Home Technology FDIC continues its cease-and-desist sweep on deposit insurance and crypto – FinTech

FDIC continues its cease-and-desist sweep on deposit insurance and crypto – FinTech

FDIC continues its cease-and-desist sweep on deposit insurance and crypto – FinTech

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A few weeks ago, we reported that the FDIC and the Federal Reserve Board sent a cease and desist (“C&D”) letter to Voyager Capital to stop pretending that client funds were protected by deposit insurance. Last week, the FDIC sent five more letters to cryptocurrency-related companies about the same issue.

Demonstrating its now robust enforcement authority to repair the advertising of “any person” who knowingly or wrongfully assists or encourages another person to falsely or knowingly make a false statement when deposit insurance is available to customers, the five C&Ds were sent to companies that are not otherwise supervised or regulated by the FDIC and to individuals who have made representations regarding the availability of deposit insurance for crypto, one simply by owning a related domain name. (See our report regarding FDIC regulatory updates as of June 2, 2022, here.) The takeaway from this series of C&Ds is that the FDIC is hypersensitive to any statement involving deposit insurance and cryptocurrency and is willing to take the most technical positions to get that message across. Usually thought of as a rather obscure matter, deposit insurance is nonetheless one of the foundations of monetary security for the average person in the United States, and it is significant that the FDIC seeks so vigorously to protect this foundation.

Three of the companies receiving one of these C&Ds provide news and information about the cryptocurrency industry, only:

A cryptocurrency exchange, FTX US, received a C&D due to tweets from exchange chairman Brett Harrison that referenced the
smart asset newsletter article and stated that “Employer direct deposits to FTX US are stored in individually FDIC-insured bank accounts on behalf of users.” On this last point, the FDIC found that the inability of the tweet to identify the insured bank or banks in which these funds were placed was a material omission for the purposes of the filing disclosure rules. Finally, the FDIC sent a C&D to an individual, Corey Harriswho had registered a website domain called www.fdiccrypto.com. In this case, the FDIC alleged that simply by having this website domain, the individual was involved in making false and misleading statements regarding the availability of deposit insurance for cryptocurrency products.

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