Voyager mentioned it has roughly $1.3 billion of crypto on its platform and holds over $350 million in money on behalf of customers at New York’s Metropolitan Commercial Bank.
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During a five-hour Chapter 11 bankruptcy listening to earlier this month for crypto agency Voyager Digital, a buyer named Magnolia was the primary consumer to step ahead and talk about her expertise.
Magnolia, who solely disclosed her first identify, mentioned she had over $1 million trapped on the platform, together with $350,000 that was earmarked to pay for faculty for her kids. She mentioned it had taken her 24 years to avoid wasting, and he or she had sacrificed spending time along with her youngsters with a view to construct that nest egg.
“I do feel like we’re paying the ultimate price for them being fiscally irresponsible,” Magnolia mentioned. “They had our trust, they had our money, and they did not run this company properly.”
Magnolia wished to know why Voyager borrowed money as a substitute of slicing prices when it knew issues had been going south. She additionally requested whether or not CEO Stephen Ehrlich was nonetheless getting paid and receiving a bonus.
Magnolia is considered one of Voyager’s 3.5 million customers, a bunch that is determined for solutions greater than a month after the corporate suspended all buying and selling and, quickly after, filed for Chapter 11 bankruptcy. Voyager, as soon as a well-liked lending platform, drew in retail traders by providing them as much as double-digit annual returns in trade for parking their tokens with Voyager.
As the crypto market boomed final yr, Voyager inked sports activities sponsorships with the NBA’s Dallas Mavericks and proprietor Mark Cuban, Tampa Bay Buccaneers tight finish Rob Gronkowski, NASCAR driver Landon Cassill and the National Women’s Soccer League.
While these names helped hype the service, they did not change the danger that customers confronted after they joined the platform. Their funds had been unsecured.
A crash in crypto costs in 2022, largely because of Federal Reserve charge hikes and investor rotation out of the riskiest belongings, created a liquidity disaster for hedge funds and crypto websites with extra publicity to digital belongings. Many of these corporations defaulted on loans, making a cascading impact that contaminated the broader trade and lenders like Voyager.
In addition to the listening to in early August within the Southern District of New York, Voyager customers additionally had a chance to voice their displeasure in a livestream chat accompanying a 52-minute digital city corridor final week. There they might make their pleas to the “Voyager Official Committee of Unsecured Creditors,” a bunch formed by the bankruptcy court of SDNY to resolve asset distribution.
The committee consists of attorneys from McDermott Will & Emery in addition to restructuring advisors from FTI Consulting and a choose group of collectors. They say the main target is the “prompt return of USD and crypto to creditors.”
Members of the committee gave an outline of the bankruptcy proceedings thus far, an estimated timeline to reimbursement and a how-to on the declare submission course of. One committee member famous, nonetheless, that the steerage they had been offering was “not legal advice” and that it was “strongly recommended” that particular person collectors take into account retaining counsel to help with this course of.
As of the time of publication, the recording of the town hall on YouTube had greater than 4,000 views. Voyager customers got the possibility to submit questions upfront of the occasion final week. Many additionally chimed in over the real-time chat on YouTube.​
“I was a fool not taking my crypto when I first heard about the loan,” wrote Cindy Wheeler. “Thought Voyager was a safe exchange.”
Another participant, Ari Gurewitz, referenced Three Arrows Capital (3AC), a crypto hedge fund that filed for bankruptcy whereas owing over $650 million to Voyager.
“Interesting that Voyager declares bankruptcy before knowing what the full impact of the 3AC bankruptcy has on them,” Gurewitz wrote. “Makes one wonder if this is a bit of a ploy to just restructure and remove a lot of their losses — at their customers expense!”
Voyager mentioned it has about 100,000 collectors. They must vote on the plan Voyager establishes in bankruptcy court docket, however many say they do not have a lot of a voice within the course of. That’s why a number of customers are begging U.S. bankruptcy court docket judge Michael Wiles for assist.
‘Where was the heads up on this?’
At the bankruptcy listening to, Magnolia mentioned she felt that Voyager had defrauded its customers. In very quick order, all of it went from growth to bust.
“This is a company that’s talking about how great they’re doing,” she mentioned. “They have Mark Cuban, Rob Gronkowski. They have the Dallas Mavericks Arena with the ‘Buy Voyager’ all over it. They’re spending big money on their marketing, on their people, on their locations. Where was the heads up on this?”
Another buyer, who did not share his identify however mentioned he was 32, mentioned on the listening to he had “well over seven figures” stranded on the app.
“I just want to position myself as an owner and a depositor of my cryptocurrency,” he mentioned. “I’m witnessing 10 years of my life being frozen on a platform that I trusted.”
The problem of possession is proving to be notably vexing for this buyer and others. In crypto, one of many mantras is — “not your keys, not your coins” — that means that rightful possession of tokens comes by means of the custody of the corresponding personal keys. Customers cannot merely demand their money back and count on to obtain it, despite the fact that they considered the funds as deposits, not investments.
“I’ve always identified myself as an owner and a rightful depositor of the cryptocurrency that was provided on their platform,” the client mentioned. “I just want to get more of a handle on why I’m being labeled a creditor, or unsecured creditor, instead of the owner of my cryptocurrency.”
Clients are proper to be confused.
The Federal Deposit Insurance Corporation, which protects financial institution deposits, and the Board of Governors of the Federal Reserve System issued a joint letter in late July to Voyager, alleging the corporate made false and deceptive statements about its deposit insurance coverage standing.
At the bankruptcy listening to, a buyer named Ginger Little mentioned that when she put money on the platform, she needed to convert it from U.S. {dollars} to the U.S. dollar-pegged stablecoin USDC with a view to earn the engaging annual share yield that drew her to the app.
“We were never told that wasn’t the same as cash,” Little mentioned. “We were told that it had to be listed that way in order to get interest for the money that we put in there as an investment.”
Magnolia echoed that sentiment, saying she thought Voyager had touted its USDC as being “FDIC insured.”
Christine Okike, a associate at Kirkland & Ellis, which is representing Voyager, mentioned through the bankruptcy listening to that the present effort is targeted on money retrieval, not USDC.
“USDC is a type of cryptocurrency, a type of coin,” Okike mentioned. “And so that is not being discussed or adjudicated on in the context of the release of cash that’s being requested by the debtors.”
A Voyager spokesperson declined to remark.
Other customers have submitted letters straight addressed to the judge.
Jacob Redburn mentioned he had deposited 100 ether, or about $198,800 at right this moment’s worth and $480,000 on the market peak, on to Voyager’s digital buying and selling platform.
“I have spent years saving, investing, and trading crypto assets to build what was a life-changing amount of money that I would one day sell to provide college and other needs for my family,” Redburn wrote on a yellow authorized pad.
Redburn wrote that the CEO “straight lied to us,” when he mentioned per week earlier than the submitting that the corporate had no points.
“This will ruin my future, my daughter’s future, and cost the government hundreds of thousands in capital gains I would pay when I do plan to sell,” he wrote. “I beg that we are to receive our crypto that we’re owed, not worthless stock or Voyager tokens worth nothing.”
Christine Marcy, a newly retired senior citizen residing in Florida, mentioned Voyager’s “willful and intentional actions (malfeasance) are causing emotional and economic hardship for an entire community of customers.” She mentioned she was denied in her effort to take away some belongings simply earlier than the withdrawal freeze.
“I have an abruptly frozen account and my assets are now held hostage,” Marcy wrote. “I made investments with Voyager, a publicly traded company, with the expectation there would be some sense of accountability and responsibility to customers.”
Donald A., who presently has round $31,000 frozen on the Voyager trade, mentioned that “losing this money with no end in sight has been unbearable” for his household. He mentioned the corporate was by no means clear with customers in regards to the sort of threat it was taking, similar to lending massive sums to 3AC.
“I wake up most nights and just walk up and down the stairs contemplating on my own mistakes and wondering if this will ever end,” he wrote. “My anxiety has been a struggle.”
Fighting for funds
The unsecured collectors committee informed customers within the city corridor that Voyager will quickly ship proof-of-claim kinds to all collectors with what Voyager believes they’re owed in crypto, money or each.
Voyager presently has roughly $1.3 billion in crypto belongings on the platform, $104 million in money, and a declare towards the now defunct 3AC for round $650 million. Creditor claims whole $1.8 billion thus far. Updated figures are anticipated this week when Voyager information its schedules.
The committee mentioned it was capable of negotiate a “very aggressive” plan timeline, which targets the top of October, although the timing is topic to alter. On that schedule, distributions to collectors would happen in November on the earliest.
The committee mentioned it is taking the “unprecedented” step of advocating for an interim distribution to supply collectors with some reduction through the bankruptcy course of.
Last Thursday was the primary day customers had been supposed to have the ability to retrieve a few of their money back from the platform, however situations for eligibility had been very strict.
Judge Wiles granted qualifying Voyager users access to $270 million in money Voyager held with Metropolitan Commercial Bank. Customers who had U.S. {dollars} of their account on the financial institution apparently now are allowed to withdraw up to $100,000 in a 24-hour period by means of the Voyager app.
Other Voyager customers with funds held in crypto nonetheless cannot contact their money.
“We recognize that many of you were led to believe that the crypto you held on the Voyager platform was your property,” one committee member mentioned through the city corridor. “Unfortunately, for all of us, that’s not the legal test in bankruptcy for determining whether the crypto is your property or property of the bankruptcy estate.”
— CNBC’s Rohan Goswami contributed to this report.
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