Tag: fdic insurance

Crypto Firms Report Funds Tied Up with Shuttered Signature Bank

On March 12, New York regulators and the United States Federal Deposit Insurance Corporation shut down Signature Bank, a crypto-friendly bank that had reportedly become a systemic risk to the US economy. As news of the shutdown spread, several crypto firms came forward to report that they had funds tied up with the bank.

Coinbase, one of the largest crypto exchanges in the world, announced via Twitter that it had around $240 million in corporate funds at Signature Bank that it expected to be fully recovered. Stablecoin issuer and crypto firm Paxos also reported that it had $250 million held at the bank, but noted that it held private insurance that covered the amount not covered by the standard FDIC insurance of $250,000 per depositor.

Celsius, a crypto lender that recently filed for bankruptcy, reported that Signature Bank had held some of its funds, but did not disclose the amount. However, the Celsius Official Committee of Unsecured Creditors, which represents the interests of account holders, added that “all depositors will be made whole.”

As news of the shutdown and related crypto exposure spread, other firms in the crypto industry came forward to quell fears about their related exposures. Robbie Ferguson, co-founder of Web3 game development platform Immutable X, and Mitch Liu, co-founder of the media-focused Theta Network blockchain, both separately tweeted that their respective companies had no exposure to Signature.

Crypto.com also reported in a tweet by CEO Kris Marszalek that it had no funds in the bank. Similarly, Paolo Ardoino, the chief technology officer of stablecoin firm Tether, tweeted that Tether had no exposure to Signature Bank.

While some firms expect to recover their funds in full, the closure of Signature Bank has raised concerns about the risks associated with the crypto industry. In addition to the shutdown of Signature Bank, the Federal Reserve announced that the FDIC had been approved to take actions to protect depositors at Silicon Valley Bank, a tech-startup-focused bank that had experienced liquidity issues due to a bank run that spread contagion to the crypto sector. The Fed also announced a $25 billion program to ensure ample liquidity for banks to cover the needs of their customers during times of turbulence.

Overall, the closure of Signature Bank highlights the challenges and risks associated with the rapidly growing and often unpredictable crypto industry. While some firms may be able to recover their funds, others may face significant losses, underscoring the need for greater regulatory oversight and risk management in the sector.

FTC Settles with Voyager Digital Over Misleading FDIC Claims, Former CEO Charged

The Federal Trade Commission (FTC) on October 12, 2023, disclosed a settlement with the beleaguered cryptocurrency firm, Voyager Digital, post allegations of misleading consumers regarding the safety of their deposits. The settlement emerges amid a broader crackdown on deceptive practices in the rapidly evolving crypto sector.

Voyager Digital, under the helm of CEO Stephen Ehrlich, is alleged to have falsely claimed that consumers’ deposits were insured by the Federal Deposit Insurance Corporation (FDIC) from at least 2018 until its bankruptcy declaration in July 2022. This misrepresentation reportedly played a significant role in attracting consumers to entrust their funds to Voyager. The debacle resulted in consumers being locked out of their cash accounts for over a month, culminating in a loss exceeding $1 billion in cryptocurrency assets.

Samuel Levine, the Director of the FTC’s Bureau of Consumer Protection, emphasized the ongoing efforts to curb deceitful claims surrounding cryptocurrency assets, which witnessed over $1.4 billion in losses due to scams in the previous year alone. The action against Voyager and Ehrlich underscores the FTC’s commitment to ensuring companies and individuals adhere to truthful claims, particularly regarding FDIC insurance.

The settlement mandates a permanent prohibition on Voyager and its affiliates from handling consumers’ assets. Furthermore, a $1.65 billion judgment has been agreed upon, albeit suspended to allow the bankruptcy proceedings to facilitate the return of remaining assets to consumers. However, former executive Stephen Ehrlich has not concurred with a settlement, thus, the litigation against him will continue in federal court. Additionally, Ehrlich’s wife, Francine Ehrlich, has been named as a relief defendant in the complaint.

Central to the FTC’s complaint is the misrepresentation of FDIC insurance, a crucial factor for consumers deliberating on where to deposit their assets. Voyager’s marketing materials, inclusive of direct assertions regarding the safety of consumers’ deposits, prominently featured claims of FDIC insurance which were found to be baseless as Voyager is neither a bank nor a financial institution. The complaint further noted that the FDIC does not insure cryptocurrency assets, rendering Voyager’s claims as misleading.

The settlement with Voyager sends a clear message to the crypto industry regarding the veracity of claims pertaining to asset safety and insurance. The FTC’s action illustrates a broader regulatory scrutiny aimed at ensuring transparency and consumer protection within the financial sector, extending beyond traditional banking to encompass emerging crypto entities.

In a simultaneous action on October 12, as reported by Blockchain.News, the Commodity Futures Trading Commission (CFTC) also charged Stephen Ehrlich with fraud and registration failures, mirroring a wider regulatory effort to uphold legal and ethical standards in the burgeoning crypto space.

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