Regulators have a weak case against FTX on deposit insurance
In a cease-and-desist letter to fast-growing crypto exchange FTX, the Federal Deposit Insurance Corporation (FDIC) shed light on a now-deleted tweet from the exchange’s president, Brett Harrison, and issued a stark warning over the company’s messaging.
Harrison’s original tweet said, “Direct deposits from employers to FTX US are stored in individually FDIC-insured bank accounts in the users’ names.” He added, “Stocks are held in FDIC-insured and SIPC [Security Investor Protection Corporation]-insured brokerage accounts.”
Although Harrison stewarded FTX to its best-ever year in 2021, increasing revenue by 1,000%, the firm now faces the unenviable prospect of running afoul of a powerful government agency.
In an attempt to clarify the situation to his 761,000 Twitter followers, Brett said, “Clear communication is really important; sorry! FTX does not have FDIC insurance (and we’ve never said so on website etc.); banks we work with do. We never meant otherwise, and apologize if anyone misinterpreted it.”
But it seems the statements made on Twitter by Harrison in response to the FDIC cease-and-desist letter over “false statements” were factually correct: User funds are held at banks insured by the FDIC.
Related: FDIC–FTX spat is another reason for investors to get their funds off exchanges
His original communications were construed as if the funds were themselves insured, which they’re not. Either way, firms are not allowed to mention a relationship with the FDIC unless there is a direct link and the correct language is used to clearly describe it.
This was an error in messaging on the part of FTX. A mistake was definitely made, inciting perhaps rightful outrage from the community. They may have taken this to believe they were
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