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FTC Reaches Settlement With Cryptocurrency Firm Voyager Digital; Allegations former executive falsely claimed consumer deposits were insured by the FDIC
The Federal Trade Commission announced a settlement with failed cryptocurrency firm Voyager that will permanently ban it from handling consumer assets and is filing a lawsuit against its former CEO, Stephen Ehrlich, for falsely claiming that customer accounts were insured by the Federal Deposit Insurance Corporation (FDIC) and were “safe,” even though the company was nearing eventual bankruptcy. The complaint also names Stephen Ehrlich’s wife, Francine Ehrlich, as a relief defendant.
In the complaint to federal court, the FTC charges that from at least 2018 until filing for bankruptcy in July 2022, Voyager used promises that consumers’ deposits would be “safe” to entice them to hand over their funds. When the company failed, consumers lost access to significant resources they had saved, including ongoing payroll deposits, college tuition funds and down payments on homes, according to the complaint, which notes that consumers were locked out from their cash accounts for more than a year. month and lost more than $1 billion in cryptocurrencies.
“Consumers have reported more than $1.4 billion in losses due to cryptocurrency scams over the past year, and the FTC continues to crack down on those who lie to consumers about these risky assets,” said Bureau Director Samuel Levine of Consumer Protection of the FTC. “This action reminds businesses and individuals: Don’t play fast and loose with FDIC insurance claims.”
THE Proposed solution with Voyager and its affiliates will permanently prohibit companies from offering, marketing or promoting any product or service that can be used to deposit, trade, invest or withdraw any assets. The companies also agreed to a $1.65 billion judgment, which will be suspended to allow Voyager to return its remaining assets to consumers in the bankruptcy proceedings. Former executive Stephen Ehrlich has not agreed to a settlement, and the FTC’s case against him will proceed in federal court.
According to the complaint, Voyager tricked consumers into depositing cash and cryptocurrency with the company by ensuring that their assets were especially safe on the platform. The company offered incentives to consumers who converted deposited money into a cryptocurrency called USD Coin, a so-called “stablecoin” that claims to track the value of the US dollar.
The company’s marketing included direct promises about the safety of consumers’ deposits. An example cited in the complaint included the line “YOUR USD IS FDIC INSURED”
Voyager, however, is not a bank or financial institution, and deposits made by consumers at Voyager could not be insured by the FDIC. The complaint notes that the FDIC does not insure crypto assets at all, and that consumers’ cash deposits were actually deposited into an account held by Voyager at a traditional bank that also issued debit cards on Voyager’s behalf. Consumers’ money was only protected if the bank itself failed, and their cryptocurrency was not protected at all.
The complaint notes that Voyager was aware that the company’s claims could mislead consumers. The bank where Voyager deposited consumer funds contacted the company in 2021 saying the claims were “potentially misleading.” A bank representative went on to say that “a reasonable consumer would conclude that their USDC [USD Coin] held with Voyager is insured by the FDIC. Although Voyager made some changes to its cardholder contract, the complaint notes that the company continued to run deceptive advertisements. The company removed the FDIC claims from its advertising only after receiving a cease-and-desist letter from the FDIC.
Ehrlich himself, in a June 2022 letter to Voyager clients, reassured them of the company’s stability, said it was “well capitalized and positioned to weather the bear market” and said consumer funds were “safe with us as in a moment of crisis”. bank.”
Two weeks later, the company blocked consumers’ access to their accounts.
The FTC staff complaint alleges that Voyager and Stephen Ehrlich violated the FTC Act’s prohibition on deceptive practices and the Gramm-Leach-Bliley Act’s prohibition on obtaining a customer’s financial information through false, fictitious, or fraudulent representations. The complaint also alleges that Stephen Ehrlich transferred millions of dollars to his wife Francine, including funds that can be directly traced to the alleged illicit conduct.
In addition to prohibiting Voyager and its affiliated companies from handling consumer assets, the proposed settlement prohibits the companies from misrepresenting the benefits of any product or service; from making false, fictitious or fraudulent representations to any customer of a financial institution in order to obtain or attempt to obtain his or her financial information; and from disclosing non-public personal information about consumers without their explicit consent.
The Commission voted 3-0 to file a complaint against Voyager and its affiliates, Stephen Ehrlich, and against defendant Francine Ehrlich and to approve an order entered into with Voyager and its affiliates. The complaint was filed in the United States District Court for the Southern District of New York.
In a parallel action on October 12, the Commodity Futures Trading Commission separately charged Ehrlich with fraud and failure to register.
NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or has been violated and it appears to it that the proceeding is in the public interest. Stipulated orders have the force of law when approved and signed by the district court judge.
The staff attorneys working on this matter are Quinn Martin, Sanya Shahrasbi, and Larkin Turner of the FTC’s Bureau of Consumer Protection.