A Commodity Futures Trading Commission (CFTC) commissioner has slammed Voyager Digital, calling the company no better than a house of cards.
Commissioner Kristen Johnson stated that Voyager Digital made mistakes that led to the loss of billions of dollars in customer funds.
A House Of Cards
Commissioner Kristen Johnson, in his statement regarding the Commodity Futures and Trading Commission’s charges against Voyager Digital, said the company was no better than a house of cards, thanks to its monumental failures. These failures, Commissioner Johnson noted, led to the loss of billions in customer funds. The statement also accused Voyager of indulging in misleading practices, ignoring warnings, and conducting bare-bones due diligence.
“Contrary to that marketed image, Voyager and Ehrlich are alleged to have approved loans valued at hundreds of millions of dollars worth of customer assets to numerous third parties that, for example, made prominent disclaimers that investing with them had a “high degree of risk” that could result in investors losing all their money.”
The statement further added,
“Voyager is alleged to have conducted insufficient due diligence on these counterparties and to have wrongly determined that they were of low risk despite evidence to the contrary. When one of the counterparties defaulted on repaying a Voyager loan of roughly $650 million of customer funds, Ehrlich concealed from customers Voyager’s precarious financial position, omitted mention of the default, and continued to solicit deposits from new and existing customers.”
The commissioner also stated that Voyager turned a blind eye to what its subsidiary investment firms were doing with customer funds.
“It is astounding that Voyager failed to exert pressure on the firms where it invested its customers’ assets. Instead of demanding that investment firms that received customer assets offer greater levels of transparency, Voyager shirked the long-established expectations for custodians and simply dispatched customer funds with little effort to preserve the same.”
Former Voyager CEO Charged By US Regulators
The comments came after the Commodity Futures Trading Commission (CFTC) and the Federal Trade Commission filed separate lawsuits against the former CEO of Voyager, Stephen Ehrlich, on the 12th of October. The CFTC lawsuit alleges that Ehrlich and Voyager conducted fraud and registration failures over its platform and unregistered commodity pool.
“Ehrlich and Voyager lied to Voyager customers. 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.”
Meanwhile, the Federal Trade Commission reached a proposed settlement that banned Voyager from offering, marketing, or promoting any product that could facilitate deposits or exchanges or be used to invest or withdraw assets, according to a statement released on the 12th of October.
Voyager and its affiliates agreed to a judgment of $1.65 billion, all of which would go towards repaying affected customers during the bankruptcy proceedings. The director of the FTC’s Bureau of Consumer Protection, Samuel Levine, stated that the FTC’s action should remind companies and individuals not to make loose claims about FDIC insurance.
CFTC To Continue Pursuing Firms Misusing Customer Funds
In a separate statement issued on the 12th of October, CFTC Commissioner Caroline Pham asserted that the regulator will continue to pursue action against crypto firms that misuse customer funds.
“The CFTC continues to aggressively pursue alleged fraud in crypto assets and relentlessly uphold its mission to protect the retail public. There is a significant difference between managing investor money for the purpose of trading derivatives and taking deposits and providing loans to others. Without financing and consumer credit, our economy would grind to a halt.”
However, Pham believes that the CFTC may have overreached its authority in interpreting what constitutes a commodity pool operator.
“However, I caution that the CFTC’s interpretation of a commodity pool operator in this enforcement action would seem to include commonplace lending activity—like taking deposits and providing loans. Such an interpretation is an overreach beyond our statutory authority and would disrupt well-established legal and regulatory frameworks for lending to institutions and consumer finance.”
Pham has also called on the CFTC to establish a cryptocurrency regulatory pilot program that addresses the risks faced by retail investors.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
