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FTX money is not insured, FDIC says,
FTX is accused of making ‘false representations’ about FDIC insurance
The Federal Deposit Insurance Corporation (FDIC) issued a cease-and-desist order against the Sam Banksman-owned cryptocurrency exchange FTX for making “false and misleading claims” that implied its assets were protected by the FDIC. Stocks and cryptocurrencies are not covered by the FDIC, which only protects money kept in bank accounts with insurance. FTX money is not insured FDIC says.
In a letter to the exchange, the FDIC points to a now-deleted tweet from FTX president Brett Harrison, which states “direct deposits from employers to FTX US are stored in individually FDIC-insured bank accounts in the users’ names.” The referenced tweet also says that “stocks are held in FDIC-insured and SIPC [Security Investor Protection Corporation]-insured brokerage accounts.” The FDIC claims this falsely represents that FTX and the funds invested by users are FDIC-insured when they’re really not.
While not flagged in the FDIC’s letter, users have also pointed out another potentially misleading tweet from Harrison that says “cash associated with brokerage accounts is managed into FDIC-insured accounts” at FTX’s “partner bank.”
Harrison has since issued a response 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.” FTX CEO and founder Banksman-Fried provided further clarification as well, stating that while “FTX does not have FDIC insurance,” the banks it does business with do. Banksman-Fried adds that it may “explore potential ways that individual accounts using direct deposit… could, in the future, be used to further protect customers,” and that FTX “would be excited to work with the FDIC on that.”
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 company’s name, advertisements, or other documents.” The FDIC is giving FTX 15 days to provide confirmation that it has removed or corrected any alleged misrepresentations. In addition to FTX,FTX money is not insured, the FDIC doled out cease-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 didn’t immediately respond to The Verge’s request for comment. FTX money is not insured.
Like Robinhood, FTX has started offering both traditional stock and crypto trading options. In May, crypto billionaire Banksman-Fried disclosed a 7.6 percent stake in Robinhood, and he’s reportedly looking into purchasing the trading platform.
Even with the so-called crypto winter driving several crypto companies to bankruptcy, FTX and Bankman- Fried’s crypto trading firm Alameda Research have somehow managed to stay afloat. Banksman-Fried has extended lines of credit to numerous struggling crypto firms to help them weather the uncertain economy, and told 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.FTX money is not insured.
