The US Commodity Futures Trading Commission (CFTC) has filed a complaint against former Voyager Digital CEO Steven Ehrlich, alleging that the former chairman committed fraud and failed to register the bankrupt cryptocurrency lender with the agency.
In a related development, another US regulatory body, the Federal Trade Commission (FTC), announced that it had reached a settlement with Voyager Digital.
CFTC Charges Against Steven Ehrlich
The Commodity Futures Trading Commission (CFTC) announced the lawsuit in press release Published on Tuesday (October 12, 2023). According to the regulator, Ehrlich and Voyager Digital defrauded customers by falsely promoting the crypto asset platform as a trustworthy platform and a “safe haven” for users to purchase and store assets. The CEO and the company also promised customers up to 12%.
Voyager Digital’s misleading representation as a secure platform, coupled with the promise of high returns, encouraged customers to deposit more than $2 billion worth of cryptocurrency assets into Voyager. However, Ehrlich and Voyager Digital lent client assets to offshore entities deemed too risky to generate income for returns.
According to a CFTC statement, one of the third-party companies, which the regulator referred to as “Company A,” defaulted, causing a liquidity crunch for Voyager Digital. Amid Voyager’s deteriorating financial health, Ehrlich still assured clients that the funds were safe until the cryptocurrency lender filed for Chapter 11 bankruptcy in July 2022 while owing users more than $1.7 billion.
Commenting on the lawsuit, CFTC Director of Enforcement, Ian McGinley, said:
“While they represented that they would handle clients’ digital asset goods safely and responsibly, behind the scenes they took shockingly reckless risks with their clients’ assets, resulting in Voyager’s bankruptcy and huge losses for clients. As their business began to collapse, they continued to lie to their clients, concealing their true financial health.” For Voyager. By amplifying the fraud, Ehrlich and Voyager broke their trust with clients while acting in capacities that required CFTC registration, which they failed to obtain.
At the same time, the regulator is seeking civil monetary penalties, restitution, along with a permanent ban on trading and registration.
The FTC’s settlement with Voyager includes a $1.65 billion fine
The FTC is also suing Ehrlich in a parallel action for misleading customers by stating that their deposited funds were insured by the Federal Deposit Insurance Corporation (FDIC), which was false.
As the FTC stated in its complaint, FDIC insurance did not cover crypto assets. In July 2022, the FDIC and the Federal Reserve issued a joint letter asking Voyager to correct its “false and misleading” statement about customer deposit insurance.
Meanwhile, the FTC has reached a proposed settlement agreement with Voyager and its affiliated entities, which includes paying $1.65 billion. The agency also permanently banned companies from handling customer funds.
On the other hand, Ehrlich did not agree to a settlement with the Federal Trade Commission, as the regulator stated that it would continue its case against the former Voyager CEO in federal court.
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