FDIC Not Liable for Fraud in Cryptocurrency Partnership, Second Circuit Affirms

The U.S. Court of Appeals for the Second Circuit has upheld a lower court’s decision, ruling that the Federal Deposit Insurance Corporation (FDIC), acting as receiver for a failed bank, is not liable for fraud perpetrated against investors in a cryptocurrency partnership. The case centers on a $33 million investment scheme promising returns through a proprietary algorithmic trading strategy.

The Case Details

Investors allege they were defrauded by insiders who diverted funds from the cryptocurrency partnership, with minimal transfers actually reaching a cryptocurrency exchange over a two-year period. The plaintiffs, representing over 70 investors, sought to hold the FDIC accountable for the alleged fraud.

Second Circuit’s Ruling

The Second Circuit Court found that banks are not obligated to protect non-customers from intentional wrongdoing by their customers, except in cases involving fiduciary accounts. Crucially, the court determined that the plaintiff failed to demonstrate that the account in question was a fiduciary account or that a written fiduciary agreement existed, as required by the FDI Act. Source

FDIC Guidance on Crypto Activities

This ruling comes after the FDIC issued new guidance in March 2025, clarifying the process for banks engaging in crypto-related activities. FIL-7-2025 rescinds previous guidance (FIL-16-2022) and allows FDIC-supervised institutions to participate in permissible crypto activities without prior FDIC approval, provided they adequately manage associated risks. Source

Impact of New FDIC Guidance

The FDIC’s shift in policy, mirroring a similar move by the Office of the Comptroller of the Currency (OCC), signals a more permissive approach to crypto within the banking sector. Source The agency emphasizes the importance of robust risk management, including addressing market, liquidity, operational, cybersecurity, consumer protection, and anti-money laundering concerns.

Looking Ahead

The FDIC intends to continue collaborating with the President’s Working Group on Digital Asset Markets and will issue further guidance to clarify banks’ engagement in specific crypto-related activities. The agency also plans to work with other banking regulators to update interagency documents related to crypto-assets.