Crypto Lender Voyager marketing materials under FDIC scanner: Report

Voyager, the cryptocurrency lender that filed for bankruptcy this week, is under scrutiny for the way they marketed their deposit accounts to users.

The cryptocurrency lender had publicly stated that dollar deposits are insured by the Federal Deposit Insurance Corporation, due to a partnership with Metropolitan Commercial Bank.

The Wall Street Journal reported on Thursday that a statement from December 2019 on Voyager’s website claims that customers will receive a full refund in “the rare case that your USD funds are compromised due to the company or our bank partner’s failure”.

But the same statement has now been changed to remove references to the bank partner or himself, and now simply states in the “rare case that your USD funds are compromised, you are guaranteed a full refund (up to $ 250,000).”

What is remarkable is that Voyager’s rule only applies to customers’ dollar deposits – not cryptocurrencies. The lender’s customers have expressed frustration over not being able to access their funds, and is particularly concerned after it revealed significant exposure to the controversial crypto hedge fund Three Arrows Capital.

Voyager is among some companies that have been hit by falling cryptocurrency prices and a liquidity crisis in the market. After freezing withdrawals and trading on its platform, the company filed for bankruptcy, saying that customers would receive their money upon reorganization. It has said it has more than $ 350 million in cash in the Metropolitan Commercial Bank.

In its statement on July 6, Voyager said that customers with dollar deposits will have access to their money after a “reconciliation and fraud prevention process” is completed with Metropolitan Commercial Bank. But it did not suggest how long it would take.

Some customers have just found out that their deposits are not insured in the way they first thought, according to The Journal. It seems that Voyager guaranteed a safety net – when in fact it does not exist – by sneaking in how the deposits are insured.

The company’s individual customer accounts are eligible for insurance, but only in the event of failure by Metropolitan Commercial Bank. The New York-based bank clarified this this week, saying that FDIC insurance would only be available if the bank itself failed and not in the event of Voyager’s failure. It added that it maintains an account for Voyager customers who only have US dollars, not cryptocurrencies.

A user agreement, which can often be easily overlooked by users, on Voyager’s website shows that FDIC protection only applies if the partner bank fails.

This mix of funds invested in Voyager through the Metropolitan Commercial Bank has reportedly caught FDIC’s attention, and the agency is now looking at the lender’s marketing materials.

Less than two months ago, the FDIC announced a rule prohibiting any person or entity from incorrectly using the agency’s deposit insurance, as this could undermine confidence in legally insured banks. The Consumer Financial Protection Bureau raised the issue the same day, highlighting the risk to consumers of new financial assets such as cryptocurrencies.

Daniel Besikof, a partner in the law firm Loeb & Loeb in New York, said that Voyager’s bankruptcy report is a negative development for the account owners, some of whom had millions of dollars with cryptocurrencies in their accounts.

“Voyager Digital treats these account holders primarily as unsecured creditors and proposes to satisfy their claims with a package of coins, equity in the reorganized Voyager and other assets,” he added. “The value of that package is unknown.”

FDIC and Voyager did not immediately return Blockworks’ request for comment.

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