Former FDIC regulator on what comes next in the agency’s investigation into bankrupt Crypto Brokerage Voyager Digital

The Federal Deposit Insurance Corporation (FDIC) is investigating the bankrupt cryptocurrency brokerage Voyager Digital amid allegations that customer accounts were falsely insured by the agency, a spokesman for the agency told CoinDesk.

Voyager filed for Chapter 11 bankruptcy on Tuesday after issuing a $ 675 million default notice to the ailing cryptocurrency lender Three Arrows Capital (3AC). The Toronto-based brokerage house estimates that it has between $ 1 billion and $ 10 billion in liabilities and is voluntarily delisting from the Toronto Stock Exchange.

Although bankruptcy proceedings are naturally difficult, as Voyager’s customers and other creditors worry about when they may receive a degree of recovery, it is questionable whether the company was deceitful in how it marketed the security of its dollar deposits.

Simply put, customers claim that the company indicated that dollar deposits were FDIC-insured, when that does not appear to be the case.

The FDIC, a federal agency tasked with monitoring bank stability in the United States and insuring depositors up to $ 250,000 in the event of a bank collapse, said it would take a look at how the cryptocurrency brokerage house marketed the insurance to its users.

“FDIC insurance coverage is only available to protect against Metropolitan Commercial Bank failure,” the Metropolitan Commercial Bank said in a statement. “FDIC Insurance does not protect against the failure of Voyager, any action or omission of Voyager or its employees, or loss of value of cryptocurrency or other assets.”

Although no cryptocurrency with Voyager was insured, the brokerage said it insured any USD held by Voyager because of its “strategic partnership” with Metropolitan Commercial Bank. However, Voyager had an omnibus account with the New York-based bank. Omnibus accounts are accounts that allow managed trades for more than one person, which means that Voyager’s Metropolitan Commercial account probably had multiple Voyager users. This one account may have been insured for $ 250,000 – not $ 250,000 per customer.

The real problem, says former FDIC regulator and Forbes contributor Jason Brett, boils down to how Voyager portrayed the relationship between itself and Metropolitan Commercial; depositors’ funds would be insured just if Metropolitan Commercial Bank went bankrupt, not Voyager. Nevertheless, statements on Voyager’s website did not make this clear.

The Wall Street Journal reported that a statement on Voyager’s website said customers would receive a refund in “the rare event that your USD funds are compromised due to the failure of the company or our banking partner.” But this statement has now been changed to read only “in the rare event that your USD funds are compromised.”

“They probably did not have protection for every depositor,” says Brett.

If the FDIC finds that Voyager has wrongly represented the relationship with the FDIC, the agency could sanction them even after their declared bankruptcy, including banning Voyager for life from the financial industry, according to Brett.

“So there’s a lot at stake, it’s going to depend on how Voyager reacts to it,” he adds.

The FDIC survey will largely focus on the misrepresentation of Voyager’s relationship with Metropolitan Commercial through Voyager’s marketing materials. FDIC investigations usually take 2-3 months if the parties are cooperative, but can take longer, Brett adds.

While Voyager may be the latest crypto company under investigation by the FDIC, the agency has already begun to take a closer look at the crypto industry. Only in May did the agency make it illegal to misuse the name or logo of the FDIC.

“Talks with cryptocurrency companies or other companies that can misuse the FDIC label to explain how people are covered,” has already happened, says Brett.

While the FDIC does not insure cryptocurrencies, the question of how cryptocurrencies held in banks insured by the FDIC insured remains largely unanswered.

“There is a lot of public opinion, and I think that is the big concern,” he adds.