Voyager said it has about $1.3 billion in crypto on its platform and more than $350 million in cash on behalf of customers at New York’s Metropolitan Commercial Bank.
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During a five-hour Chapter 11 bankruptcy hearing earlier this month for crypto firm Voyager Digital, a client named Magnolia was the first user to step forward and speak about her experience.
Magnolia, who only disclosed her first name, said she had more than $1 million tied up on the platform, including $350,000 earmarked to pay for college for her children. She said it took her 24 years to save, and she had… sacrificed spending time with her kids to build that nest egg.
“I feel like we’re paying the ultimate price for being fiscally irresponsible,” Magnolia said. “They had our trust, they had our money, and they weren’t running this business properly.”
Magnolia wanted to know why Voyager borrowed money instead of cutting costs when it knew things were going wrong. She also asked if CEO Stephen Ehrlich was still being paid and receiving a bonus.
Magnolia is one of Voyager’s 3.5 million customers, a group desperate for answers more than a month after the company closed all trading and filed for Chapter 11 bankruptcy shortly after. Voyager, once a popular lending platform, attracted private investors by offering them up to double-digit annual returns in exchange for parking their tokens with Voyager.
As the crypto market boomed last year, Voyager signed sports sponsorships with the NBA’s Dallas Mavericks and owner Mark Cuban, Tampa Bay Buccaneers tight end Rob Gronkowski, NASCAR driver Landon Cassill and the National Women’s Soccer League.
While those names helped hype the service, they didn’t change the risk customers ran when they joined the platform. Their money was unsecured.
A 2022 Crypto Price Crash, Largely Due to Federal Reserve Interest Rates rises and investor rotation out of the riskiest assets created a liquidity crisis for hedge funds and cryptosites with overexposure to digital assets. Many of those companies defaulted on lending, creating a cascading effect that infected the wider industry and lenders like Voyager.
In addition to the hearing in New York’s Southern District in early August, Voyager customers also had the chance to voice their dismay in a livestream chat at a 52-minute virtual city hall last week. There, they were able to submit their pleas to the Voyager Official Committee of Unsecured Creditors, a group formed by the SDNY bankruptcy court to resolve asset divisions.
The committee consists of attorneys from McDermott Will & Emery, restructuring advisors from FTI Consulting and a select group of creditors. They say the focus is on the “quick USD and crypto returns to creditors.”
Committee members provided an overview of the bankruptcy proceedings to date, an estimated timeline for repayment and a process for filing claims. However, a committee member noted that the guidance they provided was “not legal advice” and it was “highly recommended” that individual creditors consider seeking counsel to assist in this process.
At the time of publication, the recording of the town hall on YouTube had been viewed more than 4,000 times. Voyager customers were given the opportunity to submit questions prior to the event last week. Many also agreed via the real-time chat on YouTube.
“I was a fool not to take my crypto when I first heard about the loan,” wrote Cindy Wheeler. “I thought Voyager was a safe exchange.”
Another participant, Ari Gurewitz, referred to Three Arrows Capital (3AC), a crypto hedge fund that filed for bankruptcy while owing more than $650 million to Voyager.
“Interestingly, Voyager goes out of business without knowing the full impact of 3AC’s bankruptcy on them,” Gurewitz wrote. “You might wonder if this is a bit of a trick to just restructure and take away a lot of their losses – at the expense of their customers!”
Voyager said it has about 100,000 creditors. They’ll have to vote on Voyager’s plan in bankruptcy court, but many say they don’t have much say in the process. That is why several clients are begging US bankruptcy court Michael Wiles for help.
“Where was the heads up on this?”
During the bankruptcy hearing, Magnolia said she felt Voyager had defrauded its customers. In a very short time it all went from boom to bust.
“This is a company that talks about how well they are doing,” she said. “They’ve got Mark Cuban, Rob Gronkowski. They’ve got the Dallas Mavericks Arena with the ‘Buy Voyager’ everywhere. They spend a lot of money on their marketing, on their people, on their locations. ?”
Another customer, who did not share his name but said he was 32, said during the hearing that he was “over seven digits” stranded on the app.
“I just want to position myself as the owner and depositor of my cryptocurrency,” he said. “I am witnessing 10 years of my life being frozen on a platform I trusted.”
The issue of ownership is proving to be particularly annoying for this customer and others. In crypto, one of the mantras – “not your keys, not your coins” – which means that the rightful ownership of tokens comes through the custody of the associated private keys. Customers cannot simply claim their money back and expect to receive it, even though they consider the money to be deposits and not investments.
“I have always identified myself as an owner and rightful depositor of the cryptocurrency offered on their platform,” the client said. “I just want to get a better handle on why I am called a creditor or unsecured creditor rather than the owner of my cryptocurrency.”
Customers are rightly confused.
The Federal Deposit Insurance Corporation, which protects bank deposits, and the Board of Governors of the Federal Reserve System sent a joint letter to Voyager in late July, alleging that the company made false and misleading statements about its deposit insurance status.
During the bankruptcy hearing, a client named Ginger Little said that when she put money on the platform, she had to convert it from US dollars to the US dollar-pegged stablecoin USDC in order to earn the attractive annual percentage return that drew her to the platform. app.
“We’ve never been told that isn’t the same as cash,” Little said. “We were told it had to be on the list that way to get interest on the money we put into it as an investment.”
Magnolia echoed that sentiment, saying she believed Voyager had touted its USDC as being “FDIC-insured.”
Christine Okike, a partner at Kirkland & Ellis, who represents Voyager, said during the bankruptcy hearing that the current effort is focused on raising cash, not USDC.
“USDC is a kind of cryptocurrency, a kind of coin,” Okike said. “And so that’s not discussed or judged in the context of releasing cash requested by the debtors.”
A Voyager spokesperson declined to comment.
Other clients have submitted letters addressed directly to the judge.
Jacob Redburn said he deposited 100 ether, or about $198,800 at current price and $480,000 at the market peak, to Voyager’s digital trading platform.
“I spent years saving, investing and trading crypto assets to build a life-changing amount of money that I would one day sell to meet school and other needs for my family,” Redburn wrote. a yellow notepad.
Redburn wrote that the CEO “liad straight to us” when he said a week before the filing that the company had no problems.
“This will ruin my future and my daughter’s future, and cost the government hundreds of thousands in capital gains that I would pay if I intend to sell,” he wrote. “I beg that we should receive our crypto that we owe, not worthless stocks or Voyager tokens that are worth nothing.”
Christine Marcy, a recently retired senior citizen living in Florida, said Voyager’s “deliberate and willful actions (crime) are causing emotional and economic hardship to an entire community of customers.” She said she was denied in her attempt to remove some assets just before the withdrawal freeze.
“I have an abrupt escrow account and my funds are now being held hostage,” Marcy wrote. “I made investments with Voyager, a publicly traded company, expecting that there would be some sense of accountability and accountability to customers.”
Donald A., who currently has about $31,000 frozen on the Voyager exchange, said that “losing this money with no end in sight is unbearable” for his family. He said the company was never transparent with customers about the type of risk it took, such as lending large sums to 3AC.
“I wake up most nights and just walk up and down the stairs thinking about my own mistakes and wondering if this will ever end,” he wrote. “My anxiety has been a struggle.”
Fighting for money
The Unsecured Creditors Committee told customers at City Hall that Voyager will soon send claim forms to all creditors showing what Voyager believes they owe in crypto, cash, or both.
Voyager currently has approximately $1.3 billion in crypto assets on the platform, $104 million in cash and a claim against the now-defunct 3AC for approximately $650 million. Creditors are claiming a total of $1.8 billion so far. Updated numbers are expected this week when Voyager submits its schedules.
The committee said it was able to negotiate a “very aggressive” schedule timeline, which is expected in late October, although the timing is subject to change. According to that schedule, payments to creditors would be made in November at the earliest.
The committee said it is taking the “unprecedented” step of advocating for an interim distribution to provide creditors with some relief during the bankruptcy process.
Last Thursday was the first day that customers would be able to withdraw some of their funds from the platform, but the eligibility conditions were very strict.
Judge Wiles granted eligible Voyager users access to $270 million in cash Voyager had with the Metropolitan Commercial Bank. Customers who had US dollars in their bank account are now apparently allowed to withdraw up to $100,000 in a 24-hour period through the Voyager app.
Other Voyager users with money in crypto still can’t get their money.
“We recognize that many of you were led to believe that the crypto you had on the Voyager platform was your property,” a committee member said at the town hall. “Unfortunately, for all of us, that is not the legal test in bankruptcy to determine whether the crypto is your property or the property of the bankrupt estate.”
— Rohan Goswami of CNBC contributed to this report.
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