United States Commodity Futures Trading Commission Charged $1.3 Billion Crypto Exchange Voyager Digital Co-Founder & Ex-CEO Stephen Ehrlich for Fraud, Promised Safe Haven, High Yield of 12%, Transferred $650 Million to Digital Hedge Funds on Unsecured Basis & Operated a Commodity Trading Pool without Required Registration, Voyager Digital Filed for Chapter 11 Bankruptcy Protection in 2022 with $1.3 Billion Assets & Owed Clients More than $1.7 Billion
14th October 2023 | Hong Kong
The United States Commodity Futures Trading Commission (CFTC) has charged $1.3 billion crypto exchange Voyager Digital co-founder & ex-CEO Stephen Ehrlich for fraud, promising the platform as a safe haven, high yield of 12%, transferring $650 million to digital hedge funds on unsecured basis & operated a commodity trading pool without required registration. In 2022, Voyager Digital filed for chapter 11 bankruptcy protection with $1.3 billion assets & owed clients more than $1.7 billion. Director of Enforcement Ian McGinley: “This is yet another CFTC action seeking to hold accountable a chief executive officer for his role in the fraudulent operation of a digital asset platform. Ehrlich and Voyager lied to Voyager customers. While representing they would treat customers’ digital asset commodities safely and responsibly, behind the scenes, they took shockingly reckless risks with their customers’ assets, leading to Voyager’s bankruptcy and huge customer losses. When their business began to collapse, they continued lying to their customers, concealing Voyager’s true financial health. Amplifying their fraud, Ehrlich and Voyager broke their trust with customers while acting in capacities that required CFTC registration, which they failed to obtain.” More info below:
“ United States Commodity Futures Trading Commission Charged $1.3 Billion Crypto Exchange Voyager Digital Co-Founder & Ex-CEO Stephen Ehrlich for Fraud, Promised Safe Haven, High Yield of 12%, Transferred $650 Million to Digital Hedge Funds on Unsecured Basis & Operated a Commodity Trading Pool without Required Registration, Voyager Digital Filed for Chapter 11 Bankruptcy Protection in 2022 with $1.3 Billion Assets & Owed Clients More than $1.7 Billion “
United States Commodity Futures Trading Commission Charged $1.3 Billion Crypto Exchange Voyager Digital Co-Founder & Ex-CEO Stephen Ehrlich for Fraud
12th October 2023 – The Commodity Futures Trading Commission today announced it filed a complaint in the U.S. District Court for the Southern District of New York against Tennessee resident Stephen Ehrlich, the former chief executive officer of now-bankrupt entities Voyager Digital Ltd., Voyager Digital Holdings, Inc., and Voyager Digital, LLC (collectively, Voyager). The complaint charges Ehrlich with fraud and registration failures in connection with the Voyager digital asset platform and Voyager’s operation of an unregistered commodity pool. Ehrlich and Voyager falsely touted the Voyager platform as a “safe haven” to earn high-yield returns to induce customers to purchase and store digital asset commodities. In its continuing litigation against Ehrlich, the CFTC seeks restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.
Case Background
- The complaint alleges, from at least February 2022 through July 2022, Ehrlich and Voyager engaged in a scheme to defraud customers by misrepresenting the safety and financial health of the Voyager digital asset platform. Ehrlich and Voyager, via publicly available postings on social media and their website, touted Voyager as a “safe haven” for customers’ digital assets in an otherwise volatile market environment and that Voyager would operate with the “same level of rigor and trust” as a traditional financial institution. Ehrlich and Voyager also promised customers high-yield returns—as much as 12%—on certain digital asset commodities stored on the Voyager platform.
- To generate income to pay its customers the promised returns, Ehrlich and Voyager pooled customer assets stored on the Voyager platform and transferred billions of dollars’ worth of customers’ digital asset commodities as “loans” to high-risk third parties. In early 2022, following grossly inadequate due diligence, Ehrlich and Voyager transferred over $650 million in customer digital asset commodities to Firm A (a digital assets hedge fund) on an unsecured basis, with the understanding that Firm A would generate returns for Voyager by pooling Voyager’s investment and trading commodity interests. In so doing, Voyager operated the Voyager Pool and acted as a commodity pool operator (CPO) without the required CFTC registration.
- Additionally, Ehrlich did not register as an associated person of a CPO, despite soliciting members of the public to contribute to the Voyager Pool. Based on the false promises related to the safety of Voyager’s operations and receipt of high-yield returns, customers often collectively stored more than $2 billion worth of digital asset commodities on the Voyager platform. However, instead of providing a “safe haven,” Ehrlich and Voyager transferred customer digital assets to risky counterparties, such as Firm A, to fuel the high-yield returns used to attract and retain customers. In June 2022, Voyager recalled its customer digital assets commodities from Firm A. Firm A defaulted and, as a result, Voyager experienced dire operational liquidity issues. However, Ehrlich continued to falsely assert publicly that customer assets were safe with Voyager. On July 5, 2022, Voyager filed for bankruptcy, owing its customers in the United States more than $1.7 billion.
Related Civil Action – In a parallel action, on October 12, the Federal Trade Commission (FTC) separately charged Ehrlich and Voyager with violating the FTC Act and the Gramm-Leach-Bliley Act. The Division of Enforcement staff responsible for this matter are Alan Simpson, Anthony Biagioli, Stephen Turley, Rachel Hayes, Christopher Reed, and Charles Marvine. The Division of Enforcement’s Digital Assets Task Force also assisted in this matter.
CFTC’s Commodity Pool Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories and Articles, including the Commodity Pool Fraud Advisory, which warns customers about a type of fraud that involves individuals and firms, often unregistered, offering investments in commodity pools. The CFTC also strongly urges the public to verify a company’s registration with the CFTC before committing funds. If unregistered, a customer should be wary of providing funds to that company. A company’s registration status can be found using NFA BASIC. Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the Whistleblower Office. Whistleblowers may be eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.
Crypto Exchange Voyager Digital Files for Chapter 11 Bankruptcy Protection: $1.3 Billion Assets, $350 Million Cash & $650 Million Claim Against Crypto Fund Three Arrows Capital
7th July 2022 – Crypto exchange Voyager Digital has filed for chapter 11 bankruptcy protection, with $1.3 billion assets, $350 million cash & $650 million claim against crypto fund Three Arrows Capital. Voyage Digital: “As part of the reorganization process, the Company will file customary “First Day” motions to allow it to maintain operations in the ordinary course. Voyager intends to pay its employees in the usual manner and continue their primary benefits and certain customer programs without disruption. The Company expects to receive court approval for all these routine requests. Trading, deposits, withdrawals and loyalty rewards on the Voyager platform remain temporarily suspended.” Earlier in July 2022, former Credit Suisse traders $3 billion crypto fund Three Arrows Capital had been ordered into liquidation by a BVI Court (British Virgin Islands), after failing to meet creditors demand for payment including $665 million from Voyager Digital. Three Arrows Capital is founded by 2 former Credit Suisse traders & crypto billionaire Zhu Su (Age 35) and Kyle Davies (Age 35) in 2012 in a kitchen table in their apartment. The fund had over $3 billion worth of cryptocurrencies under management.
Stephen Ehrlich, CEO of Voyage Digital:
“This comprehensive reorganization is the best way to protect assets on the platform and maximize value for all stakeholders, including customers. Voyager’s platform was built to empower investors by providing access to crypto asset trading with simplicity, speed, liquidity, and transparency. While I strongly believe in this future, the prolonged volatility and contagion in the crypto markets over the past few months, and the default of Three Arrows Capital (“3AC”) on a loan from the Company’s subsidiary, Voyager Digital, LLC, require us to take deliberate and decisive action now. The chapter 11 process provides an efficient and equitable mechanism to maximize recovery.”
The Company has over $110 million of cash and owned crypto assets on hand, which will provide liquidity to support day-to-day operations during the Chapter 11 process, in addition to more than $350 million of cash held in the For Benefit of Customers (FBO) account at Metropolitan Commercial Bank. Voyager also has approximately $1.3 billion of crypto assets on its platform, plus claims against Three Arrows Capital (“3AC”) of more than $650 million. Voyager previously announced that its subsidiary, Voyager Digital LLC, issued a notice of default to 3AC for failure to make the required payments on its previously disclosed loan of 15,250 BTC and $350 million USDC. Voyager is actively pursuing all available remedies for recovery from 3AC, including through the court-supervised processes in the British Virgin Islands and New York.
About Voyager Digital Ltd.
Voyager Digital Ltd.’s (TSX: VOYG) (OTCQX: VYGVF) (FRA: UCD2) US subsidiary, Voyager Digital, LLC, is a cryptocurrency platform in the United States founded in 2018 to bring choice, transparency, and cost-efficiency to the marketplace. Voyager offers a secure way to trade over 100 different crypto assets using its easy-to-use mobile application. Through its subsidiary Coinify ApS, Voyager provides crypto payment solutions for both consumers and merchants around the globe. To learn more about the company, please visit https://www.investvoyager.com.
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