FDIC Orders Crypto Exchange FTX US, 4 Others to Cease 'Misleading' Claims

The five companies "made false representations" suggesting crypto products might be FDIC-insured.

AccessTimeIconAug 19, 2022 at 6:07 p.m. UTC
Updated May 11, 2023 at 5:09 p.m. UTC
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The U.S. Federal Deposit Insurance Corp. (FDIC) published five cease-and-desist orders Friday, including one to crypto exchange FTX US, alleging they mislead investors by suggesting their accounts are insured through the government agency.

The Cryptonews.com, Cryptosec.com, SmartAsset.com and FDICCrypto.com websites were also directed to cease these alleged misrepresentations. The FDIC said these "companies made false representations" that suggested their products might be insured by the agency. The FDIC covers federally regulated bank accounts, up to $250,000 per account.

The FDIC previously ordered now-bankrupt Voyager Digital to cease making claims that implied its customers' funds might have been insured by the FDIC. It later issued a broader warning to the crypto industry at large, saying FDIC protections extend to banks but not to crypto companies that have bank accounts.

Friday's letters said several other websites were making specific inaccurate claims about which crypto companies had FDIC insurance.

"The Federal Deposit Insurance Act (FDI Act) prohibits any person from representing or implying that an uninsured product is FDIC-insured or from knowingly misrepresenting the extent and manner of deposit insurance. The FDI Act further prohibits companies from implying that their products are FDIC-insured by using 'FDIC' in the company’s name, advertisements or other documents," the agency said. "The FDIC is authorized by the FDI Act to enforce this prohibition against any person."

In a tweet that has since been deleted, FTX US President Brett Harrison said that any direct deposits from employers to FTX US would be stored in FDIC-insured bank accounts.

In a letter directed to Harrison and FTX US Chief Regulatory Officer Dan Friedberg, FDIC Assistant General Counsel Seth Rosebrock wrote that Harrison's tweet may "contain false and misleading" statements. SmartAsset and CryptoSEC also said that FTX was "FDIC-insured," he wrote.

"These statements appear to contain false and misleading representations that uninsured products are insured by the FDIC, as well as false and misleading statements about the extent and manner of protection provided by FDIC deposit insurance and misuse the FDIC's name," he wrote. "These false and misleading statements represent or imply that FTX US is FDIC-insured, that funds deposited with FTX US are placed, and all times remain, in accounts at unnamed FDIC-insured banks, that brokerage accounts at FTX US are FDIC-insured, and that FDIC insurance is available for cryptocurrency or stocks."

FTX US is not insured by the FDIC, and the regulator does not insure brokerage accounts or cover stocks and cryptocurrencies, he continued.

In response, Harrison tweeted that 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)."

In addition, Sam Bankman-Fried, CEO of FTX, the parent company of FTX US, tweeted: “FTX does not have FDIC insurance … banks we work with do. We never meant otherwise, and apologize if anyone misinterpreted it.”

The four other letter recipients claimed that crypto exchanges like Coinbase (COIN), Gemini and eToro were FDIC-insured, and the letters directed at these platforms order them to clarify that this is not, in fact, accurate.

UPDATE (Aug. 19, 2022 18:35 UTC): Updated with additional information.

UPDATE (Aug. 19, 2022 19:00 UTC): Adds FTX US response.

UPDATE (Aug. 19, 2022 19:10 UTC): Adds Sam Bankman-Fried comment.


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Nikhilesh De

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.

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