On Thursday, U.S. regulators filed a lawsuit against Stephen Ehrlich, the former CEO and co-founder of Voyager Digital Ltd. The suit alleges that Ehrlich, along with the crypto lender, deceived customers regarding the safety of their assets while engaging in “excessive risks” that ultimately led to the company’s collapse.
The U.S. Commodity Futures Trading Commission (CFTC) claims that Ehrlich, who played a key role in founding Voyager in 2018, committed fraud between February and July 2022. During this time, both Ehrlich and Voyager promised customers a secure environment for their digital assets, which were at times valued at over $2 billion. However, they were allegedly “recklessly” providing loans to high-risk counterparties, including four firms that subsequently went bankrupt. This lawsuit was filed in a federal court in New York.
Voyager was one of several cryptocurrency companies that faced difficulties in 2022, along with Celsius Network and BlockFi, as cryptocurrency prices plummeted due to changes in interest rates and deteriorating macroeconomic conditions.
In response to the allegations, Ehrlich expressed his “outrage and deep dismay.” He stated that Voyager’s management team consistently maintained the platform in full compliance with existing regulatory structures and closely cooperated with regulators. However, CFTC’s enforcement director, Ian McGinley, contended that while Voyager publicly pledged to treat customers’ digital assets safely and responsibly, they engaged in shockingly reckless risks with customer assets, ultimately leading to Voyager’s bankruptcy and significant customer losses.
The CFTC claimed that Voyager owed over $1.7 billion to its U.S. customers. Additionally, the Federal Trade Commission (FTC) announced it would permanently prohibit Voyager from managing consumer assets. The FTC also filed a lawsuit against Ehrlich for falsely asserting that customers’ accounts were insured by the Federal Deposit Insurance Corporation (FDIC) and were secure, even as the company approached bankruptcy. The FTC’s complaint also named Ehrlich’s wife, Francine Ehrlich, as a relief defendant. She was unavailable for comment.
Voyager, headquartered in New Jersey, filed for bankruptcy in July of the previous year after suspending customer withdrawals and issuing a notice of default to Singapore-based crypto hedge fund Three Arrows Capital due to their failure to meet obligations on a crypto loan.