FDIC orders Unbanked, Inc. to halt false deposit insurance claims

WASHINGTON — The Federal Deposit Insurance Corp. issued a cease-and-desist order Friday to an Alpharetta, Ga.-based cryptocurrency nonbank known as Unbanked, Inc., saying that the firm made incorrect and deceptive statements when it suggested various crypto-related products it offers were covered by FDIC deposit insurance.

FDIC said the company's promotional materials on its website and social media account falsely suggested FDIC insurance encompasses cryptocurrency, and further implied the agency's insurance would protect Unbanked, Inc.'s investors against potential losses. While the FDIC noted Unbanked has advertised it holds partner-banking relationships with two actual FDIC-insured banks, the agency strictly prohibits conflating such partnerships with deposit insurance coverage, particularly over digital assets, which the agency has explicitly said it does not cover.

"FDIC insurance does not cover cryptocurrency or digital assets," the agency wrote in a press release announcing the action. "In addition, the FDIC only insures deposits held in FDIC-insured financial institutions and only protects against losses caused by the failure of an FDIC-insured financial institution."

FDIC chair Martin Gruenberg has repeatedly said he will work to defend the reputation and credibility of its deposit insurance, something he says is threatened when non-banks misrepresent the nature of coverage. In an increasingly online banking ecosystem, a handful of companies have violated FDIC rules in recent years by incorrectly claiming their products are government-backed.

While not a primary regulator for the crypto industry itself, the FDIC is once again asserting its regulatory dominance over an area where it has unquestionable authority: How firms may represent deposit insurance. The agency's ongoing diligence to ensure consumers clearly understand which products and companies are FDIC insured has largely defined FDIC's approach to crypto regulation in recent years.

The Federal Deposit Insurance Act empowers the agency to regulate which companies can claim to be FDIC insured, how companies use the agency's logo and name in advertising and which products companies may represent as FDIC insured. In short, companies are prohibited from employing the agency's likeness to profit off of the FDIC's long-cultivated reputation and trust.

In recent years, the FDIC has stepped-up its enforcement against such misleading representations by crypto non-banks. Last July, the agency sent a similar letter to the crypto exchange Voyager, and in August, it issued letters to failed exchange FTX and other companies, addressing their deceptive practices. It also issued similar cease-and-desist orders to crypto firms CEX.IO and Zera in February and to Bodega Importadora de Pallets — also known as Bodega — OKCoin USA, Inc. and Money Avenue, LLC in June earlier this year.