The Federal Trade Commission (FTC) and Commodity Futures Trading Commission (CFTC) have launched lawsuits against Stephen Ehrlich, the former head executive of the defunct crypto loan firm Voyager Digital. The CEO allegedly engaged in fraud and misrepresenting customers’ government protections.
The CTFC said that Ehrlich had defrauded his customers by making misleading statements about the financial health of Voyager Digital. It also claimed that the company had been doing business without proper registration.
“The complaint alleges that from at least February 2022 through July 2022, Ehrlich and Voyager engaged in a scheme to defraud customers by misrepresenting the safety and financial health of the Voyager digital asset platform,” the regulator said in a release.
Meanwhile, the FTC accused him of lying about customers’ funds being protected by the Federal Deposit Insurance Corporation. It claimed that the company had violated the FTC Act’s prohibition on deceptive practices as well as the Gramm-Leach-Bliley Act.
Voyager was one of the many crypto firms that collapsed in 2022 following plummeting crypto prices and worsening macroeconomic conditions, along with Celsius Network and BlockFi. After Voyager collapsed, the company first negotiated a failed sale deal with FTX, followed by another failed arrangement with Binance.
When the situation was exposed, the company froze deposits and withdrawals for its customers. Analysts estimate that Voyager customers may not recover more than 36 percent of their assets.
Ehrlich and his company promised customers a safe haven for digital assets on their platform, valued at more than $2 billion. They also promised customers high-yield returns as high as 12 percent on certain digital asset commodities stored on the platform.
At the same time, the CEO was “recklessly” providing uncollateralized loans to high-risk parties to generate income and pay its customers the promised returns. These include four firms that are now also bankrupt, according to the lawsuit CTFC filed in New York federal court. As the risky lenders failed to repay their loans, Voyager experienced dire operational liquidity issues.
“This is yet another CFTC action seeking to hold accountable a chief executive officer for his role in the fraudulent operation of a digital asset platform,”
Ian McGinley, CFTC’s enforcement director.
“Ehrlich and Voyager lied to Voyager customers,” said Ian McGinley, CFTC’s enforcement director, in a statement about the lawsuit, which calls for 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.”
The lawsuit dictates that Voyager and its affiliates pay a fine of $1.65 billion, which will be put on hold to permit Voyager to redistribute the rest of its possessions to its customers during the bankruptcy hearings. The FTC said it would permanently ban Voyager from handling customer assets.
“CFTC commissioners are now voting on whether to approve an enforcement action against him within days,” said a Bloomberg report on the lawsuit.
Meanwhile, the FTC named Ehrlich’s wife, Francine Ehrlich, as a relief defendant. The regulator said that Ehrlich had allegedly transferred millions of dollars to his wife, including funds that can be traced directly to the alleged misconduct.
In a separate statement, Ehrlich said he was “outraged and deeply dismayed” by the allegations.
“The talented management team at Voyager created and maintained our platform in full compliance with the existing regulatory structure. Our team consistently communicated and worked closely with our regulators,” he said.
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