[HN Gopher] FDIC issues cease and desist letter to FTX US [pdf]
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FDIC issues cease and desist letter to FTX US [pdf]
Author : vishnugupta
Score : 98 points
Date : 2022-08-19 18:32 UTC (4 hours ago)
(HTM) web link (www.fdic.gov)
(TXT) w3m dump (www.fdic.gov)
| carlosdp wrote:
| 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.
| NotYourLawyer wrote:
| duskwuff wrote:
| > 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/bcre...
| imustbeevil wrote:
| > 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.
| InitialLastName wrote:
| > 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 wrote:
| 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.
| vkou wrote:
| > 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.
|
| Yes, he's repeating an old scam that has played out a
| number of times in this space.
|
| 1. Build customer confidence by telling them that your[1]
| accounts[2] are FDIC-insured[3].
|
| 2. Go to Vegas and put all your customers' money on red.
|
| 3. Whoops.
|
| It's fine for some Joe on reddit to be this willfully
| ignorant and misleading about how the technicalities of
| FTX, its accounts, and the FDIC work. But it's not fine for
| the CEO of FTX to do this. It's his job to know this shit,
| and it's his job to not mislead his customers. [4]
|
| [1] And by your, we mean our.
|
| [2] And by accounts, we mean our operating accounts.
|
| [3] And we don't mean insured against us doing stupid shit
| with your money, we mean insured against our counterparty
| running off with _our_ money.
|
| [4] Well, it would be if he weren't running a fly-by-night
| wildcat bank.
| marshray wrote:
| "brokerage accounts are SIPC-insured, cash associated with
| brokerage accounts is managed into FDIC-insured accounts at
| our partner bank"
|
| https://twitter.com/Brett_FTX/status/1552339740397109248
| mv1234 wrote:
| I wouldn't be so quick to assume good faith. Voyager made
| the same "pedantic" mistake in their marketing materials
| and quite a few retail investors got a nasty surprise when
| they collapsed.
|
| https://www.reddit.com/r/Invest_Voyager/comments/vp8kdq/pre
| p...
| bena wrote:
| It seems like a mistake, but the sort of mistake that makes me
| even more wary of them.
|
| They seemed to phrase things to imply things were more insured
| than not. It seemed like they tried their best to arrange the
| verbiage in a way where they could be technically correct while
| still giving the wrong impression. So if something went tits
| up, they could say, "No, what we said was _this_ ". And it
| seems like they messed that up. They crossed the line that they
| didn't want to cross.
|
| So I'm sure that it was a mistake. They didn't mean to say the
| thing. But they really, really, really wanted to imply that
| thing. So, yeah, sketchy as hell.
| jqpabc123 wrote:
| In other words, what he really meant was, we have an FDIC insured
| account around here somewhere.
| oldstrangers wrote:
| Headline written for maximum panic. "FDIC issues cease and desist
| letter to FTX US to remove a tweet" doesn't sound as concerning.
| bdcravens wrote:
| 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 wrote:
| 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.
| toolz wrote:
| They didn't - read the tweet, the statement they made is
| factual and boring. The tweet says they hold funds in FDIC
| insured banks and stocked in insured brokerages...how on
| earth is this misleading or controversial is beyond me.
| nodesocket wrote:
| This has popped up before with other crypto exchanges. The
| core piece is that the bank that the crypto exchange uses is
| FDIC insured but not the direct crypto exchange. So, if the
| bank that the exchange uses goes under, then yes that money
| should be insured. However, if the exchange itself goes under
| you SOL.
|
| So technically this is accurate but very misleading. This is
| a complete nothing burger. They want Brett to remove a tweet
| (posted on his personal account by the way) and text on 3rd
| party sites FTX US does not control. Government regulation at
| its best.
| LiquidSky wrote:
| >Government regulation at its best.
|
| Yes? Your own comment says this was a deliberate attempt to
| mislead people. This is exactly what regulation is meant to
| stop.
| marshray wrote:
| > However, if the exchange itself goes under you SOL.
|
| Either your deposits are federally protected from failure
| of the institution, or not.
|
| It's as ridiculous as me telling my credit card issuers
| that their loans to me are federally protected because I
| have an FDIC bank account.
|
| Nobody's worried about some bank going under, we're worried
| about the risk of trusting our money with a crypto exchange
| when so many have been Ponzi schemes.
|
| Waving around the terms FDIC- and SIPC-insured in a way
| that implies that it means something to the end consumer
| is, IMHO, the sign of a scammer.
| dpifke wrote:
| This is about their direct deposit product, which is offered
| through an FDIC-insured bank, Evolve Bank & Trust. (Same bank
| that holds accounts for other fintech startups, such as
| Mercury.)
|
| It works as follows: When you sign up to enable direct
| deposit, FTX opens an account for you at Evolve. You can use
| that account number to have some or all of your paycheck
| direct-deposited. When you buy cryptocurrencies on FTX, that
| account is automatically debited. (This avoids the ACH
| transfer step if you were to purchase using your "regular"
| bank account.)
|
| I may be missing something, but I'm pretty sure the deposited
| funds _are_ FDIC insured, up until you use them for a
| purchase. But FTX isn 't allowed to say that without
| mentioning the name of the actual bank (Evolve), and the FDIC
| thinks the "until you use them for a purchase" part of the
| preceding sentence is confusing.
|
| I agree with the FDIC here, but I don't think FTX's
| statements were particularly nefarious. There's more nuance
| here than could fit into the tweet this C&D is about.
|
| Edit to add: this is how FTX explains it when you enable this
| feature on their site (no mention of FDIC insurance, but if
| it's a regular checking account, the unspent funds in that
| account would be protected if either FTX or Evolve went
| bust): https://pifke.org/ftxdd.png
| computing wrote:
| Yep, that's how I interpreted it to. The following things
| are still unclear to me:
|
| - if you ACH push/pull funds from your other banks accounts
| into FTXus, are those funds held in that Evolve Bank
| checking account (therefore being FDIC insured)?
|
| - if you deposit some crypto/stables and sell to USD, are
| those funds deposited into the Evolve Bank account?
|
| - if you wire in USD (domestic and international) are those
| stored in the Evolve Bank?
| _jal wrote:
| Strikes me as similar to small shops that have nothing to do
| with health care claiming to be "HIPAA-compliant".
|
| Doing things like this certainly conveys useful information,
| although not the information they intended to convey.
| jfengel wrote:
| Or better, "HIPPA compliant", which tells you even more.
| marshray wrote:
| How would it be similar, when FTX has everything to do with
| FDIC/SIPC protections?
| _jal wrote:
| Companies cluelessly claiming important-sounding
| capabilities they do not have. Is that really difficult?
| JumpCrisscross wrote:
| > _Companies cluelessly claiming important-sounding
| capabilities they do not have_
|
| Fraudulently. Not just cluelessly. The "government can't
| crypto" meme led a lot of people to lawlessness.
| vkou wrote:
| You don't, but it's easier to ask for forgiveness, than for
| permission, when your wildcat bank loses all of its
| customers' money.
| pessimizer wrote:
| 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 wrote:
| 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.
| duxup wrote:
| Current headline:
|
| > FDIC issues cease and desist letter to FTX US
|
| Seems ok
| rvz wrote:
| 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.
| mcculley wrote:
| 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 wrote:
| Why wasn't it tagged as Potentially False or Inaccurate or
| whatever they started doing to "certain" tweets?
| elil17 wrote:
| 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 wrote:
| 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...
| colechristensen wrote:
| Good. Regulators have been dragging their feet with crypto
| businesses and them taking action means hopefully fewer people
| will be taking misrepresented risks.
| Animats wrote:
| 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-...
|
| [2] https://ftx.us/legal/regulations-licenses
|
| [3] https://www.sec.gov/reportspubs/investor-
| publications/divisi...
| gruez wrote:
| >Celsius managed to create the impression that, funds deposited
| to them were somehow insured.[1]
|
| Are they not? Sure, they're not FDIC insured, but it's pretty
| clear from the press release that the insurance is just the
| company itself promising to pay depositors if there are
| unexpected losses. Obviously if the losses exceed whatever has
| in the bank, the insurance won't be able to cover everything.
| [deleted]
| qeternity wrote:
| This is self-insurance which is a polite way of saying you
| don't have any.
| loxias wrote:
| > Their derivatives unit, FTX US Derivatives, does have some of
| the licenses of a commodity exchange.
|
| This is because their derivatives unit was acquired, previously
| LedgerX, which I've used happily for 2 years. They're
| professionals, and not sketchy. It's really unfortunate that
| the antics and sketchiness of the parent might affect the
| perfectly legitimate and rule-following child company, and all
| of their customers like myself.
|
| Wondering if I should close my positions, sigh.
|
| edit: Wow, what a deceptive clickbait title! Should read "FDIC
| tells FTX US to delete a tweet".
| purpleblue wrote:
| 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.
| repomies69 wrote:
| I'm not coinbase nor FTX but if I would have already made
| billions I would consider myself a winner. I would say that
| all crypto companies that have survived with some kind of
| profitability for more than 3 years are clear winners.
| kube-system wrote:
| Well, you only know how legit is legit enough in hindsight.
|
| At one point, people thought it was legit enough to treat
| cryptocurrencies in the same way one might treat
| collectible trading cards.
| connor11528 wrote:
| 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
| purpleblue wrote:
| Most people and most drivers are against AB5 and it showed
| in the polling booth. It's a terrible piece of legislation
| that singlehanded caused the supply chain issues last year.
| They tried carving out industry after industry from the law
| because most people don't want to work the way AB5 is
| forcing, and it still broke things and things continue to
| be broken.
| colejohnson66 wrote:
| How did AB5, a law specific to California, cause a global
| supply chain shortage? Wouldn't it be more reasonable to
| say that COVID was the ultimate cause?
|
| If you're referring to the LA and nearby ports being
| clogged, my understanding is that there was a massive
| rise in demand as restrictions (from COVID) were lifted,
| and they happened to coincide with the holiday season.
| Workers (and truckers), also at that time, realized they
| deserve better working conditions and decided to stop
| working, leading to an inability to move containers.
| That's not AB5's fault.
| purpleblue wrote:
| Who said global supply chain? You're transparently
| twisting my words to try to win your fake argument, it's
| dishonorable.
| shigawire wrote:
| As another data point for you, I read "the supply chain
| issues" as referring to the global issues since it was
| not specified.
|
| Don't be so prickly.
| jfim wrote:
| There are issues with AB5 as it pertains to owner-
| operators (people who own their truck and drive it).
|
| Before AB5, a carrier company could hire an owner-
| operator to do some work without them being employees
| (eg. to handle excess work that their employees could
| not), but now they cannot, so those carriers are not
| sending any more business to owner-operators.
|
| The options for owner-operators, who paid a large sum to
| acquire their truck, are to move out of California,
| become employees (owner-operators likely don't want that,
| hence them acquiring their own truck), or stop driving
| altogether.
|
| Since California is a major port of entry for goods in
| the USA, having fewer truckers to move those goods leads
| to logistical issues.
| murillians wrote:
| https://twitter.com/Brett_FTX/status/1560701320717369349
|
| Brett's response
| NotYourLawyer wrote:
| That... does not make me think he was telling the truth.
| fortran77 wrote:
| 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?
| duxup wrote:
| May have been better to delete tweet and not say anything.
| dylan604 wrote:
| But that's not how you play the social media game.
| okwubodu wrote:
| Given that this tweet
|
| (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 wrote:
| 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 wrote:
| 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 wrote:
| 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 wrote:
| They are per-customer accounts. This is how they explain
| it when you enable the feature:
| https://pifke.org/ftxdd.png
| pavlov wrote:
| A crypto company lied to customers? Color me surprised.
| notch656a wrote:
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