Insurance coverage

Voyager FDIC Insurance: Coverage Claims Lead to Crackdown

Hello and welcome to Protocol Fintech. This Tuesday: the FDIC crackdown, Solana Spaces and the failure of LendUp.

out of the chain

The team behind b8ta has become Web3. His new adventure Solana Spaces, markets Web3 merch from outlets similar to the shiny new hardware showcases that b8ta ran. In fact, his New York outpost is in the same Hudson Yards location as a former b8ta store. The real test could be if Solana Spaces opens a store in its hometown of San Francisco, where b8ta has faced a harrowing series of burglaries. The blockchain can only offer a limited amount of IRL security.

—Owen Thomas (E-mail | Twitter)

A race for reputation

Regulators have a message for banks amid the crypto crash: be careful which company you keep. Especially if they tend to talk about deposit insurance.

The Federal Deposit Insurance Corp. warned banks last week that they should monitor how their crypto customers advertise the availability of insurance, after at least one instance in which he said customers were misled. The advisory could create headaches for banks that partner with crypto companies and other fintech companies – once a growing market, now a growing catastrophe field.

The notice is the latest fallout from Voyager Digital’s bankruptcy. The FDIC and Federal Reserve on Thursday sent a cease and desist order to the crypto lender, saying it made misleading claims about insurance coverage.

  • Since, blog posts and tweet of Voyager referring to FDIC coverage have been removed. The company declined to comment Monday on the protocol on its actions since receiving the letter.
  • The FDIC-insured Metropolitan Commercial Bank held US dollar deposits for some Voyager customers. But federal insurance only kicks in if Metropolitan fails, because the the bank explainednot in the case of Voyager’s bankruptcy.
  • A 2019 blog post from Voyager told customers that “in the rare event that your USD funds are compromised due to default by the business or our banking partner, you are guaranteed a full refund (up to ‘at $250,000).” The bank holds about $350 million in customer funds, which Voyager says will be released after the bank goes through a fraud prevention process.

The FDIC was already tightening things up before the crypto crash. In April 2021, the FDIC’s board of directors began setting rules for how the agency can investigate and punish misuse of its name and logo.

  • In addition to scammers misusing the FDIC logo, “we’ve also seen circumstances in which some non-banks were making unsubstantiated claims about deposit insurance,” said Martin Gruenberg, acting chairman of the board of directors of the FDIC, before the board votes on the rule in May.
  • The FDIC Board of Directors approved the new rule on May 17 and it went into effect on July the 5th — the day before Voyager filed for bankruptcy. A little after, The Wall Street Journal reported that the FDIC is investigating how Voyager advertises itself to customers.
  • Voyager had until Monday to confirm to regulators that it had complied with the cease-and-desist order or provide evidence that its public statements were accurate. An FDIC spokesperson said Monday the case is ongoing and declined to comment further.

The banks prefer not to be the performers. The industry generally supports efforts to crack down on misleading deposit insurance advertising, but keeping tabs on customer marketing is a step too far.

  • Misleading claims about deposit insurance by non-banks lead to “potential significant consumer confusion” and reputational risk for banks, the American Bankers Association noted in a statement. letter to the FDIC in July 2021.
  • But banks could find it difficult to monitor all the declarations of their partners. “We understand the need for banks to have strong standards and practices for third parties, but we do not believe it is appropriate to impose this expectation on banks indefinitely,” the letter said.
  • In the FDIC’s opinion, however, banks must “assess, manage, and control the risks arising from all third-party relationships,” as stated in Friday’s advisory.
  • Most banks were already monitoring their partners, crypto or otherwise, for risk. But Friday’s notice will make many people recheck their policies, noted Daniel Meade, partner in the practice of banking regulation for Cadwalader, Wickersham & Taft.

The biggest challenge, Meade said, is the banks’ lack of baton to wield. They could try to cancel the business, but that could be difficult depending on the bank’s contract or the deposit agreement, he added. This will be an issue for companies beyond crypto to watch closely. Fintech companies that pose as banks but aren’t actually chartered institutions have been a constant point of tension. And the FDIC isn’t the only regulator monitoring this space: the Consumer Financial Protection Bureau has likewise promised take action against businesses that are unsure of what deposit insurance covers.

—Ryan Defenbaugh (E-mail | Twitter)

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on the money

Visa is facing allegations that she profited from child sex abuse videos. A federal judge in California denied Visa’s request to dismiss claims related to payment processing for Pornhub’s parent company, a decision Visa says raises questions about payment liability companies face when processing billions of transactions.

On protocol: The crypto crash deterred ransomware criminals. Tight security and government repression have also dampened their take.

The SEC sued 11 people involved in an international “crypto pyramid and Ponzi scheme” that raised over $300 million.

Wanted: Crypto whistleblowers. New York State Attorney General Letitia James posted a review Monday urging workers to contact his office if they witness inappropriate behavior at a crypto company. She also asked investors who thought they had been cheated to get in touch.

LendUp Global has begun liquidating its assets. This includes its neobank subsidiary, which the company said would continue to operate after regulators forced another unit to stop lending. Liquidation occurs through an assignment for the benefit of creditors, a quieter alternative to public bankruptcy.

Also on Protocol: New York fined Robinhood’s crypto unit $30 million for compliance failures.

Binance.US has delisted a token identified by the SEC as a security. The exchange said he would be removed from the list the AMP token “out of an abundance of caution” after the SEC alleged it was a security last month in an insider trading case against a former Coinbase employee.

The cost of quick house sales

Real Estate iBuyer Opendoor a colonized charges to the FTC, agreeing to pay $62 million and to cease practices that the FTC called “misleading.”

Opendoor buys homes directly from consumers as an alternative to the traditional home-selling process, using algorithms to price homes in what it says is a faster and more convenient process. Opendoor has grown rapidly in recent years, managing to avoid the pitfalls that befell rival Zillow as house prices soared during the pandemic.

Opendoor had said it offered “market value” offers and reduced transaction costs, and its marketing materials claimed the net proceeds from a transaction were higher with Opendoor than a traditional sale, the FTC said.

Read the full story on Protocol.com.

— Tomio Geron (E-mail | Twitter)

Deal flow

Former a16z partner Rex Salisbury has launched a $20 million fintech fund. The fund is the first from his new venture capital firm, Cambrian Ventures, and is backed by the founders of NerdWallet, Plaid, Simple, Alloy, Modus, SoFi, and more.

Andreessen Horowitz has invested in Gary Vee’s NFT project, VeeFriends, as part of a $50 million seed round. The company called VeeFriends “a model for effectively leveraging Web3” and was the only investor in the round.

Raised pogo $14.8 million in seed funding. The company’s product allows users to earn money by sharing data; he compares the service to the Honey browser extension, which helps users find coupons online. The round was led by Josh Buckley and also included Slow Ventures, Village Global and The Chainsmokers.

Paris social investment app raised $40 million in a Series B funding round led by Valar Ventures. The app helps investors network with family and friends.

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Thanks for reading – see you tomorrow!