It would be a hoot if regulators cracked down on companies BEFORE freezing customer deposits and cryptos and filing for bankruptcy
Bankrupt Voyager gets a slap in the face of a cease and desist order from the Fed and FDIC after it’s too late.
By Wolf Richter for WOLF STREET.
Tonight the Federal Reserve Board and the FDIC, as banking regulators, sent out a joint press release, letting the world know that they had sent out a joint letter to Voyager Digital today, in which they demand that Voyager “cease and desist from making false and misleading statements regarding its FDIC deposit insurance status.”
Voyager Digital is or was a crypto platform, crypto lender and crypto broker that tricked customers into depositing their crypto and fiat there, then July 1 suspended all withdrawals and trades, then July 6 deposited its balance sheet, and whoever had the cash or fiat or crypto or whatever on the platform is now an unsecured creditor in a bankruptcy case, and they have no idea if they’ll recover one day their money, their fiat or their crypto.
Voyager is part of the collapsing decentralized finance (DeFi) creature that was meant to replace FDIC member banks.
The Federal Reserve and the FDIC said today that these false and misleading representations about FDIC insurance by Voyager “probably were misleading and relied upon by customers who placed their funds with Voyager.”
“Voyager and certain officers and employees” have made statements on its website, mobile app and social media, “stating or suggesting that”:
- Voyager itself is FDIC insured;
- Customers who deposited their money or crypto or whatever at Voyager would receive FDIC insurance coverage for all of their funds.
- The FDIC would insure customers against the failure of Voyager itself.
The people who believed these FDIC insurance representations and were enticed by them to send their cryptos and fiat or whatever to Voyager were the same people who believed and were enticed by Voyager’s promise that he would pay interest rates of up to 12% on its product yield. The entire DeFi segment has relied on belief. You had to believe it.
Regulators pointed out:
“Voyager maintains a deposit account for the benefit of its customers with the Metropolitan Commercial Bank, which is supervised by the Board of Directors.
“Voyager is not itself FDIC-insured, however, and therefore clients who invested through its cryptocurrency platform would not have insurance coverage in the event Voyager defaults.”
OK, no FDIC insurance at Voyager, no matter what Voyager might have said about it. We understand that.
And now the big, brutal, iron-fisted regulatory crackdown, after – I mean like weeks after – everyone has been cleaned up and it’s way too late for anything:
“We hereby demand that Voyager cease and desist, and take immediate corrective action to remedy these false and misleading statements,” the regulators said.
Step One: “Voyager will immediately remove” any offensive statements, representations or references from “Voyager’s websites (including any disclosures of pop-ups, hyperlinks or chat-bots), Twitter and other social media accounts (including corporate and Voyager executive personal accounts), mobile application, online outlets and all forms (electronic and print) of marketing, advertising or consumer-facing materials and communications . »
And step two: “Within two (2) business days of receipt of this letter, Voyager will provide written confirmation to the FDIC and the Board of Governors that it has fully complied with the requests set forth above.”
And that’s all.
The thing is, regulators don’t step in when the creature is booming and when people are eagerly depositing their money or cryptos into it, thinking they’ll earn risk-free 12% a year, or whatever, more quadruple their money on their cryptos over the same period, while imagining that the federal government via the FDIC will insure their fiat and cryptos on deposit on the platform.
No, these regulators are waiting for the creature to collapse, and then in due course when customers are already hooked and can’t withdraw their funds, they will crack down with a cease and desist order, when in fact the the business has already gone out of business, and a bankruptcy judge decides what, if anything, the business will do next.
It would be a total hoot if regulators actually stepped in to protect people from these kinds of outfits and their founders and leaders and all the enablers that made DeFi possible. But that won’t happen. People are going to have to learn the hard way. And after learning the hard way and being cleaned up, Regulators come in with cease and desist orders, then brag about it to let everyone know how tough they are.
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