A bank that New Jersey Governor Phil Murphy once hailed for being at “the forefront of the innovation economy” received a cease-and-desist order from the Federal Deposit Insurance Corporation (FDIC) for what the regulator characterized as “unsafe or unsound banking practices” and a Garden State progressive is calling on officials to take back millions of dollars in corporate welfare.
According to the FDIC, Cross River “engaged in the unsafe or unsound banking practices” in connection with fair lending rules by “failing to establish and maintain internal controls.”
In 2019, Cross River received a Grow NJ grant from the New Jersey Economic Development Authority (NJEDA) to expand its operations with the purchase of office space in Fort Lee but progressive Democrat Lisa McCormick said that funding was just another example of corporate welfare.
Attention brought by the FDIC action shows that such wasteful subsidies for the undeserving rich are often directed at disreputable and unworthy corporations.
The FDIC had previously announced settlements with Cross River Bank and its institution-affiliated party, Freedom Financial Asset Management, LLC (FFAM), San Mateo, California, on March 28, 2018, for unfair and deceptive practices in violation of Section 5 of the Federal Trade Commission (FTC) Act relating to the marketing and origination of Consolidation Plus Loans (C+ Loans).
In addition, the FDIC found the bank and FFAM violated the Truth in Lending Act (TILA) and Electronic Fund Transfer Act (EFTA) more than a year before the financial institution got its first taxpayer-funded bailout from Murphy.
To resolve the latest issues identified by federal regulators, Cross River’s board must “increase its supervision and direction of management, and its oversight and monitoring of the bank’s internal controls, information systems, credit underwriting and internal auditing.”
In addition, the financial services company must also get the FDIC’s consent before launching new credit products, but the action came during a busy time for the agency, which was dealing with a series of bank failures, including the collapse of Silicon Valley Bank (SVB) and Signature Bank, two of the biggest crypto-friendly banks.
Bankrupt crypto exchange FTX imploded and Silvergate Capital, a central lender to the crypto industry, said it is winding down operations and liquidating its assets.
The world’s largest cryptocurrency exchange, Binance, commingled customer funds with company revenue in 2020 and 2021, in breach of U.S. financial rules that require customer money to be kept separate, according to three sources that spoke to the Reuters news agency.
One of those sources, a person with direct knowledge of Binance’s group finances, said the sums ran into billions of dollars and commingling happened almost daily in accounts the exchange held at the shuttered U.S. lender Silvergate Bank.
“There is no such thing as ‘banking on cryptocurrency’ because unlike Federal Reserve Notes or even personal checks, electronic magic internet money is backed by the full faith and credit of absolutely nothing,” said McCormick. “Almost by definition, cryptocurrency is unsafe and unsound. Governor Phil Murphy, who once promised to establish a public bank like that in North Dakota, but like most of his promises it turned out to be empty.”
Cross River has claimed to be at the forefront of both banking and technology, powering companies on the leading edge of the fintech revolution, like Affirm, Coinbase, Rocket Loans, Stripe and Upstart, but McCormick noted that every one of them has a disappointing jobs record.
McCormick said Murphy promised to create a state public bank during his first campaign and in November 2019, the former Goldman Sachs executive signed an executive order to create a 14-member board aimed at launching one.
McCormick, who is known for her spirited campaign against Senator Bob Menendez in the 2018 Democratic primary, said state officials should investigate whether Cross River kept its promise to hire 250 new employees and review the contracts to find out of the deal can be canceled for the kind of financial chicanery that resulted in the FDIC order.
The same year, Cross River announced the acquisition of Seed, a Portland, Oregon-based firm specializing in small business banking. The deal included the retention of Seed employees and senior leadership and a plan for Cross River to maintain office space in Portland and San Francisco, expanding the firm’s small business banking and technology services and providing its first presence on the West Coast.
Cross River officially opened its new corporate headquarters in April 2021.
The 70,000-square-foot building in Fort Lee, acquired with the assistance of the 2019 Grow NJ grant, was anticipated to accommodate the firm’s expanding workforce, which by this point had increased to some 500 employees.
At the grand opening ceremony, Murphy credited Cross River’s continued presence in the state with helping “bring [New Jersey] once again to the forefront of the innovation economy.”
In April 2023, the Wall Street Journal and Bloomberg reported that the FDIC sent the bank a cease-and-desist order due to what the regulator characterized as “unsafe or unsound banking practices”.
Although Cross River neither confirmed nor denied the allegations made by the FDIC, McCormick said the 34-page consent order clearly shows that the financial firm violated the public trust but she said fines and other corrective action frequently fall far short in such white-collar crimes.
“From Cross River’s history of cheating consumers and employing unsound banking practices to its schemes for gambling on cryptocurrency, the Murphy administration made a bad bet with taxpayer money,” said McCormick. “I would not be surprised to learn that the bank failed to deliver on its promised job creation, and I am calling on officials to take back millions of dollars in corporate welfare.