Court Orders Stephen Ehrlich to Compensate Voyager Digital Customers
A federal judge has mandated that Stephen Ehrlich pay $750,000 to customers who were defrauded by Voyager Digital, the cryptocurrency lending platform he previously managed before its dramatic failure. The consent order, which was filed on Monday in Manhattan federal court, resolves fraud allegations made by the Commodity Futures Trading Commission (CFTC) against Ehrlich in October 2023. The former CEO is required to direct the funds to Voyager customers as part of the company’s ongoing bankruptcy proceedings.
Severe Penalties and Trading Ban for Ehrlich
In addition to the monetary penalty, Ehrlich is subjected to a comprehensive three-year prohibition from engaging in commodity trading activities. This restriction prevents him from trading on registered exchanges, overseeing accounts with commodity interests, or working for any firms that require CFTC registration. Moreover, the order permanently prohibits Ehrlich from breaching anti-fraud regulations outlined in the Commodity Exchange Act. As part of the settlement, he did not admit to or deny any wrongdoing.
CFTC Highlights Importance of Its Role in Digital Assets
“This resolution underscores the CFTC’s vital role in the digital asset sector,” stated Charles Marvine, acting chief of the Division of Enforcement’s Retail Fraud and General Enforcement Task Force. He emphasized that compensating victims and curtailing the ability of defendants to cause further harm aligns with the CFTC’s primary objectives.
Promises of Security Turned into Financial Losses
The CFTC’s initial lawsuit accused Ehrlich and Voyager of promoting their platform as a “safe haven” for digital assets while covertly transferring customer funds to high-risk borrowers. The company made claims of returns as high as 12% on certain cryptocurrencies held on its platform. To achieve these returns, Ehrlich and Voyager pooled customer funds and transferred over $650 million to a hedge fund without conducting adequate due diligence, according to regulatory authorities. When that borrower defaulted in June 2022, Voyager encountered immediate liquidity issues.
Continued Assurances Amid Financial Decline
Despite the escalating financial troubles, Ehrlich persistently assured the public that customer assets were secure. Voyager ultimately filed for bankruptcy in July 2022, with U.S. customers owed upwards of $1.7 billion. For a period, the ailing crypto lending platform was on the brink of being acquired by Binance.US; however, the exchange later withdrew from the $1 billion asset purchase agreement just months after the initial announcement.
Regulatory Scrutiny Intensifies
The CFTC settlement represents the latest in a series of penalties for Ehrlich, who has been under examination by several federal agencies. In June, he consented to pay $2.8 million to settle allegations from the Federal Trade Commission (FTC) regarding misleading claims about deposit safety and insurance. The FTC charged Ehrlich with falsely assuring customers that their deposits were protected by FDIC insurance, claiming they were “as safe with us as at a bank,” while most customer funds were not insured when Voyager collapsed.
Current Recovery Rates for Voyager Customers
Through the bankruptcy process, Voyager customers have managed to recover approximately 35% of their cryptocurrency deposits. These recovery rates may improve depending on the outcomes of ongoing litigation, which includes a dispute with the failed exchange FTX over asset transfers. This case illustrates the broader regulatory efforts to hold cryptocurrency executives accountable in the wake of the sector’s significant downturn in 2022, which saw the collapse of several digital asset lending platforms, including Celsius Network and BlockFi, resulting in substantial losses for customers.
