In a scathing critique, Commissioner Kristin Johnson of the United States Commodity Futures Trading Commission (CFTC) has denounced Voyager Digital for its role in the loss of billions of dollars in customer funds. The criticism came as part of a broader legal action against the cryptocurrency brokerage firm.
Regulatory criticism and legal action
Commissioner Johnson accused Voyager Digital of engaging in misleading practices, disregarding warning signals, and conducting “bare-bones due diligence,” all of which ultimately led to the loss of customer funds. She described the company as a “house of cards” due to its failures in safeguarding customer assets.
One of the key points of contention was Voyager’s negligence in overseeing its subsidiary investment firms’ activities with customer funds. Johnson expressed astonishment at Voyager’s failure to hold these firms accountable, emphasizing the lack of pressure applied to ensure transparency in their operations.
The CFTC, in tandem with the Federal Trade Commission (FTC), filed parallel lawsuits against Voyager’s former CEO, Stephen Ehrlich, on October 12. The CFTC’s lawsuit alleged fraud and “registration failures” related to Voyager’s platform and an “unregistered commodity pool.”
In contrast, the FTC reached a proposed settlement with Voyager, which imposed a ban on the firm from offering, marketing, or promoting any products or services facilitating the deposit, exchange, investment, or withdrawal of assets. This settlement aligns with the ongoing effort to protect consumers and mitigate further losses.
Voyager financial consequences
As a result of these legal actions, Voyager and its affiliated entities agreed to a judgment of $1.65 billion. This substantial sum is earmarked for repaying customers during the bankruptcy proceedings, providing some relief to those affected by the losses.
Voyager Digital filed for Chapter 11 bankruptcy in July 2022, disclosing potential liabilities ranging from $1 billion to $10 billion to over 100,000 creditors. This bankruptcy filing was a significant development, as it highlighted the gravity of the situation and the extent of financial challenges faced by the firm.
CFTC Commissioner Caroline Pham also weighed in on the matter, emphasizing the importance of distinguishing between managing investor funds for trading derivatives and handling deposits and loans. She stressed the significance of financing and consumer credit in the broader economy, underlining the necessity of prudent regulatory oversight.
However, Commissioner Pham raised concerns about the CFTC’s interpretation of what constitutes a commodity pool operator, suggesting that it might extend beyond the agency’s statutory authority. She cautioned against overreach that could disrupt established legal and regulatory frameworks for lending to institutions and consumer finance.
Ongoing regulatory efforts
Notably, Commissioner Pham had previously called for the establishment of a cryptocurrency regulatory pilot program by the CFTC on September 7. Such a program would address the risks faced by retail investors in the rapidly evolving cryptocurrency space, demonstrating the regulatory body’s commitment to safeguarding consumer interests.
The legal actions against Voyager Digital and its former CEO represent a significant milestone in the regulatory landscape for cryptocurrencies. The cases underscore the growing importance of stringent oversight to protect consumers and maintain the integrity of financial markets.
