Regulators issued a stern order to bankrupt cryptocurrency lender Voyager Digital: stop telling customers their deposits are protected by the government, according to a letter sent to company executives on Thursday.

Why it matters: Voyager was one of the companies pushed into bankruptcy as turmoil swept the crypto market. The warning from regulators comes after a frenzy of customer confusion about whether their deposits would be reimbursed following a stretch of misleading claims from the company.

Driving the news: The letter from the Federal Deposit Insurance Corporation and the Federal Reserve orders Voyager to immediately remove any statements that suggest the company is insured by the FDIC.

  • Voyager has claimed that dollars deposited with them were protected in the event the firm went under, even as the fine print in its user agreement said otherwise. In 2020, for instance, the company tweeted in part: “Have you heard? USD held with Voyager is FDIC insured up to $250K. Our customers’ security is our top priority.”
  • “These representations are false and misleading and, based on the information we have to date, it appears that the representations likely misled and were relied upon by customers who placed their funds with Voyager and do not have immediate access to their funds,” the letter says.
  • Voyager this month halted deposits and withdrawals and then filed for Chapter 11 bankruptcy. Customers took to social media with questions about whether they are entitled to the funds they held with firm.

Between the lines: The FDIC is signaling a crackdown after a new rule took effect this month, which addressed false advertising and misuse of the agency’s name and logo.

  • The rule clarified the FDIC’s authority to enforce violations when individuals and nonbank entities make misrepresentations about deposit insurance.
  • The FDIC, which has enforcement authority for nonbanks like Voyager, said it never had specific regulations around misleading advertising. But in the past — under the authority of a previous statute — publicly cracked down on a firm that falsely claimed products were FDIC insured.
  • The new rule took effect July 5 — two days before the agency confirmed it was probing how Voyager marketed itself to customers. Voyager filed for bankruptcy on July 6, a week after suspending all trading, deposits and withdrawals from its platform.

How it works: Voyager said it was FDIC-insured, thanks to its partnership with Metropolitan Commercial Bank (regulated by the Fed). But that insurance only kicks in if the partner bank failed. It does nothing to protect customers in the event something happens to Voyager.

  • The vast majority of banks are FDIC-insured. That means should the bank go bust, customers are covered for up to $250,000 per depositor.
  • Voyager did not immediately respond to a request for comment. A post this month on its website says the firm worked with the FDIC to “update and clarify” language around the “scope of FDIC insurance.”

What’s next: In the letter, the Fed and FDIC suggested it could take further action against the company, though did not detail what that might look like.