FTC Settles with Bankrupt Crypto Company, but Pursues CEO for Deceptive FDIC Claims
The Federal Trade Commission (FTC) recently announced that it has reached a settlement with the bankrupt crypto company Voyager over allegations of deceptive crypto marketing practices. Despite the settlement with the company, the FTC is continuing its case against the CEO, Stephen Ehrlich, for his involvement in the deceptive practices related to the Federal Deposit Insurance Corporation (FDIC).
Deceptive Marketing Practices
The FTC’s complaint against Voyager alleges that from 2018 to its declaration of bankruptcy in July 2022, the company enticed consumers with false promises that their deposits were insured by the FDIC and considered “safe.” However, the truth is that deposits with Voyager were not eligible for FDIC insurance and were not protected if the company failed. The FDIC only insures deposits held by insured banks or savings associations, and Voyager was not a chartered bank or savings association.
The FTC claims that Voyager’s misleading claims led consumers to trust the company with their funds, resulting in significant losses when Voyager filed for bankruptcy in July 2022. The company allegedly knew that these claims could mislead consumers, as its partner bank raised concerns about the FDIC deposit insurance claims in 2021, calling them “potentially misleading.”
The Settlement
According to the proposed settlement, announced on October 12, 2023, Voyager and its affiliated companies will be permanently banned from offering or promoting any product or service related to depositing, exchanging, investing, or withdrawing consumers’ assets. In addition, the companies have agreed to a judgment of $1.65 billion, which will be suspended to facilitate the distribution of remaining assets to consumers as part of the bankruptcy proceedings.
However, the settlement does not include the CEO, Stephen Ehrlich. The FTC will proceed with its deceptive practices case against him in federal court. The Commodity Futures Trading Commission (CFTC) has also brought a parallel action against Ehrlich for violations of the Commodity Exchange Act, based on the deceptive FDIC deposit insurance claims.
Key Takeaways
– This case serves as a reminder to both cryptocurrency and banking-as-a-service (BaaS) companies that making misleading claims about financial security, including FDIC deposit insurance coverage, can have serious consequences.
– Regulatory scrutiny of the crypto industry is increasing, and violations in one area can lead to multiple enforcement risks and consequences.
– The FDIC has updated its deposit insurance marketing regulations, issued guidance, and brought enforcement actions to address deceptive claims.
– The enforcement action also relied on a provision of the Gramm-Leach-Bliley Act (GLBA) that prohibits obtaining customer information through false statements, which applies to “any person.”
– Non-bank entities providing services to banks should be aware of the highly regulated environment they are entering, where federal and state agencies have robust regulatory, enforcement, and supervisory powers.
Frequently Asked Questions
What were the deceptive marketing practices of Voyager?
Voyager allegedly deceived consumers by falsely claiming that their deposits were insured by the FDIC and were considered “safe.” However, the company was not a chartered bank or savings association, and their deposits were not eligible for FDIC insurance.
What are the consequences of the settlement with Voyager?
As part of the settlement, Voyager and its affiliated companies are permanently banned from offering or promoting any product or service related to depositing, exchanging, investing, or withdrawing consumers’ assets. The companies have also agreed to a judgment of $1.65 billion, which will be suspended to facilitate the distribution of remaining assets to consumers during the bankruptcy proceedings.
What is the status of the case against CEO Stephen Ehrlich?
The settlement does not include CEO Stephen Ehrlich. The FTC will continue its case against him in federal court for his alleged involvement in the deceptive practices related to FDIC claims.
What actions have been taken by regulatory authorities regarding FDIC deposit insurance claims?
The FDIC has updated its deposit insurance marketing regulations, issued guidance, and brought enforcement actions to address deceptive claims related to FDIC deposit insurance. The CFTC has also brought a parallel action against Stephen Ehrlich for violations of the Commodity Exchange Act based on the deceptive claims.
0 Comments