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On July 13, the FTC issued a press release announcing a settlement with the bankrupt crypto platform. The New Jersey-based company, which filed for bankruptcy in July 2022, marketed a variety of cryptocurrency products and services to consumers, including interest-bearing accounts, personal loans secured by cryptocurrency investments, and a cryptocurrency exchange. According to the FTC, the company and its executives deceived users into investing in cryptocurrency, falsely promising access to investments, high returns and investment security. The FTC complaint alleges that instead of securing these investments, the platform took ownership of and misappropriated more than $4 billion in investments. Specifically, the company allegedly used customer deposits to fund operations, pay other customers, borrow from other institutions, and make high-risk investments. As the company’s financial health deteriorated, executives hid the company’s finances by withdrawing significant amounts of cryptocurrency from the platform two months before the company filed for bankruptcy.
The FTC’s proposed settlement prohibits the company and its subsidiaries from managing consumers’ assets and prohibits the companies from misrepresenting the benefits of any product or service; make false, fictitious or fraudulent representations to any customer of a financial institution in order to obtain or obtain their financial information; and from disclosing nonpublic personal information about customers without their express consent.
This puts into practice: The settlement is just one of several actions in the recent federal crackdown on the crypto market. In the wake of the collapse of several crypto companies, the FTC and other federal agencies have taken on the task of policing an industry with very few built-in guardrails and many opportunities for fraud. Consistent with other actions by the FTC and the SEC, the settlement emphasizes the need for due diligence and transparency on the part of crypto-based service providers when communicating with the public and providing services.
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