A commissioner for the United States Commodity Futures Trading Commission has slammed Voyager Digital for its mistakes that eventually led to the loss of billions of dollars in customer funds.
Statement of @CFTCjohnson regarding @cftc‘s charges against Voyager’s chief executive officer. Learn more: https://t.co/OiBvOoCuV6
— CFTC (@CFTC) October 12, 2023
In an Oct. 12 statement, Commissioner Kristin Johnson took aim at Voyager for misleading practices, ignoring warning signs and “bare-bones due diligence,” which failed to protect customers.
“Because of Voyager’s failures, the company became no better than a house of cards.”
The commodities commissioner said Voyager turned a blind eye to what its subsidiary investment firms were doing with its own customer funds:
“It is astounding that Voyager failed to exert pressure on the firms where it invested its customers’ assets.”
“Instead of demanding that investment firms that received customer assets offer greater levels of transparency, Voyager shirked the long-established expectations for custodians and simply dispatched customer funds with little effort to preserve the same,” she added.
Johnson’s comments came after the regulator, along with the Federal Trade Commission, filed parallel lawsuits against Voyager’s former CEO, Stephen Ehrlich on Oct. 12.
The CFTC lawsuit alleges Ehrlich and Voyager conducted fraud and “registration failures” over its platform and its “unregistered commodity pool.”
It has been frustrating watching lots of obvious malfeasance happening in crypto land and enforcement actions only target low-rent relatively tiny scam operations while the industry was building industrial scale predation machines.
This is not that pattern!
— Patrick McKenzie (@patio11) October 12, 2023
The FTC, on the other hand, reached a proposed settlement with Voyager, banning the firm from offering, marketing or promoting any product or service that could be used to deposit, exchange, invest or withdraw any assets, according to an Oct. 12 statement.
Voyager and its affiliates agreed to a judgment of $1.65 billion, which will go toward repaying customers in the bankruptcy proceedings.
Meanwhile, a separate Oct. 12 statement from CFTC Commissioner Caroline Pham said the regulator will continue to pursue action against cryptocurrency firms that misuse customer funds:
“There is a significant difference between managing investor money for the purpose of trading derivatives, and taking deposits and providing loans to others. Without financing and consumer credit, our economy would grind to a halt.”
Related: CFTC issues $54M default judgment against trader in crypto fraud scheme
However, Pham thinks the CFTC may have stepped outside the bounds of its authority in interpreting what constitutes a commodity pool operator:
“Such an interpretation is an overreach beyond our statutory authority and would disrupt well-established legal and regulatory frameworks for lending to institutions and consumer finance.”
On Sept. 7, Pham called for the CFTC to establish a cryptocurrency regulatory pilot program that would address the risks retail investors face.
Voyager filed for Chapter 11 bankruptcy in July 2022, where it indicated that it may owe anywhere between $1 billion and $10 billion in assets to more than 100,000 creditors.
The cryptocurrency brokerage firm opened withdrawals for customers in June.
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