Judge approves $1.65B settlement between Voyager Digital, FTC

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A federal judge in the Southern District of New York has approved an order for crypto lending company Voyager Digital and its affiliates to pay $1.65 billion to the Federal Trade Commission (FTC).

The settlement, announced in October and confirmed by Judge Gregory Woods on November 28, includes a permanent restriction preventing Voyager from marketing or offering digital asset-related products or services.

Judge Woods said that the order would not significantly affect the ongoing proceedings in bankruptcy court. Voyager filed for Chapter 11 protection in July 2022, revealing liabilities between $1 billion to $10 billion. In May, the court authorized a plan enabling Voyager users to receive an initial 35.72 percent of their claims from the lending firm.

As part of the agreement, individuals linked to Voyager must collaborate with FTC officials, including providing testimony at hearings, trials and discovery sessions. Additionally, Voyager must report its compliance with the terms after a year, which will be monitored by the commission.

In October, the U.S. Commodity Futures Trading Commission (CFTC) and the FTC filed separate lawsuits against former Voyager CEO Stephen Ehrlich. It alleged he had made misleading statements about the use and safety of customer funds.

The allegations include fraud and failure to register related to the platform’s unregistered commodity pool. The commission intends to pursue restitution, disgorgement, civil penalties and permanent trading and registration bans.

“Ehrlich and Voyager lied to Voyager customers,” said CFTC enforcement director Ian McGinley. “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. When their business began to collapse, they continued lying to their customers, concealing Voyager’s true financial health.”

However, Ehrlich emphasized that Voyager’s team had continuous communication and close collaboration with regulators, mostly denying the allegations.

In July, the FTC directed crypto lending company Celsius to pay $4.7 billion in fees. It accused the company’s co-founders of mishandling user assets and providing false information to investors about the platform’s services. Former Celsius CEO Alex Mashinsky was arrested by U.S. officials and is currently out on bail pending his trial, which is set to commence in September 2024.

Chapter 11 filing as recovery plan, says Voyager

Voyager filed for bankruptcy under Chapter 11 in the Southern District Court of New York as part of the company’s recovery plan.

In a July statement, Voyager revealed that if implemented, the plan would enable clients to regain access to their accounts, and Voyager would “return value to customers.”

Ehrlich outlined the recovery plan in a social media post, emphasizing that customers holding cryptocurrency in their accounts would receive a combination of cryptocurrency, proceeds from the Three Arrows Capital (3AC) recovery, new company shares and Voyager tokens.

He confirmed that customers holding U.S. dollars in their accounts can access those funds once a reconciliation and fraud prevention process with Metropolitan Commercial Bank is finished.

Ehrlich said Chapter 11 was the best choice. He ensured that this action would safeguard platform assets and guarantee Voyager’s ongoing operations.

FTC fines bankrupt Celsius Network

On July 13, the FTC announced a $4.7 billion fine against the bankrupt crypto lender Celsius Network. However, the fine will be put on hold to allow Celsius to return its remaining assets to consumers during the bankruptcy process.

Celsius and its affiliates will be banned from advertising or providing any service related to depositing, exchanging, investing or withdrawing assets.

Besides Mashinsky, the FTC accused co-founders Shlomi Leon and Hanoch Goldstein of promoting the platform as a secure space for customers to deposit cryptocurrency while misusing more than $4 billion in customers’ assets in their complaint.

The FTC also accused Celsius of issuing $1.2 billion in unsecured loans, falsely claiming to have a $750 million user insurance policy and not having proper methods to monitor its assets and debts until late 2021.