Federal regulators say neobank Utoppia misled its customers about its banking protections.
The Federal Deposit Insurance Corp. announced Monday (March 27) that it was demanding Utoppia stop claiming that it had FDIC protection, part of what the agency says is a trend of institutions making such misrepresentations.
“These practices not only harm those who are targeted with the false promise of deposit insurance, but, if left unchecked, could also undermine confidence in the FDIC, FDIC-insured banks, and the U.S. banking system,” FDIC Chairman Martin Gruenberg said in a news release.
PYMNTS has reached out to Utoppia for comment but has not yet received a reply.
According to the FDIC news release, evidence collected by the agency shows that Utoppia stated that the company is FDIC insured, and that FDIC insurance will protect its customers cryptocurrency deposits.
“These representations and material omissions are false and misleading,” the FDIC said.
As of Tuesday (March 28) afternoon, the “About Us” page of Utoppia’s website greeted visitors with the following message:
“Protected by the U.S. financial system”
“No matter if you have $1 or $100,000. You can be protected like any US resident”
Elsewhere, however, the company says: “Utoppia is not an insured bank. Deposit insurance does not apply to non-deposit products, such as stocks, bonds, money market mutual funds, securities or commodities.”
The California-based company provides a checking account via Lineage Bank, which is FDIC insured, according to the agency’s BankFind website.
The FDIC’s actions come as the federal authorities are working to restore confidence in the U.S. banking system following the recent collapse of two regional lenders.
Gruenberg testified before Congress on Tuesday about the failures of Signature Bank and Silicon Valley Bank earlier this month.
“The two bank failures,” Gruenberg noted in prepared testimony released Monday, “demonstrate the implications that banks with assets over $100 billion can have for financial stability. The prudential regulation of these institutions merits serious attention, particularly for capital, liquidity, and interest rate risk.”
He also said his agency is looking into what caused the two banks to fail, noting that the FDIC has the authority to “investigate and hold accountable the directors, officers, professional service providers and other institution-affiliated parties of the banks for the losses they caused to the banks and for their misconduct in the management of the banks.”
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