The Federal Trade Commission (FTC) has reached a settlement with the bankrupt cryptocurrency company Voyager that will permanently prohibit it from handling consumers' assets.
The FTC is also filing a lawsuit against the former CEO of Voyager, Stephen Ehrlich, for allegedly making false claims about FDIC insurance coverage for users' accounts. The complaint has been filed in the US District Court for the Southern District of New York.
LONDON, ENGLAND - AUGUST 15: In this photo illustration a visual representation of the digital currency Bitcoin sinks into water on August 15, 2018 in London, England.
FTC's Complaint Against Crypto Company Voyager Digital
According to the FTC's complaint, from 2018 until it declared bankruptcy in July 2022, Voyager allegedly promised that consumers' deposits would be "safe" to persuade their clients to hand over their funds to the company.
However, when the company faced financial difficulties, consumers experienced losing access to significant assets they had saved, including salary deposits, tuition funds, and home down payments. Apart from being locked out of their cash accounts for more than a month, consumers also reportedly lost over $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.
The proposed settlement with Voyager and its affiliates will permanently prevent them from promoting any products or services related to depositing, exchanging, investing, or withdrawing assets.
The companies also agreed to a judgment of $1.65 billion, which will be suspended to allow Voyager to return the remaining assets to clients during the bankruptcy proceedings. Ehrlich has yet to agree to a settlement. Thus, the FTC's case against him will continue in federal court.
The complaint alleged that Voyager falsely claimed that customers' assets were particularly secure on their platform. Marketing materials included direct statements about the safety of deposits, such as "YOUR USD IS FDIC INSURED."
However, the FTC noted that Voyager is not a bank or financial institution, and the FDIC does not insure cryptocurrency assets. Instead, consumers' deposits were held in an account at a traditional bank on behalf of Voyager, offering protection only in the event of the bank's failure.
The complaint further noted that Voyager was aware that its claims could be misleading. A bank representative alerted the company in 2021, stating that the claims were "potentially misleading" and that a reasonable consumer might assume their USD Coin held with Voyager was FDIC-insured.
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Voyager Alleged Deceptive Advertising
The FTC noted that despite making some adjustments, Voyager continued with alleged deceptive advertising until receiving a cease-and-desist letter from the FDIC.
In June 2022, Ehrlich reassured Voyager customers of the company's stability, claiming it was "well-capitalized" and that funds were "as safe with us as at a bank." However, according to FTC's statement, consumers' access to their accounts was frozen shortly after that.
The FTC further claimed that Voyager and Ehrlich violated the FTC Act's prohibition on deceptive practices and the Gramm-Leach-Bliley Act's ban on obtaining financial information through false statements.
Additionally, the complaint asserted that Ehrlich transferred millions of dollars to his wife Francine, including money that can be traced to the alleged unlawful conduct.
The proposed settlement also prevents Voyager and its affiliates from misrepresenting the benefits of any product or service and disclosing consumers' nonpublic personal information without their explicit consent.
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