CFTC Sues Former CEO of Crypto Lender Voyager for Fraud – The former CEO of Voyager Digital, Stephen Ehrlich, has been sued by the U.S. Commodity Futures Trading Commission (CFTC). The CFTC alleges that Ehrlich and the company engaged in fraudulent activities by enticing investors with promises of high returns and violating derivatives regulations.
In addition to the CFTC’s lawsuit, Stephen Ehrlich is also facing legal action from the Federal Trade Commission (FTC). The U.S. regulatory authority further asserted that Ehrlich and his company deceptively promoted Voyager as a secure option, enticing customers with the promise of earning high returns, reaching as high as 12%, to encourage them to buy and store digital assets on the platform.
Commenting on the Commission’s legal action, CFTC Director of Enforcement Ian McGinley stated: “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.”
Ehrlich and Voyager engaged in the practice of pooling and transferring customers’ digital assets, totaling billions of dollars, under the guise of “loans” to high-risk third parties, as explained by the CFTC. As an illustrative instance from early 2022, they moved more than $650 million of customer funds to a digital assets hedge fund referred to as “Firm A” without conducting proper due diligence.
Voyager declared bankruptcy in the early part of July 2022, amid the turbulent cryptocurrency markets and following the collapse of the Three Arrows Capital (3AC) hedge fund, which had defaulted on a $650 million loan from the cryptocurrency lending firm. The fallout from Voyager’s bankruptcy resulted in U.S. customers suffering losses totaling $1.7 billion.
“When their business began to collapse, they continued lying to their customers, concealing Voyager’s true financial health. Amplifying their fraud, Ehrlich and Voyager broke their trust with customers while acting in capacities that required CFTC registration, which they failed to obtain,” McGinley added. The Federal Trade Commission, which is the U.S. authority responsible for antitrust and consumer protection, filed a lawsuit against Ehrlich.
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The lawsuit alleges that Ehrlich made false claims, asserting that customers could depend on Federal Deposit Insurance for safeguarding their assets. Both Ehrlich and Voyager faced charges for breaching the FTC Act and the Gramm-Leach-Bliley Act. In a statement quoted by Bloomberg, Ehrlich said he was “outraged and deeply dismayed” by the allegations from the two regulatory bodies and that he was being used as a “scapegoat,” blaming others in the industry for the losses suffered by Voyager’s customers and creditors.