FTX has responded to a cease-and-desist order by the Federal Deposit Insurance Corporation (FDIC). The FDIC issued the order against the company because it delivered “false and misleading statements” to its community.
Company president Brett Harrison responded to FDIC’s order on Twitter, saying that his company “didn't mean to mislead anyone”. He said FTX did not mean to imply that FDIC insurance gave advantages to crypto assets. FTX CEO and founder Sam Bankman-Fried also said although FTX was not insured by the FDIC, it worked with banks that were insured.
We really didn’t mean to mislead anyone, and we didn’t suggest that FTX US itself, or that crypto/non-fiat assets, benefit from FDIC insurance. I hope this provides clarity on our intentions. Happy to work directly with the FDIC on these important topics.
— Brett Harrison (@Brett_FTX) August 19, 2022
Bankman-Fried added that FTX might explore the possibility “that individual accounts using direct deposit... could, in the future, be used to further protect customers” with FDIC.
1) Clear communication is really important; sorry!
— SBF (@SBF_FTX) August 19, 2022
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. https://t.co/MHMSMDE8Le
FDIC’s order
The order was issued on Friday last week in response to a now-deleted social media post by Harrison. Harrison said that every direct deposit made to FTX US was kept in an FDIC-insured bank account in the user’s name. FDIC explained that it only covered funds in insured bank accounts and did not dabble in stocks or cryptocurrency.
Harrison also said that “stocks are held in FDIC-insured and SIPC [Security Investor Protection Corporation]-insured brokerage accounts,” which was false, according to the FDIC.
The FDIC acted in accordance with the Federal Deposit Insurance Act, which prevents companies from claiming that their products are insured by the federal institution, whether in the company’s name, documents, or advertisements.
After releasing the order, the FDIC gave FTX 15 days to confirm that they had corrected their previous statements. The FDIC also released the same notice for other crypto-related agencies, including Cryptonews.com, SmartAsset.com, and FDICCrypto.com.
About FTX
FTX is a cryptocurrency exchange based in the Bahamas, founded by Bankman-Fried and Gary Wang in 2019.
The exchange market now offers traditional stocks and crypto products like Robinhood. Bankman-Fried revealed that he owned 7.6 percent of Robinhood in May. Reportedly, he aims to acquire the platform for a retail expansion in the U.S. The FTX founder also bought numerous start-ups across Australia and Switzerland in the past few years.
Although FTX has increased its expansion attempts, it still focuses on futures and derivatives trades, catering mostly to sophisticated traders. Reports have shown that two-thirds of FTX’s revenue comes from futures, while only 16 percent comes from spot trading.
FTX witnessed growth in its revenue in the past two years. In 2021, its revenue grew 1,000 percent from $89 million to $1.02 billion. Meanwhile, its net income was $388 million last year, as opposed to $17 million in 2020.
FTX recorded $270 million in revenue in Q1 of 2022 and was projected to finish with $1.1 billion. However, as the crypto market is experiencing a Crypto Winter, it is uncertain whether FTX will retain the same level of revenue.
Nevertheless, analysts have predicted that FTX and Bankman-Fried’s other company, Alameda Research, will see stable markets despite the prolonged bear.
Bankman-Fried has offered lines of credits to various crypto firms that struggle to navigate the fluctuating market. He told reporters he had “a few billion” to bailout more crypto companies in the future.