FDIC Issues Additional Cease-and-Desist Letters Regarding Misrepresentations on Crypto Deposit Insurance | Practical Law

FDIC Issues Additional Cease-and-Desist Letters Regarding Misrepresentations on Crypto Deposit Insurance | Practical Law

The FDIC issued cease-and-desist letters to five fintech and crypto-related companies for misrepresentations regarding FDIC insurance on cryptocurrency and crypto-related products. This is the second set of letters issued by the FDIC to crypto-related companies regarding FDIC misrepresentations.

FDIC Issues Additional Cease-and-Desist Letters Regarding Misrepresentations on Crypto Deposit Insurance

by Practical Law Finance
Published on 24 Jan 2024 • USA (National/Federal)
The FDIC issued cease-and-desist letters to five fintech and crypto-related companies for misrepresentations regarding FDIC insurance on cryptocurrency and crypto-related products. This is the second set of letters issued by the FDIC to crypto-related companies regarding FDIC misrepresentations.
On January 19, 2024, the FDIC issued cease-and-desist letters to the following five fintech and crypto-related companies for making false and misleading representations regarding FDIC insurance:
  • Atmos Financial, PBC, a climate financial technology company that provides banking services. According to the letter, Atmos has indicated in social media advertisements that FDIC deposit insurance is available for its services.
  • BybitcoinEx, Inc., a cryptocurrency exchange platform that allows investors to conduct investment transactions. According to the letter, BybitcoinEx has indicated that FDIC deposit insurance is available for all dollar cash balances on its platform up to $250,000, including misstatements made through BybitcoinEx’s websites and other media.
  • ORGANO Payments, Inc. and its subsidiary OGPay, a mobile wallet and payment system provider. According to the letter, these entities have indicated that FDIC deposit insurance is available for OGPay app transactions, as well as assets and funds in OGPay wallets, including misstatements made through social media accounts and OGPay's website.
  • Horizon Globex GmbH, which operates Upstream Exchange, a blockchain-powered stock exchange and trading application for global digital securities. According to the letter, Horizon has indicated that FDIC deposit insurance is available for all Upstream accounts, both US and non-US, including misstatements through blog posts, the company president's LinkedIn page, and a press release.
  • Zil Money Corporation, a financial technology company that provides cloud-based online banking and financial management services. According to the letter, Zil has indicated on its website that its platform is FDIC insured, it is an FDIC insurance bank, and FDIC deposit insurance is available up to $250,000 per depositor per Zil account.
These letters follow letters sent to five crypto-related companies on August 22, 2022 for similar misrepresentations regarding FDIC insurance on cryptocurrency and crypto-related products (see Legal Update, FDIC Issues Cease-and-Desist Letters Regarding Misrepresentations on Crypto Deposit Insurance).
The Federal Deposit Insurance Act (FDIA) prohibits the use of "FDIC" in a company's name, advertisements, or other documents to imply that its products are FDIC insured (12 U.S.C. § 1828(a)(4)). Additionally, the FDIA prohibits the misrepresentation, directly or indirectly, that an uninsured product is FDIC insured. The FDIC asserts in each letter that statements made by each company violate the FDIA, and its implementing regulation, 12 C.F.R. § 328.
The January 19, 2024 letters require that three immediate steps be taken by each of the above entities, to correct the misrepresentations:
  • Remove all statements, representations and references that indicate directly or indirectly that:
    • any cryptocurrency or cryptocurrency exchanges are FDIC insured;
    • monies held in cryptocurrency or financial products such as stocks and bonds, or other securities or commodities, can be protected by FDIC insurance;
    • FDIC insurance may provide insurance for an event other than for a failed insured institution; and
    • FDIC insurance provides protection or coverage in a manner other than as specified in the FDIA.
  • Cease and desist from making further statements, representations, or references that suggest that cryptocurrency or crypto exchanges are FDIC insured.
  • Within 15 days of the letter, send confirmation of compliance with these requests, except with respect to Atmos, which must send a letter confirming compliance within five days.
With respect to OGPay, Horizon, and Zil, representations made on their respective websites and social media pages with respect to pass-through deposit insurance arising from the placement of consumer deposits into accounts at insured depository institutions (IDIs) should be amended to clarify the nature of the deposit insurance and identify the IDIs with which OGPay, Horizon, or Zil have a direct or indirect relationship (see Practice Note, FDIC Pass-Through Deposit Insurance).
These cease-and-desist letters come after the FDIC Board of Directors adopted a final rule to amend Part 328 of its regulations (12 C.F.R. § 328), to:
  • Reflect how depositors conduct business with IDIs today, including through digital and mobile channels.
  • Clarify the FDIC’s regulations regarding misrepresentations of deposit insurance coverage by addressing specific scenarios where consumers may be misled as to whether they are conducting business with an IDI and whether their funds are protected by federal deposit insurance.
  • Enable consumers to better understand when they are conducting business with an IDI and when their funds are protected by the FDIC’s deposit insurance coverage.
The amendments will take effect on April 1, 2024, with an extended compliance date of January 1, 2025.