The Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System (Board of Governors) issued a joint letter (Joint Letter) on July 28, 2022, to Voyager Digital, LLC and its related entities (Voyager), alleging violations of Section 18(a)(4) of the Federal Deposit Insurance Act (FDI Act) by Voyager for making false and misleading statements about its deposit insurance status.1 The FDIC further alleged that Voyager’s conduct resulted in the inability of certain customers who relied on Voyager’s alleged misrepresentations to immediately access their funds.
As background, Section 18(a)(4) of the FDI Act prohibits any person from representing that an uninsured deposit is insured, or from knowingly misrepresenting the extent and manner in which a deposit liability, obligation, certificate or share is insured.2 The alleged violations stem from Voyager’s maintaining certain omnibus deposit accounts for the benefit of its customers (FBO Accounts) at Metropolitan Commercial Bank, New York, New York (MCB). The Joint Letter also states that Voyager and MCB have an agreement whereby the former provides certain services for the FBO Accounts on behalf of the latter. Voyager runs a crypto asset trading platform and offers crypto payment solutions. Customers trading through its platform deposit money with Voyager, which is then held in the FBO Accounts at MCB. Voyager is not an FDIC-insured depository institution.
The FDIC alleged that several representations made by Voyager were false and misleading, including statements that “(1) Voyager itself is FDIC-insured; (2) customers who invested with Voyager’s cryptocurrency platform would receive FDIC insurance coverage for all funds provided to, held by, on, or with Voyager; and (3) the FDIC would insure customers against the failure of Voyager itself.” The FDIC ordered Voyager to immediately remove all such statements from its platforms, including “websites (including any pop-up, hyperlink, or chat-bot disclosures), Twitter and other social media accounts (including corporate and senior management’s personal accounts), mobile app, online outlets, and all forms (electronic and hard copy) of marketing, advertising, or consumer-facing materials and communications.”
FDIC Issues Fact Sheet to Public on Deposit Insurance and Cryptocurrency
Relatedly, the FDIC put out broad guidance related to FDIC insurance in a Fact Sheet entitled “What the Public Needs to Know About FDIC Deposit Insurance and Crypto Companies” (Fact Sheet).3 In the Fact Sheet, the FDIC expressed concern that cryptocurrency companies might mislead customers into mistakenly believing that their deposits are covered by the deposit insurance issued by the FDIC. Accordingly, the FDIC addressed the limits and scope of FDIC deposit insurance, and provided links to further resources to aid the public in identifying insured companies and reporting suspected misrepresentations. The Fact Sheet lists relevant considerations for the public, including that:
• The FDIC only insures deposits held in insured banks and savings associations; it does so only in the unlikely event of an insured bank’s failure and it does not insure assets issued by non-bank entities, such as crypto companies.
• No depositor has lost any of their FDIC-insured funds as a result of an insured bank’s failure.
• Deposit insurance applies to products such as checking accounts, savings accounts and certificates of deposit held at insured banks. (https://www.fdic.gov/resources/deposit-insurance/financial-products-insured/index.html)
• The FDIC only pays deposit insurance after an insured bank fails and only provides coverage for deposits held in the insured bank at the time of its failure.
The Fact Sheet also discusses products and risks not covered by deposit insurance, including:
• Financial products such as stocks, bonds, money market mutual funds, other types of securities, commodities or crypto assets;
• Losses due to theft or fraud, which are addressed by other laws; and
• The default, insolvency or bankruptcy of any non-bank entity, including crypto custodians, exchanges, brokers, wallet providers and neobanks.
The Fact Sheet functions as an advisory guide for potential cryptocurrency company customers by demarking the limits of FDIC insurance deposits for entities such as cryptocurrency companies and by providing resources for individuals in order to avoid mistaken reliance on companies that will not insure their assets.