U.S. regulators have targeted former Voyager Digital CEO Steve Ehrlich with lawsuits claiming he engaged in fraud and deliberately misrepresented his customers’ government protections.
The Commodity Futures Trading Commission (CFTC) and Federal Trade Commission (FTC) announced related actions against Ehrlich on Thursday.
The CFTC accused him of defrauding customers by misleading them about the strength of the company and doing business without proper registrations. The FTC said he lied about customers’ funds being protected by the Federal Deposit Insurance Corp.
“Ehrlich and Voyager lied to Voyager customers,” said Ian McGinley, the CFTC’s enforcement director, in a statement about the suit, which calls for restitution, penalties and industry bans for the former executive. “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.”
However, one of the agency’s commissioners, Caroline Pham, argued the CFTC’s position that the company should have registered as a commodity pool operator is a bad interpretation of the law.
The enforcement action’s definition of commodity pools “would seem to include commonplace lending activity—like taking deposits and providing loans,” she said in a statement on Thursday. “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.”
The FTC also settled with the company in an agreement that permanently bans Voyager from handling customers’ assets, hitting it with a $1.65 billion judgment that is suspended to allow the firm to continue its liquidation to pay back its customers.
“This action reminds companies and individuals: Don’t play fast and loose with claims about FDIC insurance,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection, in a statement.
After Voyager collapsed in July 2022, the crypto lender first negotiated a doomed deal to sell to FTX, and then another arrangement for sale to Binance fell apart. Former Voyager customers may not recover more than 36% of their assets, according to estimates.
UPDATE (October 12, 2023, 18:49 UTC): Adds comment from CFTC’s Caroline Pham.
Edited by Aoyon Ashraf.
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