Yesterday, the U.S. Commodity Futures Trading Commission (CFTC) filed a complaint in the U.S. District Court for the Southern District of New York. The complaint was against Stephen Ehrlich, a resident of Tennessee. He is also the former CEO of Voyager Digital Ltd., Voyager Digital Holdings, Inc., and Voyager Digital, LLC, collectively known as Voyager.
Why did the CFTC file a complaint against Voyager?
The complaint alleges serious charges of fraud and registration failures in connection with Voyager’s digital asset platform. It also alleges operation of an unregistered commodity pool.
The CFTC’s legal action came after a detailed investigation into the activities of Voyager and its former CEO, Stephen Ehrlich. His tenure spanned from February 2022 to July 2022.
CFTC alleges that during this time Ehrlich and Voyager engaged in a scheme to defraud customers by deliberately misrepresenting the safety and financial health of the Voyager digital asset platform.
How did Voyager end up like this?
In a highly volatile market environment Ehrlich and Voyager made public statements via social media and their website. They portrayed Voyager as a “safe haven” for customers’ digital assets.
On certain crypto assets, they promised customers high-yield returns, as high as 12% to their customers. They also claimed that Voyager would operate with the “same level of rigor and trust” as traditional financial institutions.
Billionaire Mark Cuban was also caught up in legal battles for promoting crypto lender Voyager. Cuban was sued by The Moskowitz Law Firm in civil court in Southern Florida for advertising Voyager’s unlicensed cryptocurrency products.
Voyager gave loans to high-risk third parties
Voyager pooled customer assets that were stored on the platform. They hoped to produce returns to pay the high returns that were promised to customers. Then they gave high-risk third parties “loans” worth billions of dollars in digital asset commodities belonging to their customers.
In early 2022 Voyager transferred over $650 million in customer funds to a crypto hedge fund known as “Firm A.” Shockingly, this transfer was made on an unsecured basis with bare minimum due diligence.
Voyager also operated the Voyager Pool and acted as a commodity pool operator (CPO) without obtaining the required CFTC registration. Ehrlich also encouraged the public to contribute to the Voyager Pool. On the other hand he was not even registered with as an associated person of a CPO.
Customers had collectively stored more than $2 billion worth of crypto assets on the Voyager platform.
What led to the downfall of Voyager?
Voyager was no “safe haven.” In order to achieve those high yields, Voyager transferred funds to high-risk parties and eventually ran into serious operational liquidity problems.
Ehrlich continued to publicly assert that customer assets were safe with Voyager, despite these mounting challenges,. However, on July 5, 2022, Voyager filed for bankruptcy, leaving customers in the United States owed more than $1.7 billion.
Stephen Ehrlich and Voyager have also been charged bt the Federal Trade Commission (FTC) independently. They are in violations of the FTC Act and the Gramm-Leach-Bliley Act. It further highlights the gravity of the situation.
The CFTC’s complaint seeks restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations.
As this case unfolds, it serves as a stark reminder of the potential risks and challenges within the digital asset industry and the importance of regulatory oversight to protect investors and customers.
The CFTC has also issued a Commodity Pool Fraud Advisory, cautioning customers about the risks associated with unregistered individuals and firms offering investments in commodity pools. It strongly advises the public to verify a company’s registration with the CFTC before committing funds to them.