For Release
FTC Reaches Settlement with Crypto Company Voyager Digital; Charges Former Executive with Falsely Claiming Consumers’ Deposits Were Insured by FDIC
Complaint charges Voyager and CEO Stephen Ehrlich misled consumers who lost more than $1 billion in cryptocurrency after company’s collapse
October 12, 2023
Tags:
- Consumer Protection
- Bureau of Consumer Protection
- Investment
- deceptive/misleading conduct
- Technology
- Finance
- Credit and Finance
- FinTech
The Federal Trade Commission announced a settlement with bankrupt crypto company Voyager that will permanently ban it from handling consumers’ assets and is filing suit against its former CEO, Stephen Ehrlich, for falsely claiming that customers’ accounts were insured by the Federal Deposit Insurance Corporation (FDIC) and were “safe,” even as the company was approaching an eventual bankruptcy. The complaint also names Stephen Ehrlich’s wife, Francine Ehrlich, as a relief defendant.
In the federal court complaint, the FTC charges that from at least 2018 until it declared 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 assets they had saved, including ongoing salary deposits, college tuition funds, and down payments for homes, according to the complaint, which notes that consumers were locked out of their cash accounts for more than a month and lost more than $1 billion in crypto assets.
“Consumers reported over $1.4 billion in losses to cryptocurrency scams in the last year, and the FTC continues to crack down on those who lie to consumers about these risky assets,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “This action reminds companies and individuals: don’t play fast and loose with claims about FDIC insurance.”
The proposed settlement with Voyager and its affiliates will permanently ban the companies from offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw any assets. The companies also agreed to a judgment of $1.65 billion, which will be suspended to permit 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 enticed consumers to deposit cash and cryptocurrency with the company based on assurances that their assets were especially safe on the platform. The company offered incentives to consumers who converted the cash they deposited into a cryptocurrency called USD Coin, a so-called “stablecoin” that claims to track the value of the U.S. dollar.
The company’s marketing included direct promises about the safety of consumers’ deposits. One example cited in the complaint included the line “YOUR USD IS FDIC INSURED”
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Voyager, however, is not a bank or financial institution, and the deposits consumers made with Voyager were not eligible to be insured by the FDIC. The complaint notes that the FDIC does not insure crypto assets at all, and consumers’ cash deposits were actually placed in an account held by Voyager at a traditional bank that also issued debit cards on behalf of Voyager. Consumers’ cash was only protected if that bank itself failed, and their cryptocurrency wasn’t protected at all.
The complaint notes that Voyager was aware that the company’s claims could mislead consumers. The bank where Voyager deposited consumers’ funds contacted the company in 2021 saying the claims were “potentially misleading.” A bank representative went on to say that “a reasonable consumer could conclude that his USDC [USD Coin] held with Voyager is FDIC-insured.” While Voyager made some changes to its cardholder agreement, the complaint notes that the company continued its misleading advertisements. The company only removed the FDIC claims from its advertising after receiving a cease-and-desist letter from the FDIC.
Ehrlich himself, in a June 2022 letter to Voyager customers, reassured them of the company’s stability, claimed it was “well-capitalized and positioned to weather the bear market,” and said that consumers’ funds were “as safe with us as at a bank.”
Two weeks later, the company froze 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 statements. The complaint also alleges that Stephen Ehrlich transferred millions of dollars to his wife Francine, including funds that can be traced directly to the alleged unlawful conduct.
In addition to banning Voyager and its affiliated companies from handling consumers’ 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 their financial information; and from disclosing nonpublic personal information about consumers without their express consent.
The Commission voted 3-0 to file a complaint against Voyager and its affiliated companies, Stephen Ehrlich, and relief defendant Francine Ehrlich and to approve a stipulated order with Voyager and its affiliated companies. The complaint was filed in the U.S. 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 registration failures.
NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a 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 on this matter are Quinn Martin, Sanya Shahrasbi, and Larkin Turner of the FTC’s Bureau of Consumer Protection.
The Federal Trade Commission works to promote competition and protect and educate consumers. Learn more about consumer topics at consumer.ftc.gov, or report fraud, scams, and bad business practices at ReportFraud.ftc.gov. Follow the FTC on social media, read consumer alerts and the business blog, and sign up to get the latest FTC news and alerts.
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Consumer Alert
Crypto companies touting FDIC insurance? Not so fast.
By
Cristina Miranda
Consumer Education Specialist, FTC
October 12, 2023
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If your bank is FDIC insured, you’re protected up to $250,000 if the bank fails. But what about the funds you deposit with a crypto-based financial services provider? Nope. That money isn’t FDIC insured or protected if the crypto company goes under. But that’s exactly what one crypto company promised.
According to the FTC, Voyager Digital LLC,acrypto-based financial services provider, misled people with claims that money deposited through a “Voyager App” was FDIC insured if anything went wrong. The FTC says that Voyager advertised itself as a safe and secure bank alternative for people to store money. Voyager’s messaging also encouraged people to “ditch” their regular bank and use Voyager’s debit card instead.
Despite its claims, Voyager was never an FDIC insured bank. And FDIC insurance doesn’t cover crypto (also called crypto assets.) So, when Voyager eventually failed and filed for bankruptcy, people with accounts were locked out and lost money.
In a proposed settlement announced today, the Voyager and its affiliated companies have agreed to be permanently banned from offering, marketing, or promoting any products or service that could be used to deposit, exchange, invest, or withdraw any assets.
Protect yourself from crypto-related scams
- Know that crypto deposits are not FDIC insured, period.If something happens, the government may not have an obligation to step in and help get your money back.
- Research the crypto company. Search online for the company name, plus “review,” “scam,” or “complaint” to see what people say.
- Don’t trust companies that make big promises or guarantees. Only scammers promise “no risk,” guarantee high returns, or promise “safe” places to deposit your money.
Check out ftc.gov/cryptocurrency to learn more. Spot a crypto fraud or scam? Tell us at ReportFraud.ftc.gov.
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Business Blog
Set phasers to false: FTC challenges crypto company Voyager’s bogus “FDIC insured” claim
By
Lesley Fair
October 12, 2023
In the TV show Star Trek: Voyager, Captain Janeway and crew headed to Delta Quadrant to take on wrongdoers that injured people by wielding a pernicious energy wave. In a twist on the story, the FTC has announced a proposed settlement with a cryptocurrency outfit called Voyager that injured people by wielding false claims that their accounts were “FDIC insured.” The agency is heading to court against Stephen Ehrlich, Voyager Digital’s CEO and founder.
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According to the FTC, Voyager enticed consumers to “ditch their bank” and hand over their cash and crypto with the express promises that their assets were “safe” with Voyager because they were “FDIC insured.” As the company claimed on its website, “Through our strategic relationships with our banking partners, all customers’ USD held with Voyager is now FDIC insured. That means in the rare event that your USD funds are compromised due to the company or our banking partner’s failure, you are guaranteed a full reimbursement (up to $250,000). We’re excited to offer our customers an extra level of security, so they can feel more comfortable holding their USD with Voyager.” The company further conveyed those claims through social media. As one post from the company put it, “Have you heard? USD held with Voyager is FDIC insured up to $250K. Our customers’ security is our top priority.”
The FTC says Voyager doubled down on those representations in correspondence with consumers. According to one email, the company stated, “What does it mean to be FDIC insured on Voyager? Great question. Your US dollars held on Voyager are insured up to $250,000 by our banking partner, Metropolitan Commercial Bank, so your cash is safe with us.” Another email reassured consumers that “the cash you hold with Voyager is protected up to $250,000 – which means it’s as safe with us as at a bank.”
According to the complaint, defendant Ehrlich reinforced those promises in a June 14, 2022, letter to consumers that described Voyager as “well-capitalized and positioned to weather the bear market.” Claiming that consumers’ deposits with Voyager were “FDIC insured,” Ehrlich said that “The cash you hold with Voyager is protected up to $250,000 – which means it’s as safe with us as at a bank.”
Except that it wasn’t, as consumers learned just a few weeks later when Voyager declared bankruptcy. As the complaint charges: “In fact, Voyager is not and has never been an FDIC-insured institution. The FDIC insures only deposits held by insured banks or savings associations. Voyager is not a chartered bank or savings association. FDIC insurance does not extend to crypto assets, such as the USD Coin stored on Voyager’s platform. Nor did FDIC insurance protect consumers’ U.S. dollar deposits against Voyager’s failure.”
The upshot of Voyager’s alleged deception: Consumer were locked out of their accounts for more than a month and lost more than $1 billion in crypto assets.
According to the complaint, the defendants violated the FTC Act by falsely claiming that consumers’ deposits were FDIC insured. What’s more, the FTC alleged they violated the Gramm-Leach-Bliley Act by using false statements to get customers’ financial information – in this case, their bank account numbers, routing numbers, and cryptocurrency wallet addresses.
To settle the case, Voyager and its corporate affiliates have agreed to a proposed order that imposes a $1.65 billion judgment, which will be suspended so Voyager can return its remaining assets to consumers in the bankruptcy proceedings. In a far-reaching provision to protect consumers in the future, the proposed order bans the companies from offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw any assets. For how long? Forever. The law enforcement action against CEO Ehrlich is pending in a New York federal court.
The settlement with the Voyager corporate defendants sends compliance messages that should resound within the crypto industry. Not into crypto? Not so fast. The messages from the proposed settlement extend to pretty much any company that handles consumers funds or deposits.
Don’t claim that assets are insured or protected unless they really are. Before turning over assets to anyone in the financial sector, a key consideration for consumers is the safety and security of their savings. The complaint is replete with statements from customers about how influential Voyager’s “FDIC insured” claims were to their decision to do business with the company. Whether it’s a false statement that deposits are “FDIC insured” or any other misrepresentation about the safety or security of people’s accounts, companies that make deceptive claims of that nature can find themselves in legal hot water.
Heed warnings that your claims are problematic. According to the complaint, the bank where Voyager deposited consumers’ funds contacted the company in 2021 with the concern that Voyager’s claims were “potentially misleading.” A bank representative went on to say that “a reasonable consumer could conclude that his [USD Coin] held with Voyager is FDIC-insured.” How does the FTC say Voyager responded? Aside from making some changes to its cardholder agreement, the company continued to make deceptive “FDIC insured” claims.
Do your practices violate the Gramm-Leach-Bliley Act? If you haven’t reviewed the GLB Act recently, now is the time. The law makes it illegal to “obtain or attempt to obtain . . . customer information of a financial institution relating to another person . . . by making a false, fictitious, or fraudulent statement or representation to a customer of a financial institution.” The complaint charges that the defendants violated that provision “by soliciting consumer deposits to the Voyager platform via representations to customers of financial institutions, directly or indirectly, expressly or by implication, that consumers’ funds held with Defendants are FDIC insured.”
The scope of individual liability under the FTC Act is expansive. “You can’t sue me individually. We’re incorporated!” The FTC hears that a lot, but it shows a fundamental misunderstanding of the law. In appropriate circumstances, the FTC may protect consumers by taking law enforcement action against executives that participate in or have the authority to control practices that harm consumers.
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