FTX, Celsius, and Voyager: The Dark Side of the Crypto World
Last year, the collapse of the FTX cryptocurrency exchange platform and the subsequent fraud conviction of its founder sent shockwaves through the crypto community. However, FTX wasn’t the only bad actor in the industry. Two other examples, Celsius and Voyager, also faced government actions for allegedly misleading investors and causing billions of dollars in customer losses.
The Federal Trade Commission (FTC) recently reached settlements with Celsius and Voyager for defrauding people who had invested over $5 billion in cryptocurrency. These individuals had trusted their hard-earned money with the hope of saving for college tuition, retirement, or purchasing a home. Sadly, their dreams were shattered by these companies’ deceitful practices.
Celsius, touted as a revolutionary cryptocurrency platform, lured customers with a range of enticing products, including interest-bearing accounts, personal loans secured by cryptocurrency deposits, and a cryptocurrency exchange. The company assured its users that their funds were safer with Celsius than in traditional banks, claiming to have significantly less risk. It also promised customers the freedom to withdraw their money at any time, substantial reserves to meet obligations, and a $750 million insurance policy for deposits.
Furthermore, Celsius offered an Earn program that allowed customers to earn rewards on their cryptocurrency deposits, with an annual percentage yield as high as 18 percent. However, these lofty promises turned out to be nothing more than smoke and mirrors. The FTC uncovered that Celsius misappropriated more than $4 billion in customer deposits. The company used this money to fund its own operations, pay rewards to select customers, borrow from other institutions, and make high-risk investments that ultimately backfired.
On top of this, Celsius routinely made unsecured loans totaling $1.2 billion, putting its customers’ investments at great risk. The company lacked sufficient capital reserves to cover customer withdrawals and had no insurance policy in place. Furthermore, the rewards paid to customers fell far short of what was promised. Astonishingly, Celsius continued soliciting new deposits and claiming to have ample liquidity right up until the day it froze accounts and declared bankruptcy.
In a separate settlement, the FTC exposed the deceptive practices of Voyager. The company falsely claimed that its cryptocurrency accounts were insured by the Federal Deposit Insurance Corporation (FDIC), implying that customers would receive full reimbursement up to $250,000 if Voyager or its banking partner failed. While cash deposits made through the “Voyager App” were indeed placed in an FDIC-insured bank, customers’ cryptocurrency holdings were not insured. As a result, when Voyager failed, customers lost over $1 billion. The FTC also discovered that the owner had transferred millions of dollars to his wife, further exacerbating the situation.
To protect themselves from similar scams, the FTC and Better Business Bureau (BBB) offer some valuable advice. First and foremost, it is crucial not to trust individuals or companies making grand promises or guarantees. Always conduct thorough research on the company or cryptocurrency platform before investing. Look for reviews, reports of scams, or complaints online and check the company’s reputation with the BBB. It is vital to remember that cryptocurrency accounts are not backed by the government like traditional FDIC-insured bank accounts. If something goes wrong with a crypto account, the government may not provide any assistance in recovering lost funds.
The message from the FTC to other cryptocurrency companies is clear: despite the novelty of the industry, established consumer protection standards apply without exception. The notion that “anything goes” in the marketing of crypto must be debunked. Investors deserve transparency and honesty, and the industry must regain their trust through responsible practices.
In light of these recent incidents, the dark side of the crypto world has been exposed. It serves as a stark reminder that investors must exercise caution and skepticism when navigating this rapidly evolving landscape.
Analyst comment
Negative news.
As an analyst, it is likely that the market will experience increased skepticism and caution towards cryptocurrency platforms. Investors may become more hesitant to trust and invest in similar platforms, leading to potential decline in the overall market. Trust and transparency will become crucial for the industry to regain investor confidence.
