Court approves Voyager’s $1.65 billion settlement with FTC

abdelaziz Fathi

A New York federal judge has given the nod to a settlement that holds Voyager Digital and its former CEO, Stephen Ehrlich, accountable for misleading investors about the safety of their funds.

This settlement comes after the U.S. Federal Trade Commission (FTC) reached an agreement with the bankrupt cryptocurrency lender in October, permanently barring it from managing consumer assets.

The FTC is taking legal action against Ehrlich for misrepresenting that customer accounts were insured by the Federal Deposit Insurance Corporation (FDIC), a claim that proved to be false as the FDIC does not insure cryptocurrency assets. This misrepresentation happened while Voyager was on the brink of bankruptcy, which it eventually filed for in July 2022, partly due to the collapse of Three Arrows Capital (3AC) that owed Voyager a substantial sum.

As part of the settlement, Voyager is subject to a $1.65 billion fine, which will be suspended to allow the company to reimburse customers. The Commodity Futures Trading Commission (CFTC) is also pursuing Ehrlich on charges of fraud and registration failures.

The FTC’s complaint detailed that Voyager falsely advertised U.S. dollar deposits as FDIC-insured and assured customers that their funds were securely held. This led to customers losing access to an estimated $1 billion in cryptocurrency when Voyager declared bankruptcy.

Under the settlement, Voyager is banned from providing and marketing various consumer financial products and services. The settlement’s amount of $1.65 billion will be paid after the company compensates the creditors in its bankruptcy proceedings.

The FTC’s charges extend to Ehrlich and his wife, Francine Ehrlich, with the latter named as a relief defendant. Ehrlich has not agreed to the settlement, and thus, the case against him will continue in court.

A complaint was filed against Ehrlich in the U.S. District Court for the Southern District of New York. The Tennessee resident stands accused of fraud and failing to register the operations of Voyager’s crypto brokerage and lending business. Furthermore, he and Voyager are alleged to have misrepresented the platform as a “safe haven” offering high-yield returns, enticing customers to buy and store digital assets.

Ehrlich and Voyager touted Voyager as a “safe haven” for customers’ digital assets in a volatile market environment, promising high-yield returns. However, to generate income for these returns, Voyager loaned billions of dollars’ worth of customers’ assets to high-risk third parties with minimal due diligence. Customers often stored over $2 billion worth of digital asset commodities on the Voyager platform, but it filed for bankruptcy in July 2022, owing customers in the U.S. over $1.7 billion.

One such concerning transaction was when over $650 million of customer assets were transferred to Sam Bankman-Fried’s Alameda Research. Voyager’s association with the failed hedge fund was made on the promise that the latter would generate returns by pooling Voyager’s investments. Such actions led to Voyager effectively acting as a commodity pool operator (CPO) without the requisite CFTC registration, while Ehrlich himself evaded registration as an associated person of a CPO.

    Read this next

    Retail FX

    Lark Funding reopens to US traders, MyFundedFX picks cTrader

    Canada-based prop trading firm Lark Funding announced it will once again welcome clients from the United States.

    Institutional FX

    Cboe FX volume falls to lowest level since summer

    Cboe’s institutional spot FX platform, known as Cboe Spot, today announced its trading volume for the month ending February 2024, which took a step back after a strong rebound in December.

    Retail FX

    ThinkMarkets secures lucrative DFSA license in Dubai

    Melbourne-based broker ThinkMarkets has secured a license from the Dubai Financial Services Authority (DFSA) after it has already incorporated its new subsidiary in the Dubai International Financial Center (DIFC).

    Digital Assets

    New Horizen Lays Out Its Vision Of A Modular, Proof Verification Layer For Web3 Networks

    Horizen is forging a new path for the future of blockchain with its New Horizen initiative, which is building a modular Proof Verification layer that’s dedicated to verifying cryptographic proofs for any settlement layer, beginning with Ethereum. 

    Digital Assets

    Karma3 Labs Raises a $4.5M Seed Round Led By Galaxy and IDEO CoLab to Build OpenRank, a Decentralized Reputation Protocol

    Using OpenRank, developers and web3 companies can build consumer apps where people can discover, use, fund, read, or buy something on-chain without worrying about getting spammed or scammed.

    Digital Assets

    Worldcoin down as Elon Musk sues OpenAI CEO Sam Altman

    Worldcoin’s (WLD) token dropped following news of a lawsuit against related company OpenAI. The lawsuit was filed by Elon Musk and accused OpenAI and CEO Sam Altman of breach of contract.

    Institutional FX

    Exegy’s Liquidity Lamp adds intraday data to outperform S&P 500 by 31.8%

    Exegy has incorporated intraday signals into its AI-powered iceberg order detection tool, Liquidity Lamp. By adding intraday data to a baseline mean reversion strategy, Exegy’s model outperformed the baseline by 10.5% and the S&P 500 (SPY) by 31.8%, respectively in the out-of-sample testing.

    Industry News

    Think Elon Musk backed your crypto exchange? ASIC’s latest reveal may shock you

    In an absolutely shocking turn of events that nobody could have possibly seen coming, the Australian Securities and Investments Commission (ASIC) has bravely stepped forward to reveal that, yes, those videos of Elon Musk passionately endorsing a cryptocurrency exchange are as fake as a three-dollar bill.

    Fundamental Analysis

    Global FX Market Summary: EUR, USD March 1st, 2024

    The ISM’s February Manufacturing PMI is expected to show a slight increase, but remain below the expansionary threshold, while inflationary pressures persist and a Fed rate cut in June is still possible.