US Federal Deposit Insurance Corporation Warns 5 Crypto Firms Against Misleading Customers

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The US Federal Deposit Insurance Corporation (FDIC) has issued cease and desist letters to five crypto firms for allegedly misleading customers about its workings or their affiliation.

According to a Friday statement, the agency accused FTX.US, SmartAsset, CryptoSec, CryptoNews and FDICCrypto of “making false and misleading statements about FDIC deposit insurance”, reciting the different ways in which each of them had violated laws on insurance.

“Based upon evidence collected by the FDIC, each of these companies made false representations—including on their websites and social media accounts—stating or suggesting that certain crypto-related products are FDIC–insured or that stocks held in brokerage accounts are FDIC–insured,” the statement read. 

In particular, the agency accused “FDICCrypto” of registering a domain name that suggests affiliation with the FDIC, noting that this was tantamount to passing-off. FDIC further directed the said firms to “take immediate corrective action to address these false or misleading statements.” 

The FDIC is one of two agencies tasked with providing deposit insurance for depository institutions in the U.S. If a registered institution goes bankrupt, the agency insures customer deposits of up to $250,000. Recently, it has come under the spotlight, especially after the May crypto crash, which led to major crypto firms going bankrupt. Voyager Digital, one of the prominent victims of the recent  market plunge, was accused by depositors of lying that the firm was FDIC insured, leading to FDIC warning Voyager against“making false and misleading statements regarding its FDIC deposit insurance status.”

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Under the Federal Deposit Insurance Act (FDI Act), crypto firms or individuals are prohibited from misrepresenting their products as insured under the agency. In a recent letter, the FDIC clarified that its deposit insurance only covers deposit products offered by insured banks, such as checking accounts and savings accounts and not “non-deposit products”  such as crypto assets, bonds, stocks, commodities and securities.

Criticism has been mounting on the FDIC over its alleged scheme to discourage banks from working with crypto firms. On Tuesday, US Senator Pat Toomey sent a letter to Acting Chairman of the FDIC Martin Gruenberg stating that some whistleblowers were accusing the agency of  “improperly taking action to deter banks from doing business with lawful cryptocurrency-related companies.” The agency was further accused of sending letters to multiple banks, asking them to refrain from expanding their relationship with crypto firms, including denying loans to such firms.