CFTC sees Voyager Digital as a ‘house of cards’

A representative of the CFTC Christine Johnson criticised Voyager Digital, the crypto broker undergoing bankruptcy proceedings, for the mistakes that led to the loss of billions of dollars in customer funds.

Johnson accused the company of employing misleading practices, ignoring warning signs, and an actual lack of due diligence, which failed to protect users. She found no difference between the firm and a “house of cards”.

She said that Voyager turned a blind eye to the practices of its affiliated investment entities regarding client funds.

“Instead of demanding a higher level of transparency, the crypto broker sidestepped long-standing expectations around custodians and simply sent assets, without making any particular effort to safeguard them,” she explained.

Comments followed the filing of CFTC lawsuits and FTC against the company and its former CEO Stephen Ehrlich.

“Ehrlich and Voyager lied to customers. They claimed they would treat users’ digital assets safely and responsibly, but pursued shockingly reckless risks that led to bankruptcy and huge losses,” said Ian McGinley, Director of Enforcement at the CFTC.

In the second case the FTC prohibited the company from offering, selling or promoting any product or service that could be used for taking deposits, exchanging, investing or withdrawing any assets. The agency noted misrepresentations to clients regarding FDIC insurance coverage.

The platform and its affiliates reached an agreement to permanently prohibit handling client funds and to pay creditors about $1.65 billion as part of the restructuring.

In a separate statement, CFTC Commissioner Caroline Pham warned that the regulator would continue to take action against cryptocurrency companies that abuse users’ assets.

“There is a material difference between managing investors’ money for the purpose of trading derivatives and attracting deposits and extending credit to others”, she noted.

The regulator’s representative conceded that the CFTC exceeded its powers in interpreting the operator of the commodity pool.

“Such an interpretation would be beyond our statutory powers and would undermine the established legal and regulatory framework for lending to institutions and financing consumers”, she explained.

The company filed for bankruptcy in a New York court in July 2022. The broker’s alleged liabilities ranged from $1 billion to $10 billion.

In December, Binance.US offered the highest price for Voyager’s assets — $1.02 billion.

However, regulators, including the U.S. Securities and Exchange Commission and the New York State Department of Financial Services, opposed the deal. The court halted the asset buyback process, and in April Binance US withdrew the application.

Back in May, Voyager announced the start of payments on obligations within a few weeks. According to court documents, creditors can expect a return of about 36% of the funds.