FTX US And Four Other Firms Aren’t Insured, FDIC Says

Investing News

Five companies, including cryptocurrency exchange FTX US, have been served with a cease and desist letter by the Federal Deposit Insurance Corporation (FDIC). The letters have been sent over issues related to “false and misleading statements” regarding the companies being insured by the FDIC. The companies that have been sent these letters are FTX US, Cryptonews.com, Cryptosec.info, SmartAsset.com, and FDICCrypto.com.

Key Takeaways

  • The FDIC sent cease and desist letters to five companies for allegedly making false representations about deposit insurance related to cryptocurrencies.
  • The letters ask the companies to take immediate corrective action.
  • The companies are FTX US, Cryptonews.com, Cryptosec.info, SmartAsset.com, and FDICCrypto.com.

FTX Deletes Tweets Claiming FDIC Coverage

The cease and desist letter asks that these companies take “immediate corrective action to address these false or misleading statements.” In the case of FTX US, the FDIC said that the head of the exchange’s United States arm Brett Harrison misled the public by claiming that funds bought and held through FTX were FDIC insured. The government agency asked that such tweets and statements should be deleted. In response, Harrison deleted the tweet, saying that the intention wasn’t to mislead anyone.

FTX CEO Sam Bankman-Fried also commented on the matter, emphasizing that FTX does not have FDIC insurance. He further clarified that the banks that the exchange works with do have the insurance. Bankman-Fried added that the exchange was interested in working with the FDIC to protect customers with individual accounts using direct deposits.

There Is No Insurance For Crypto Companies

The FDIC has not insured any crypto companies as of yet. Many of the most popular exchanges have explicitly said that they do not have FDIC insurance, including Coinbase and Gemini. In response to the latest action by the government agency, CryptoSec has also removed a page that irked the FDIC. The FDIC had previously sent now-insolvent Voyager Digital asking them to remove false and misleading statements. The agency has taken a strong stance on these matters as of late and aims to impose authority on the market.

The Bottom Line

FDIC deposit insurance protects against losses for insured deposits. Banks in the U.S. are typically FDIC-insured, and this lends them some credence. A fact sheet by the agency quotes: “By federal law, the FDIC only insures deposits held in insured banks and savings associations (collectively, “insured banks”) and only in the unlikely event of an insured bank’s failure. The FDIC does not insure assets issued by non-bank entities, such as crypto companies.”

Over the past few months, the United States has doubled down on crypto regulation and related issues. The United States Securities and Exchange Commission (SEC) has been taking action for some time now, and the latest action is just another step in that direction.

Correction August 23, 2022: A previous version of this article mischaracterized SmartAsset as a crypto company.

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