FDIC accuses OKCoin of false insurance claims
The Federal Deposit Insurance Corporation (FDIC) has issued a cease-and-desist letter to California-based crypto exchange OKCoin to stop falsely claiming that its client funds are insured by the government.
In a letter dated June 15, the FDIC accused OKCoin and its senior executives of making inaccurate representations, explicitly or implicitly, by suggesting that certain cryptocurrency-related products were FDIC-insured.
The agency said that the exchange failed to distinguish the FDIC status of its own bank deposits and customers’ funds after a section of its website inaccurately states that “U.S. dollars held in your OKCoin fiat currency wallet are FDIC-insured up to $250,000 per account.”
“OKCoin is not FDIC-insured and the FDIC does not insure non-deposit products. By not distinguishing between US-dollar deposits and crypto assets, the statements imply FDIC insurance coverage applies to all customer funds (including crypto assets). In addition, the FDIC does not insure or endorse particular blockchains. Accordingly, these statements are likely to mislead, and potentially harm, consumers,” the FDIC noted in its letter.
Under the Federal Deposit Insurance Act, it’s prohibited to use the FDIC’s name or logo to imply customer funds are government insured when they are not. The agency also has the authority to assess civil money penalties against anyone “implying that an uninsured product is FDIC–insured or knowingly misrepresenting the extent and manner of deposit insurance.”
The FDIC demanded that remove any statements or references anywhere that suggest the exchange is FDIC-insured and that any funds held in crypto by it are protected by FDIC insurance.
In a warning to OKCoin, the FDIC mentioned misrepresentation of FDIC coverage and ordered the firm to remove such false and misleading statements about the FDIC-insured status.
The FDIC ramped up its efforts to police crypto firms that may be misleading investors on whether their funds enjoy a government backstop. It has issued cease and desist letters to five crypto firms, including bankrupt firms FTX and Voyager Digital, to stop making similar misleading statements. Later, the FDIC urged banks dealing with crypto companies to ensure that their customers are aware of what types of assets are government-insured.
FDIC Chairman Martin J. Gruenberg commented on an observed increase in these kinds of misrepresentations and their impacts on consumers. “These practices not only harm those who are targeted with the false promise of deposit insurance, but, if left unchecked, could also undermine confidence in the FDIC, FDIC-insured banks, and the U.S. banking system.”
