The Sam Bankman-Fried-owned cryptocurrency exchange FTX was issued a cease-and-desist order by the Federal Deposit Insurance Corporation (FDIC).
It was for making “false and misleading claims” about the insurance coverage of its assets. Stocks and cryptocurrencies are not covered by the FDIC, which only protects money kept in bank accounts with insurance.
The FDIC claims that FTX and the funds invested by users are falsely represented to be FDIC-i in a letter to the exchange, citing a now-deleted tweet from FTX president Brett Harrison that states: “direct deposits from employers to FTX US are stored in individually FDIC-insured bank accounts in the users’ names.” The referenced tweet also states: “stocks are held in FDIC-insured and SIPC [Security Investor Protection Corporation]-in
Users have also drawn attention to another likely false tweet from Harrison, which claims that “cash linked with brokerage accounts is handled into FDIC-insured accounts” at FTX’s “partner bank” despite not being mentioned in the FDIC’s letter.
FTX CEO and founder Bankman-Fried added further clarification, saying that while “FTX does not have FDIC insurance,” the banks it does business with do. Harrison has since responded to the FDIC’s letter, explaining that FTX really didn’t mean to mislead anyone and claims FTX “didn’t suggest that FTX US itself, or that crypto/non-fiat assets, benefit from FDIC insurance.” It may “explore potential ways that individual accounts using direct deposit…,” says Bankman-Fried. FTX stated that it “would be excited to work with the FDIC on that,” adding that it may, in the future, be utilized to better safeguard clients.
The FDIC is giving FTX 15 days to confirm that it has removed or corrected any alleged misrepresentations in accordance with the Federal Deposit Insurance Act (FDI Act), which prohibits companies from “implying that their products are FDIC-insured by using ‘FDIC’ in the company’s name, advertisements, or other documents.” The FDIC issued cease-and-desist letters to four additional businesses in addition to FTX, including Cryptonews.com, Cryptosec.info, SmartAsset.com, and FDICCrypto.com.
Similar with Robinhood, FTX has begun providing choices for trading both conventional stocks and cryptocurrencies. Bankman-Fried, a crypto millionaire who revealed a 7.6% ownership in Robinhood in May, is apparently interested in buying the trading site.
Even though the so-called “crypto winter” sent a number of cryptocurrency businesses into bankruptcy, FTX and Bankman-cryptocurrency Fried’s trading company Alameda Research have managed to survive. Bankman-Fried told Reuters he has “a few billion” more for additional bailouts after extending lines of credit to multiple failing crypto companies to assist them weather the unstable environment. FTX earned $1.02 billion in sales in 2021 and $270 million in the first quarter of 2022, according to papers acquired by the press.