Only a few days after reports emerged that it was under FDIC inquiry, the bankrupt U.S. crypto brokerage Voyager announced on Monday that it altered critical wording on its website that convinced many of its customers that their life savings would be safe with the company. Motherboard found that the wording was in fact quietly updated before the announcement.
Prior to filing for bankruptcy last week, Voyager had aggressively marketed itself as a “safe” crypto company that differentiated itself from competitors by taking “a straightforward, low-risk approach to lending.” As part of that campaign, the company repeatedly trumpeted that “USD held with Voyager is now FDIC insured” and “protected.”
Those seeking further details were sometimes pointed to a 2019 blog post that said that due to a relationship with an unnamed banking partner, customer dollars were insured up to $250,000 “in the rare event your USD funds are compromised due to the company or our banking partner's failure” (emphasis ours), suggesting that the federal government would cover USD losses if Voyager went under.
The marketing campaign convinced numerous people that their USD would be safe with the company, customers told Motherboard.
The issue is that FDIC insurance does not cover USD held by Voyager in the event of Voyager's failure. Rather, Voyager deposited USD with the FDIC-insured Metropolitan Commercial Bank, (MCB) and funds held at the bank are FDIC-insured only in the unlikely event of the bank's failure. While the company sometimes referenced that the FDIC insurance had been secured through “strategic relationships with our banking partners,” it often avoided mentioning MCB by name, including in the 2019 blog post.
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Poppy Alexander, a San Francisco-based whistleblower attorney focused on financial fraud, including in the cryptocurrency sector, said that by definition FDIC insurance only protects against the actions of banks and that past comments by Voyager could have misled investors.
“The statement from Voyager is without question confusing to an investor who is looking for a safe investment because it certainly makes it sound like your money is FDIC protected full stop,” said Alexander.
“Voyager is not a bank,” she continued. “FDIC has nothing to do with anyone who's not a bank.”
The company started to face financial difficulties early this year, first as a result of broader issues within the cryptocurrency sector this year and then because of a $650 million loan to the bankrupt crypto hedge fund Three Arrows Capital, which Voyager had been unable to recoup.
As a result, the company first suspended withdrawals and trading on July 1, cutting customers off from their savings, before voluntarily filing for Chapter 11 bankruptcy last week.
The blog post stating that USD funds held in Voyager were FDIC insured in the event of the company's failure was posted in 2019. According to records saved on the Wayback Machine, the blog post still had that wording as of February 2021. Some time between then and July 1 of this year, the 2019 blog post was quietly edited to include new wording that erased this promise. The update deleted the suggestion that customers’ USD was safe in the event of Voyager’s failure, saying only that “in the rare event your USD funds are compromised, you are guaranteed a full reimbursement.”
MCB similarly clarified as early as July 1 that “FDIC insurance coverage is available only to protect against the failure of Metropolitan Commercial Bank,” not Voyager, leading Voyager customers to fear they would never see their money again.
On July 11, Voyager publicly clarified the situation, saying in an announcement that Metropolitan Commercial Bank’s FDIC insurance “does not protect against the failure of Voyager,” only the failure of the bank, and that Voyager would “change the way it talked about FDIC insurance” moving forward.
As part of the announcement, Voyager said, “Outdated pages of a blog from 2019 are being updated to be consistent with this clarification.”
Motherboard reached out to Voyager on Tuesday to ask for clarification on when the 2019 blog post had been updated:
We've noticed that the 2019 blog post was updated by July 1 to delete the phrase "due to the company or our banking partner's failure." Did the company wait 10 days to make that clear?
Company spokesperson Drew Pierson responded:
Are you using the way back machine? My point being is that's not how the way back machine works. It archives things randomly. We didn't update the blog on July 1.
Motherboard then responded:
When was the blog updated? What I'm trying to figure out is when that 2019 blog post was first updated to delete that phrase and when the company announced it elsewhere.
To which Pierson said:
We have no further comment but it wasn't Jul 1
The Wayback Machine allows people to “capture a web page as it appears now for use as a trusted citation in the future,” according to the nonprofit organization that runs it.
The Monday announcement came three days after a report emerged that the FDIC had opened up an inquiry into Voyager’s aggressive and ambiguous marketing of FDIC insurance. Pierson declined to say the announcement was related to the reported regulatory probe, saying the company’s comment would be limited to “what's on the blog.”
“It certainly seems misleading,” said Alexander. “Does it cross the line to actually misleading? That's going to be a fight that's going to happen in some court most likely.”
The company maintains that it is “working to restore access to USD deposits” while admitting that such an action is “subject to a reconciliation and fraud prevention process.”
Alexander said it remains to be seen whether Voyager customers will ever see their USD again, adding that while it remains possible, it could take a while.
“Bankruptcy is notoriously not a fast process,” she said.
In the meantime, Voyager customers who feel duped and misled are stuck wondering if they will ever get their money back.
“It's ruined me,” a 25-year-old financial adviser in the Chicago area told Motherboard last week. “I have to start my whole life again.”