Voyager Digital CEO Faces Fraud Charges
Posted by Colin Lambert. Last updated: October 13, 2023
The former CEO of bankrupt Voyager Digital, Stephen Ehrlich, has been charged with fraud by the US Commodity Futures Trading Commission (CFTC), which is also bringing charges over registration failures in association with the firm’s digital asset platform.
The complaint alleges that for at least five months up to 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. CFTC argues that 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 rigour and trust” as a traditional financial institution.
The CFTC complaint also alleges that 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, the two parties 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 an entity cited by the CFTC as Firm A (believed to be failed hedge fund Three Arrows) on an unsecured basis, with the understanding that the fund would generate returns for Voyager by pooling Voyager’s investment and trading commodity interests.
“In so doing, CFTC alleges, 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, CFTC says customers often collectively stored more than $2 billion worth of digital asset commodities on the Voyager platform. Instead of providing a “safe haven,” however, Ehrlich and Voyager transferred customer digital assets to risky counterparties, such as Firm A.
In June 2022, Voyager recalled its customer digital assets commodities from the hedge fund, which immediately defaulted and, as a result, Voyager experienced “dire operational liquidity issues”. The CFTC alleges, however, that Ehrlich continued to falsely assert publicly that customer assets were safe with Voyager, until, on 5 July, 2022, Voyager filed for bankruptcy, owing its customers in the US more than $1.7 billion.
“Ehrlich and Voyager lied to Voyager customers,” states CFTC director of enforcement Ian McGinley. “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.”