Crypto exchange Voyager has created even more issues for crypto, this time drawing the ire of the FDIC.
Covered:
- FDIC Issues Warning
- How Voyager Misrepresented Itself
FDIC Issues Warning
The U.S. Federal Deposit Insurance Corporation (FDIC) has issued a warning for their banks involved with crypto exchanges. Banks must actively ensure that any partners emphasize that crypto customers are not afforded the same protections as those banking with the TradFi industry.
“FDIC insurance does not protect a nonbank’s customers against the default, insolvency, or bankruptcy of any nonbank entity, including crypto custodians, exchanges, brokers, wallet providers or other entities that appear to mimic banks but are not,” the agency instructed.
The warning stems from Voyager’s involvement with Metropolitan Bank. According to the FDIC, the crypto exchange misrepresented itself to its customers because the funds are only insured in the event of Metropolitan failing, not Voyager. Voyager filed for bankruptcy last month.
The FDIC protects American consumers in the event of bank closures, capping insurance at 250k USD per account. The insurance is funded by the banks themselves. However, in the event that the banks’ insurance fund is unable to meet demand, the treasury would step in and prints more money to make consumers whole. Fun fact: Goldman Sachs is FDIC insured.
Under this new guidance from the FDIC, there could be legal ramifications for banks who deal with crypto companies that misrepresent this fact.
“In their dealings with crypto companies, insured banks should confirm and monitor that these companies do not misrepresent the availability of deposit insurance in order to measure and control risks to the bank, and should take appropriate action to address such misrepresentations,” the FDIC said.
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How Voyager Misrepresented Itself
Voyager had advertised itself to customers as being able to provide insurance on USD within their customer accounts. Based on their still not deleted tweet, it’s not a matter of misleading advertising with a carefully placed asterisk — and customers reading what they want to read.
“Have you heard? USD held with Voyager is FDIC insured up to $250K. Our customers’ security is our top priority. Start growing your crypto portfolio today,” their tweet from November 2020 reads.
The misleading version of this could have been “USD on your account is held by Metropolitan Bank, an FDIC insured bank.” However, the phrasing is about as matter of fact as you can get (“USD held with Voyager is FDIC insured up to $250K”). It almost seems as if they themselves believed that they were insured.
Ultimately, this says a lot about just how wild west crypto is still.
Have you heard? USD held with Voyager is FDIC insured up to $250K. Our customers’ security is our top priority. Start growing your crypto portfolio today.
— Voyager (@investvoyager) November 12, 2020