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FDIC sends cease and desist letters to FTX US, four others over insurance statements

·Senior Reporter
·3 min read

The Federal Insurance Deposit Corporation is trying to snuff out claims the agency is backstopping customer funds held in certain crypto or stock brokerage accounts.

The FDIC said Friday it issued cease and desist letters to five companies accused of making “misleading” statements about whether crypto assets have federal deposit insurance support.

Among them were Cryptonews.com, Cryptosec.info, SmartAsset.com, FDICCrypto.com and U.S.-based exchange FTX US, which offers crypto and stock brokerage services to American customers.

WASHINGTON, DC - JUNE 6:  The entrance to the Federal Deposit Insurance Corporation (FDIC), located across the street from the Eisenhower Executive Office Building, is viewed on June 6, 2017 in Washington, D.C. The nation's capital, the sixth largest metropolitan area in the country, draws millions of visitors each year to its historical sites, including thousands of school kids during the month of June. (Photo by George Rose/Getty Images)
The entrance to the Federal Deposit Insurance Corporation (FDIC), located across the street from the Eisenhower Executive Office Building, is viewed on June 6, 2017 in Washington, D.C. (Photo by George Rose/Getty Images)

According to the FDIC letter sent to FTX US, Brett Harrison, the company's president crossed the line with a tweet published on July 20 which stated: “Direct deposits from employers to FTX US are stored in individually FDIC-insured bank accounts in the users’ names,” and that “stocks are held in FDIC-insured and SIPC-insured brokerage accounts.”

“In fact, FTX US is not FDIC insured, the FDIC does not insure any brokerage accounts, and FDIC insurance does not cover stock or cryptocurrencies. The FDIC only insures deposits held in insured banks and savings associations (insured institutions), and FDIC only protects against losses caused by failure of insured institutions,” the letter to FTX US said.

In a public statement, FTX’s Harrison said he deleted the tweet adding: “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. I hope this provides clarity on our intentions.”

By law, the FDIC only insures banking deposits such as cash and cash equivalents held in checking, savings, and money market accounts with FDIC-insured banks.

That mean the corporation doesn’t insure funds held in bonds, stocks, mutual funds, commodities, or crypto assets, according to the FDIC.

The issue of whether customer losses are covered in the event of failure has bubbled up following recent bankruptcies in the crypto space that saw lenders, including Voyager and Celsius, freeze customer accounts.

Coinbase also added a disclosure in its 10-Q filed with the SEC in May that subject to a bankruptcy, customer funds could belong to the indebted firm’s estate.

Voyager Digital and Celsius Network are set to test this point after filing for bankruptcy last month.

Last month, the FDIC sent a similar warning letter to Voyager Digital, stating that the embattled firm had misrepresented the FDIC’s reach in claims through its website, mobile app, and social media accounts “stating or suggesting” that because Voyager was FDIC-insured, customers who invested on Voyager’s platform would receive FDIC insurance coverage on their funds.

Around $270 million in cash deposits held by Voyager Digital’s partner bank, FDIC member Metropolitan Commercial Bank, were released earlier this month.

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