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FDIC Issues Cease-and-Desist Letters Regarding Misrepresentations on Crypto Deposit Insurance
Practical Law Legal Update w-036-6730 (Approx. 5 pages)
FDIC Issues Cease-and-Desist Letters Regarding Misrepresentations on Crypto Deposit Insurance
by Practical Law Finance
| Published on 22 Aug 2022 • USA (National/Federal) |
The FDIC issued cease-and-desist letters to five crypto-related companies for misrepresentations regarding FDIC insurance on cryptocurrency and crypto-related products.
On August 19, 2022, the FDIC issued cease-and-desist letters to the following five crypto-related companies for making false and misleading representations regarding FDIC insurance of cryptocurrency and crypto-related products:
- Cryptonews.com, a cryptocurrency news provider that published reviews of cryptocurrency exchanges such as Coinbase, eToro, and Gemini on its website, in which, according to the letter, it indicated that FDIC deposit insurance is available for these exchanges.
- CryptoSec.info, a website that provides nontechnical information on cryptocurrency with the stated aim of educating those new to the cryptocurrency arena, which, according to the letter, provided a hyperlink on its website to a webpage indicating that FDIC depository insurance applies to cryptocurrency exchanges.
- SmartAsset.com, a website for consumer-focused financial information and advice that powers SmartAdvisor, a national marketplace connecting consumers to financial advisors, which, according to the letter, published an article on its website that list crypto exchanges that were purportedly FDIC-insured.
- FTX US, a major crypto exchange, whose president, according to the letter, tweeted that deposits to FTX US are stored in individual FDIC-insured bank accounts and that stocks are held in FDIC-insured accounts. Additionally, according to the letter, the company indicated on its website that it is identified as FDIC insured on crypto-related websites CryptoSec.Info and SmartAsset.com.
- FDICCrypto.com, a domain that implies that crypto products it offers are endorsed, and insured by the FDIC (visitors are redirected to www.chsserviceprovider.com).
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. 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, 12 U.S.C. § 1828(a)(4), and its implementing regulation, 12 C.F.R. § 328.
The letters require that three immediate steps be taken by each of the above entities, other than FDICCrypto.com, to correct the misrepresentations:
- Remove all statements, representations and references that indicate directly or indirect that:
- any cryptocurrency or cryptocurrency exchanges are FDIC insured;
- monies held in cryptocurrency or financial products such as stocks and bonds, and 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.
For FDICCrypto.com, the FDIC demands the company immediately cease the use of its domain name.
These cease-and-desist letters come after the FDIC, along with the Board of Governors of the Federal Reserve System (FRB), issued a joint letter on July 28, 2022 to cryptocurrency lending platform Voyager Digital, LLC demanding that it cease and desist from misrepresenting to its customers that it or the funds it holds are FDIC insured (see Legal Update, FDIC Issues Advisory to Insured Institutions and FDIC and FRB Issue Letter to Voyager Digital Regarding Misrepresentations on Deposit Insurance for Digital Assets).