Voyager Digital co-founder sued by US regulators for fraud

In a legal development with significant implications for the cryptocurrency industry, U.S. regulators have taken action against the former CEO and co-founder of Voyager Digital Ltd, Stephen Ehrlich. The U.S. Commodity Futures Trading Commission (CFTC) filed a lawsuit accusing Ehrlich of fraudulent activities from February to July 2022, alleging that he and Voyager Digital misled customers about the safety of their digital assets while engaging in “excessive risks” that ultimately led to the firm’s collapse.

Voyager Digital, launched in 2018, had promised its customers a secure platform for storing their digital assets, with the total value of these assets at times exceeding $2 billion. However, the CFTC’s lawsuit alleges that Ehrlich and Voyager engaged in reckless lending to high-risk counterparties, including four firms that have since filed for bankruptcy. This mismanagement of customer assets is said to have played a pivotal role in the company’s downfall.

The year 2022 was a challenging one for several cryptocurrency firms, and Voyager’s demise was one of the notable collapses. It joined the ranks of other cryptocurrency companies like Celsius Network and BlockFi that faced significant challenges as crypto prices plummeted due to changing interest rates and macroeconomic conditions.

In response to these allegations, Stephen Ehrlich expressed his outrage and deep dismay, refuting the accusations. He emphasized that the Voyager team had meticulously built and maintained the platform while ensuring full compliance with existing regulatory structures. He further noted that the team consistently communicated and cooperated with regulators throughout their operations.

Voyager Digital, as of the time of this report, had not provided a comment on the matter.

The accusations against Ehrlich and Voyager are twofold. On one hand, the CFTC’s lawsuit asserts that Voyager owed U.S. customers more than $1.7 billion, highlighting the significant financial consequences of the alleged mismanagement of customer assets. On the other hand, the Federal Trade Commission (FTC) has taken action against Voyager and Ehrlich by permanently banning the company from handling consumers’ assets. The FTC also filed a lawsuit against Ehrlich for making false claims regarding customer account insurance. This was done even as the company faced imminent bankruptcy, and it is a critical component of the legal action.

The FTC’s complaint also involves Francine Ehrlich, Stephen Ehrlich’s wife, who is named as a relief defendant. Her involvement in the case is noted, but as of the time of this report, she has not issued a statement in response to the allegations.

Voyager’s financial troubles became evident in July, leading to the company’s filing for bankruptcy. The firm had to suspend customer withdrawals, and it issued a notice of default to Three Arrows Capital, a Singapore-based crypto hedge fund. This was in response to the fund’s failure to make payments on a cryptocurrency loan.

The legal action against Ehrlich and Voyager Digital underscores the increasing scrutiny and regulatory challenges facing the cryptocurrency industry. While the cryptocurrency market has witnessed significant growth and attracted widespread interest from investors, regulatory bodies and authorities are grappling with the need to establish clear guidelines and oversight mechanisms. The case of Voyager serves as a stark reminder of the consequences of mismanagement and alleged fraudulent activities within the sector.

In conclusion, the legal action taken against Stephen Ehrlich and Voyager Digital represents a significant development in the cryptocurrency industry. The allegations of mismanagement and fraudulent activities have far-reaching implications for the sector, highlighting the importance of transparency, compliance with regulatory requirements, and responsible handling of customer assets. As the cryptocurrency industry continues to evolve, it is expected that regulatory scrutiny will intensify, underscoring the need for accountability and responsible business practices within the sector.