC insurance. The sites censured by the FDIC couldn’t immediately be reached for comment.