On October 12, the FTC
announced it has reached a
settlement with a bankrupt crypto company, which will permanently ban the company from managing consumer assets. According to the
federal court complaint, the FTC alleged that from at least 2018, respondent attracted customers by promising their deposits would be secure, but when the company failed, consumers lost access to significant assets, resulting in over $1 billion in cryptocurrency asset losses. The FTC alleges violations of the FTC Act and the Gramm-Leach-Bliley Act's prohibition on obtaining financial information through false statements. Respondent allegedly misled consumers by claiming their assets were safe on the platform, stating that "YOUR USD IS FDIC INSURED." However, respondent is not a bank and the deposits were not eligible for FDIC insurance. The FTC complaint also alleged that the FDIC does not insure cryptocurrency assets, and consumers' cash deposits were placed in an account held by respondent at a traditional bank. Consumers' funds were protected only if that bank failed, but their cryptocurrency was not protected at all.
The proposed settlement with respondent and its affiliates permanently bans them from offering, marketing, or promoting any product or service related to depositing, exchanging, investing, or withdrawing assets. Respondent and its affiliates have agreed to a judgment of $1.65 billion, which will be suspended to allow the bankrupt company to return its remaining assets to consumers through bankruptcy proceedings. The proposed settlement also prohibits respondent and its affiliates from managing consumer assets, misrepresenting product benefits, making false representations to obtain financial information, and disclosing nonpublic personal information without consent.
The FTC also announced that it is filing a lawsuit against the respondent’s CEO for making false claims that consumer accounts were FDIC-insured. Respondent’s CEO has not agreed to a settlement, and the FTC's case against him will proceed in federal court. “In a parallel action, on October 12, the Commodity Futures Trading Commission separately charged [respondent’s CEO] with fraud and registration failures,” the FTC added.
