FTX wasn't the only bad actor on crypto. Here are two other examples: Celsius and Voyager
The collapse of the FTX cryptocurrency exchange platform and fraud conviction of its founder dominated the news last year, but there were government actions against other cryptocurrency companies that allegedly misled investors, resulting in billions of dollars in customer losses.
The FTC reached settlements with two companies for defrauding people who invested over $5 billion in cryptocurrency to save for college tuition, retirement and the purchase of a home.
Samuel Levine, the director of the FTC’s Bureau of Consumer Protection, said that Celsius Network “touted a new business model but engaged in an old-fashioned swindle.”
Celsius marketed cryptocurrency products that included interest-bearing accounts, personal loans secured by cryptocurrency deposits, and a cryptocurrency exchange. The owners said their platform was safer than banks because “we have less risk, we have much less risk.”
Celsius promised customers they could withdraw their money at any time, said it had sufficient reserves to meet customer obligations, and claimed to have a $750 million insurance policy for deposits.
Customers in its Earn program could earn rewards on cryptocurrency deposits as high as 18 percent annual percentage yield. Celsius claimed it didn’t make unsecured loans.
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The company kept taking in money and declared bankruptcy
According to the FTC, the company actually:
Misappropriated more than $4 billion in deposits, using the money to fund company operations, pay rewards to other customers, borrow from other institutions, and make high-risk investments that lost money.
Routinely made unsecured loans totaling $1.2 billion.
Had inadequate capital reserves to cover customer withdrawals and no insurance policy.
Paid far less than promised in rewards.
According to the FTC, the company continued soliciting new deposits and claimed to have billions in liquidity almost up to the day it froze accounts and declared bankruptcy. The owners attempted to protect themselves by withdrawing significant sums of cryptocurrency two months before the bankruptcy filing.
In October, the FTC reached a settlement with crypto company Voyager for falsely claiming its cryptocurrency accounts were insured by the FDIC. It said customers would be guaranteed full reimbursement up to $250,000 if Voyager or its banking partner failed. In fact, while cash deposits customers made through a “Voyager App” were placed in an FDIC-insured bank, their cryptocurrency wasn’t insured and they lost more than $1 billion when Voyager failed. The FTC said the owner transferred millions of dollars to his wife.
Three tips to protect yourself from crypto scams
The FTC and BBB offer these tips for avoiding cryptocurrency investment scams:
Don’t trust people who make big promises or guarantees. Only scammers promise “no risk” and guarantee high returns.
Research the company or cryptocurrency platform. Search online using the name plus “review,” “scam,” or “complaint” to see what people say. Check them out with the BBB.
Know that cryptocurrency accounts are not backed by a government like traditional FDIC-insured bank accounts. If something happens to your crypto account or funds, the government may not have an obligation to step in and help get your money back.
Learn about cryptocurrency and scams. Scammers take advantage of people’s understanding (or not) of cryptocurrency and how it works. Visit ftc.gov/cryptocurrency to learn more.
The message for other cryptocurrency companies from Lesley Fair, senior FTC attorney, is that their industry may be novel, but established FTC consumer protection standards apply with full force. They should disabuse themselves of an “anything goes” attitude in the marketing of crypto.
Randy Hutchinson is president & CEO Better Business Bureau of the Mid-South.
This article originally appeared on Nashville Tennessean: Cryptocurrency scams: Feds went after bad actors beyond FTX
