Judge Orders Stephen Ehrlich to Compensate Voyager Customers
A federal court has mandated that Stephen Ehrlich pay $750,000 to customers who were defrauded by Voyager Digital, the cryptocurrency lending platform he previously managed prior to its downfall. This consent order, issued on Monday in a Manhattan federal court, resolves the fraud allegations that the Commodity Futures Trading Commission (CFTC) filed against Ehrlich in October 2023. The former CEO is required to direct the funds to Voyager customers through the ongoing bankruptcy proceedings of the company.
Severe Trading Restrictions Imposed
In addition to the financial penalty, Ehrlich is now subject to a significant three-year prohibition from participating in commodity trading activities. This ban prevents him from trading on registered exchanges, overseeing accounts with commodity interests, or being employed by firms that require CFTC registration. Furthermore, the order permanently prohibits him from breaching the anti-fraud stipulations outlined in the Commodity Exchange Act. As part of the settlement, Ehrlich did not admit to or deny any wrongdoing.
CFTC Emphasizes Its Regulatory Role
Charles Marvine, acting chief of the Division of Enforcement’s Retail Fraud and General Enforcement Task Force, commented on the resolution, stating, “This outcome underscores the CFTC’s critical function in the digital asset sector. Ensuring victims are compensated and curtailing a defendant’s capacity to inflict future harm aligns perfectly with the CFTC’s fundamental mission.”
Voyager’s Misleading Promises
The initial lawsuit from the CFTC accused Ehrlich and Voyager of promoting their platform as a “safe haven” for digital assets while covertly channeling customer funds to risky borrowers. The company had guaranteed returns as high as 12% on certain cryptocurrencies kept on its platform. To achieve these returns, Ehrlich and Voyager combined customer assets and transferred over $650 million to a hedge fund without adequate due diligence, as stated by regulators. Following a borrower default in June 2022, Voyager confronted immediate liquidity issues.
Continued Misrepresentation Amid Decline
Despite the financial troubles, Ehrlich maintained public assurances that customer assets were secure, even as Voyager’s financial health continued to decline. The company entered bankruptcy in July 2022, with debts exceeding $1.7 billion owed to U.S. customers. At one point, there were plans for Binance.US to acquire the failed crypto lending platform, but the exchange retracted its intention to purchase the assets for $1 billion just a few months later.
Regulatory Scrutiny Intensifies
The settlement with the CFTC is the latest in a series of penalties faced by Ehrlich, who has been under investigation by various federal agencies. In June, he settled with the Federal Trade Commission (FTC) for $2.8 million regarding similar allegations of misleading customers about deposit insurance and the safety of their assets. The FTC claimed that Ehrlich falsely informed customers that their deposits were protected by FDIC insurance, making them “as safe with us as at a bank,” despite most customer funds lacking such insurance coverage at the time of Voyager’s collapse.
Partial Recovery for Affected Customers
To date, Voyager customers have managed to recover approximately 35% of their cryptocurrency deposits through the bankruptcy proceedings. This recovery rate may improve depending on the results of ongoing legal disputes, including one with the failed exchange FTX concerning asset transfers. The situation reflects a broader regulatory push to hold cryptocurrency executives accountable following the significant downturn in the industry during 2022, during which multiple digital asset lending platforms, including Celsius Network and BlockFi, collapsed, resulting in massive losses for customers.
