8 ms·

FDIC issues cease and desist letter to FTX US [pdf]

116 points by vishnugupta 4y ago

pavlov 4y ago
A crypto company lied to customers? Color me surprised.
- notch656a 4y ago
murillians 4y ago
https://twitter.com/Brett_FTX/status/1560701320717369349 https://twitter.com/Brett_FTX/status/1560701320717369349 Brett's response
- NotYourLawyer 4y ago
  That… does not make me think he was telling the truth.
  - duxup 4y ago
    May have been better to delete tweet and not say anything.
    - dylan604 4y ago
      But that's not how you play the social media game.
      - duxup 4y ago
        True. Volume of communication seems to be the playbook.
  - okwubodu 4y ago
    Given that this tweet (https://twitter.com/Brett_FTX/status/1552339740397109248 https://twitter.com/Brett_FTX/status/1552339740397109248) > brokerage accounts are SIPC-insured, cash associated with brokerage accounts is managed into FDIC-insured accounts at our partner bank is still up, I imagine the imprecision of the statement is what the FDIC took issue with.
    - adrr 4y ago
      Because it's probably setup similarly to Voyager which is a single omnibus account and offers no protection of if the brokerage goes bankrupt.
      - AlexandrB 4y ago
        Does it even offer any realistic protection if the "partner bank" goes under? AFAIK the limit on FDIC insurance is $200k / account. Is FTX managing hundreds/thousands of account to get around this or is only $200k of their money FDIC insured?
        colechristensen 4y ago
        To get FDIC insurance in a meaningful way it would have to be per-customer accounts created in specific ways. If they're not created in particular ways the funds in the third party bank accounts can be taken in bankruptcy actions by creditors and aren't actually protected customer funds and aren't insured at all accept with whatever level of insurance they have for the partner bank going under, but that is not the risk anybody is worried about.
        dpifke 4y ago
        They are per-customer accounts. This is how they explain it when you enable the feature: https://pifke.org/ftxdd.png https://pifke.org/ftxdd.png
  - fortran77 4y ago
    He seems very slimy here. Why would he mention the words "FDIC Insured" if he didn't want people to think their deposits were insured?
    - aaaaaaaaata 4y ago
      Many investors hold cash for long periods. Knowing that it's safe before an investment is triggered is a big checkbox.
      - fortran77 4y ago
        Right. But it wasn't safe because it wasn't really FDIC insured.
colechristensen 4y ago
Good. Regulators have been dragging their feet with crypto businesses and them taking action means hopefully fewer people will be taking misrepresented risks.
carlosdp 4y ago
TLDR: The Pres. of FTX made a confusing tweet about some external FDIC-insured accounts FTX uses to store some customer funds, that the FDIC claims could imply FTX accounts themselves are FDIC insured. And another tweet that says "stocks... are held in FDIC insured accounts," which is untrue since the FDIC does not insure stock holdings. Seems likely it's a genuine mistake on their part, totally fair for the FDIC to call it out, and seems like as long as they acknowledge that the tweets could be misleading and give the tweeter a talk, it's just a warning.
- imustbeevil 4y ago
  > Seems likely it's a genuine mistake on their part A genuine mistake like saying "this bottle will cure any ailment", or "our machine can test blood with a single drop". They are lying about the money being safe to trick people into mispricing the risk.
- duskwuff 4y ago
  > totally fair for the FDIC to call it out Especially given that other crypto funds have deliberately misled customers about the presence and/or significance of FDIC insurance, and subsequently collapsed: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220728a.htm https://www.federalreserve.gov/newsevents/pressreleases/bcre...
- InitialLastName 4y ago
  > Seems likely it's a genuine mistake on their part If the president of a financial services company didn't understand, in substantial detail, which types of account FDIC insurance applies to, I'd have some big questions about their capacity to manage a financial services company.
  - carlosdp 4y ago
    Read the tweet, it's not that he didn't understand, he was in fact talking about FDIC insured accounts, just ones that FTX uses, not FTX accounts themselves. The FDIC is being a little pedantic here, but that's fine, it was a warning and he deleted the tweet.
oldstrangers 4y ago
Headline written for maximum panic. "FDIC issues cease and desist letter to FTX US to remove a tweet" doesn't sound as concerning.
- pessimizer 4y ago
  Fraud is never about anything other than false statements. Falsely telling people their money is insured (i.e. no possibility of loss, you can only win!) is a very bad thing.
  - rvz 4y ago
    Then we can all agree that the regulators are doing their jobs then. Whether if it is the NTHSA investigating Tesla over its misleading claims and deceptive advertising of Fools Self Driving (FSD) and autopilot in the US to this matter of a crypto exchange misleading its customers via a tweet with the FDIC ordering them to remove the tweet, there are no exceptions to putting out vacuous and unchecked claims that involves safety in finance, or on the roads or anything that can cause financial or life changing implications. This only shows that the regulators are doing their job and the system is working.
- bdcravens 4y ago
  Per the letter, probably want to point out the cease and desist was due to "Potential Violations of Section 18(a)(14) of the Federal Deposit Insurance Act" Also the conditions of the cease and desist also say they should make no additional dishonest statements regarding FDIC insurance, which is in no way restricted to tweets.
- marshray 4y ago
  How do you accidentally make false statements about customer funds being FDIC- and SIPC-insured? It's just not plausible to me that this wasn't an intentional attempt to mislead about some pretty darn fundamental properties of the investment scheme.
  - _jal 4y ago
rvz 4y ago
A magnificent and triumphant 'Nothing'. Just a regulator telling an exchange to remove a confusing tweet. A false alarm to collect impulse upvoters who read as far as the clickbait headline. So it's business as usual and no major investigation or breathtaking slam duck billion dollar fine this time. Move along now, nothing to see here. EDIT: So what I said isn't true and the tweet was not deleted? The misleading tweet in question has been deleted. As instructed by the FDIC: 'We hearby demand that you cease and desist, and take immediate corrective action to address these false statements, as more fully set forth below.' FTX were caught by the regulators, they complied and that is that. There are no investigations, fines, lawsuits, or any grand trial of the century that you thought you were looking for. This ain't it. The regulators are doing their job and the system is working.
jqpabc123 4y ago
In other words, what he really meant was, we have an FDIC insured account around here somewhere.
Animats 4y ago
The last go-round of this was with Celsius Network, which went bust a few months ago. Celsius managed to create the impression that, funds deposited to them were somehow insured.[1] Now that Celsius is in bankruptcy, customers are finding out that they're not. Plus there were sketchy transactions, such as loans to affiliated parties. Which, of course, went bad. The trouble with FTX is that they are a pretend bank and brokerage. They offer services that look like banking and brokerage, but the backup isn't there. They're not regulated as a bank or a broker, and they don't have the insurance of a bank or a broker. From their site: * "FTX US is a US licensed cryptocurrency exchange that welcomes American users." * "The safe and easy way to get into crypto." * "We are US based and regulated" * "Don't be like Larry". There is a concerted effort to create an illusion of legitimacy. Even in their disclosures[2], you can see them trying to create the illusion that they're regulated as a financial institution. Their derivatives unit, FTX US Derivatives, does have some of the licenses of a commodity exchange. The main company, "West Realm Shire Services" (remember Magic, the Gathering Online Exchange?) just has money transmitter licenses. Not in NY or CA, interestingly. They don't have a banking license from a state. Or a New York State BitLicense. Or a brokerage license from the SEC.[3] Or an exchange license from the SEC. Or Security Investors Protection Corporation insurance. Or Financial Industry Regulatory Authority regulation. [1] https://newsoutlet.ai/blockchain/celsius-ceo-alex-mashinsky-announces-self-insurance-all-its-users-coins/ https://newsoutlet.ai/blockchain/celsius-ceo-alex-mashinsky-... [2] https://ftx.us/legal/regulations-licenses https://ftx.us/legal/regulations-licenses [3] https://www.sec.gov/reportspubs/investor-publications/divisionsmarketregbdguidehtm.html https://www.sec.gov/reportspubs/investor-publications/divisi...
- purpleblue 4y ago
  This is how Coinbase wins in the crypto space. They are doing their best to do everything by the books. It's not flashy and exciting like FTX but they're playing the long game and intend to be around 20 years from now.
  - connor11528 4y ago
    Could be. How FTX wins the crypto space is by bribing American politicians to get their way and do what they want. The founder has said he's gunna spend $1 billion on lobbying. Doordash, Postmates and Uber have proven this works when their business was under fire through AB5 legislation they spent hundreds of millions on a state proposition to block it
elil17 4y ago
Seems like a lot of tech companies have tried to ignore regulations. Uber ignored taxi rules, AirBnB hotel rules, and many crypto companies have ignored banking rules. The difference is that the FDIC doesn't fuck around.
- dylan604 4y ago
  Rules are for other people. /s People seem to think that disruption requires the breaking of rules including legal ones. There's a difference from disruption from a new player by offering better service at cheaper prices than getting cheaper prices by breaking laws. But hey, history is rarely made by...
mcculley 4y ago
This is another example that Twitter needs richer semantics. It should not be possible to delete a tweet. There should be some way to mark it as "retracted".
- dylan604 4y ago
  Why wasn't it tagged as Potentially False or Inaccurate or whatever they started doing to "certain" tweets?

116 points by vishnugupta 4y ago

pavlov 4y ago

A crypto company lied to customers? Color me surprised.

notch656a 4y ago

murillians 4y ago

https://twitter.com/Brett_FTX/status/1560701320717369349 https://twitter.com/Brett_FTX/status/1560701320717369349 Brett's response

NotYourLawyer 4y ago
That… does not make me think he was telling the truth.
- duxup 4y ago
  May have been better to delete tweet and not say anything.
  - dylan604 4y ago
    But that's not how you play the social media game.
    - duxup 4y ago
      True. Volume of communication seems to be the playbook.
- okwubodu 4y ago
  Given that this tweet (https://twitter.com/Brett_FTX/status/1552339740397109248 https://twitter.com/Brett_FTX/status/1552339740397109248) > brokerage accounts are SIPC-insured, cash associated with brokerage accounts is managed into FDIC-insured accounts at our partner bank is still up, I imagine the imprecision of the statement is what the FDIC took issue with.
  - adrr 4y ago
    Because it's probably setup similarly to Voyager which is a single omnibus account and offers no protection of if the brokerage goes bankrupt.
    - AlexandrB 4y ago
      Does it even offer any realistic protection if the "partner bank" goes under? AFAIK the limit on FDIC insurance is $200k / account. Is FTX managing hundreds/thousands of account to get around this or is only $200k of their money FDIC insured?
      - colechristensen 4y ago
        To get FDIC insurance in a meaningful way it would have to be per-customer accounts created in specific ways. If they're not created in particular ways the funds in the third party bank accounts can be taken in bankruptcy actions by creditors and aren't actually protected customer funds and aren't insured at all accept with whatever level of insurance they have for the partner bank going under, but that is not the risk anybody is worried about.
        dpifke 4y ago
        They are per-customer accounts. This is how they explain it when you enable the feature: https://pifke.org/ftxdd.png https://pifke.org/ftxdd.png
- fortran77 4y ago
  He seems very slimy here. Why would he mention the words "FDIC Insured" if he didn't want people to think their deposits were insured?
  - aaaaaaaaata 4y ago
    Many investors hold cash for long periods. Knowing that it's safe before an investment is triggered is a big checkbox.
    - fortran77 4y ago
      Right. But it wasn't safe because it wasn't really FDIC insured.

colechristensen 4y ago

Good. Regulators have been dragging their feet with crypto businesses and them taking action means hopefully fewer people will be taking misrepresented risks.

carlosdp 4y ago

TLDR: The Pres. of FTX made a confusing tweet about some external FDIC-insured accounts FTX uses to store some customer funds, that the FDIC claims could imply FTX accounts themselves are FDIC insured. And another tweet that says "stocks... are held in FDIC insured accounts," which is untrue since the FDIC does not insure stock holdings. Seems likely it's a genuine mistake on their part, totally fair for the FDIC to call it out, and seems like as long as they acknowledge that the tweets could be misleading and give the tweeter a talk, it's just a warning.

imustbeevil 4y ago
> Seems likely it's a genuine mistake on their part A genuine mistake like saying "this bottle will cure any ailment", or "our machine can test blood with a single drop". They are lying about the money being safe to trick people into mispricing the risk.
duskwuff 4y ago
> totally fair for the FDIC to call it out Especially given that other crypto funds have deliberately misled customers about the presence and/or significance of FDIC insurance, and subsequently collapsed: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220728a.htm https://www.federalreserve.gov/newsevents/pressreleases/bcre...
InitialLastName 4y ago
> Seems likely it's a genuine mistake on their part If the president of a financial services company didn't understand, in substantial detail, which types of account FDIC insurance applies to, I'd have some big questions about their capacity to manage a financial services company.
- carlosdp 4y ago
  Read the tweet, it's not that he didn't understand, he was in fact talking about FDIC insured accounts, just ones that FTX uses, not FTX accounts themselves. The FDIC is being a little pedantic here, but that's fine, it was a warning and he deleted the tweet.

oldstrangers 4y ago

Headline written for maximum panic. "FDIC issues cease and desist letter to FTX US to remove a tweet" doesn't sound as concerning.

pessimizer 4y ago
Fraud is never about anything other than false statements. Falsely telling people their money is insured (i.e. no possibility of loss, you can only win!) is a very bad thing.
- rvz 4y ago
  Then we can all agree that the regulators are doing their jobs then. Whether if it is the NTHSA investigating Tesla over its misleading claims and deceptive advertising of Fools Self Driving (FSD) and autopilot in the US to this matter of a crypto exchange misleading its customers via a tweet with the FDIC ordering them to remove the tweet, there are no exceptions to putting out vacuous and unchecked claims that involves safety in finance, or on the roads or anything that can cause financial or life changing implications. This only shows that the regulators are doing their job and the system is working.
bdcravens 4y ago
Per the letter, probably want to point out the cease and desist was due to "Potential Violations of Section 18(a)(14) of the Federal Deposit Insurance Act" Also the conditions of the cease and desist also say they should make no additional dishonest statements regarding FDIC insurance, which is in no way restricted to tweets.
marshray 4y ago
How do you accidentally make false statements about customer funds being FDIC- and SIPC-insured? It's just not plausible to me that this wasn't an intentional attempt to mislead about some pretty darn fundamental properties of the investment scheme.
- _jal 4y ago

rvz 4y ago

A magnificent and triumphant 'Nothing'. Just a regulator telling an exchange to remove a confusing tweet. A false alarm to collect impulse upvoters who read as far as the clickbait headline. So it's business as usual and no major investigation or breathtaking slam duck billion dollar fine this time. Move along now, nothing to see here. EDIT: So what I said isn't true and the tweet was not deleted? The misleading tweet in question has been deleted. As instructed by the FDIC: 'We hearby demand that you cease and desist, and take immediate corrective action to address these false statements, as more fully set forth below.' FTX were caught by the regulators, they complied and that is that. There are no investigations, fines, lawsuits, or any grand trial of the century that you thought you were looking for. This ain't it. The regulators are doing their job and the system is working.

jqpabc123 4y ago

In other words, what he really meant was, we have an FDIC insured account around here somewhere.

Animats 4y ago

The last go-round of this was with Celsius Network, which went bust a few months ago. Celsius managed to create the impression that, funds deposited to them were somehow insured.[1] Now that Celsius is in bankruptcy, customers are finding out that they're not. Plus there were sketchy transactions, such as loans to affiliated parties. Which, of course, went bad. The trouble with FTX is that they are a pretend bank and brokerage. They offer services that look like banking and brokerage, but the backup isn't there. They're not regulated as a bank or a broker, and they don't have the insurance of a bank or a broker. From their site: * "FTX US is a US licensed cryptocurrency exchange that welcomes American users." * "The safe and easy way to get into crypto." * "We are US based and regulated" * "Don't be like Larry". There is a concerted effort to create an illusion of legitimacy. Even in their disclosures[2], you can see them trying to create the illusion that they're regulated as a financial institution. Their derivatives unit, FTX US Derivatives, does have some of the licenses of a commodity exchange. The main company, "West Realm Shire Services" (remember Magic, the Gathering Online Exchange?) just has money transmitter licenses. Not in NY or CA, interestingly. They don't have a banking license from a state. Or a New York State BitLicense. Or a brokerage license from the SEC.[3] Or an exchange license from the SEC. Or Security Investors Protection Corporation insurance. Or Financial Industry Regulatory Authority regulation. [1] https://newsoutlet.ai/blockchain/celsius-ceo-alex-mashinsky-announces-self-insurance-all-its-users-coins/ https://newsoutlet.ai/blockchain/celsius-ceo-alex-mashinsky-... [2] https://ftx.us/legal/regulations-licenses https://ftx.us/legal/regulations-licenses [3] https://www.sec.gov/reportspubs/investor-publications/divisionsmarketregbdguidehtm.html https://www.sec.gov/reportspubs/investor-publications/divisi...

purpleblue 4y ago
This is how Coinbase wins in the crypto space. They are doing their best to do everything by the books. It's not flashy and exciting like FTX but they're playing the long game and intend to be around 20 years from now.
- connor11528 4y ago
  Could be. How FTX wins the crypto space is by bribing American politicians to get their way and do what they want. The founder has said he's gunna spend $1 billion on lobbying. Doordash, Postmates and Uber have proven this works when their business was under fire through AB5 legislation they spent hundreds of millions on a state proposition to block it

elil17 4y ago

Seems like a lot of tech companies have tried to ignore regulations. Uber ignored taxi rules, AirBnB hotel rules, and many crypto companies have ignored banking rules. The difference is that the FDIC doesn't fuck around.

dylan604 4y ago
Rules are for other people. /s People seem to think that disruption requires the breaking of rules including legal ones. There's a difference from disruption from a new player by offering better service at cheaper prices than getting cheaper prices by breaking laws. But hey, history is rarely made by...

mcculley 4y ago

This is another example that Twitter needs richer semantics. It should not be possible to delete a tweet. There should be some way to mark it as "retracted".

dylan604 4y ago
Why wasn't it tagged as Potentially False or Inaccurate or whatever they started doing to "certain" tweets?