The United States Federal Deposit Insurance Corporation (FDIC) has handed a cease-and-desist letter to FTX and four other crypto entities over false claims on deposit insurance.
As a result, FTX US, Cryptonews.com, Cryptosec.info, SmartAsset.com, and FDICCrypto.com are the alleged cryptocurrency exchanges found guilty by the regulator.
FDIC Warns FTX and Others Over Deceptive Claims
Following the directives, the exchanges must immediately address the false information dished out to the public and avoid future occurrences.
For emphasis, a cease-and-desist is a legally binding directive to stop an entity from engaging in a given activity. It is a cautionary notice from the court showing the sender’s compliance with the recipient and threatening a lawsuit should the receiver not halt a particular activity.
Furthermore, under the Federal Deposit Insurance Act (FDI Act), a business or person is prohibited from stating that an uninsured product is FDI-insured.
The FDIC alleges that it has evidence that the companies made false statements on their websites and social media accounts. And that the information is misleading because it suggests that certain crypto assets are FDIC-insured.
Thus, the regulator is convinced that the accused firms deliberately misrepresented the agency and ensured the manner of deposit insurance they claimed.
The latest move represents the most public action the FDIC has taken against false claims on insured deposits in the United States. The crypto industry has been under scrutiny from the insurance watchdog since last month. Moreover, the case came to light after the bankruptcy filing by Voyager Digital.
After filing for bankruptcy, Voyager was issued a cease-and-desist order by the FDIC. The crypto brokerage firm was ordered to cease making further statements regarding its FDIC deposit insurance status. It was also asked to correct any information it had released before the directives from the FDIC.
Reaction Trails FDIC’s Order
Responding to the cease-and-desist letter, the president of FTX US, Brett Harrison, claimed that the exchange did no wrong. According to Harrison, direct deposits to FTX are dumped into FDIC-insured accounts and rightly regulated.
In addition, the president claimed that FTX US is duly recognized as an FDIC-compliant exchange. However, the regulator noted that FTX’s statement about its products being FDIC-insured is misleading. The cease-and-desist letter disclosed that FTX US’s being an FDIC-insured entity is false.
The regulator also revealed that FTX US is an FDIC-insured insurance broker on no account and that FDIC insurance does not cover digital assets or stocks.
With the cease-and-desist letter, the accused firms must remove all statements showing FTX US and other firms are FDIC-insured. Furthermore, the FTX US has 15 days to tender a written confirmation and comply with the order.
Harrison disclosed that the firm does not mean to misinform the public and that FTX US or any of its crypto assets is covered with FDIC insurance.
The FDIC has prioritized the crypto industry given the enormous funds involved in trading and investment. It wants to create a clear guideline for the industry as it did for the banking sector.