Former Voyager Digital CEO Steve Ehrlich faces civil charges from the CFTC and FTC over alleged fraud and misrepresentations during his tenure at the now-bankrupt crypto lending firm.
The regulators claim Ehrlich misled customers about Voyager’s financial health and protections.
On Thursday, the CFTC accused Ehrlich of defrauding customers by exaggerating Voyager’s strengths while operating without proper registration. The FTC alleges he falsely claimed customer funds had FDIC insurance. Both agencies aim to ban Ehrlich from working in the industry again.
“Voyager lied to customers,” said CFTC enforcement director Ian McGinley.
“Behind the scenes, they took shockingly reckless risks with customers’ assets, leading to Voyager’s bankruptcy and huge losses.”
The collapse of Voyager, which had over $5 billion in assets, underscores the cryptocurrency market’s volatility. It’s also a cautionary tale for executives making misleading claims amid scant crypto regulation.
Voyager originally portrayed itself as a safe, FDIC-insured platform for crypto trading and staking. However, the company took on excessive risk via uncollateralized loans, especially to troubled crypto hedge fund Three Arrows Capital.
This precarious position was exposed when crypto prices crashed in mid-2022. The firm halted withdrawals in early July before filing for bankruptcy. Voyager later negotiated unsuccessful deals to sell assets to both FTX and Binance.
Former customers stand to recover only 36% of assets at most, per estimates. They were lured in by claims of safety that proved empty.
The CFTC and FTC lawsuits demonstrate regulators’ willingness to target individual executives over crypto failures. The allegations of misrepresenting risks and protections indicate potential negligence or fraud.
The action serves as a warning to crypto executives touting institutional discipline and security they cannot guarantee. As the Voyager case shows, straying outside licensing boundaries can carry consequences.
Whether former CEO Ehrlich is ultimately banned from the crypto sector remains to be seen. But the lawsuits make clear that regulators will dig into collapsed companies and hold individuals accountable.
Expect tighter scrutiny of crypto lending yields, risk management, and custody protections in any regulatory framework emerging from Washington. The Voyager debacle only strengthens lawmakers’ skepticism.
Also Read: Voyager Potentially Suffered Data Breach in Withdrawal Period.
