Thousands of crypto investors get their savings frozen when Voyager applies for bankruptcy protection
Robert first came across Voyager Digital in March 2020.
Like countless others, he decided to give the cryptocurrency broker a try. The platform was easy to navigate. It offered him an up to 9% annual percentage rate (APY) – much higher than a traditional savings account. It claimed to be FDIC (Federal Deposit Insurance Corporation) insured. And as a listed company on the Toronto Stock Exchange, he thought, how bad can Voyager be?
Robert, who asked to be identified by his first name for privacy reasons, eventually invested six figures in Voyager, or 70% of his savings, he says. Fortune. Another user, who invested in Voyager for about six years and asked to remain anonymous for security reasons, has invested around $ 38,000 on the platform.
But now both can not withdraw any of their money, as the company suspended trading on July 1 and applied for Chapter 11 bankruptcy protection late Tuesday.
Voyager is also not FDIC-insured, despite its ads that “In the rare event that your USD funds are compromised due to the company or our banking partner’s failure, you are guaranteed a full refund (up to $ 250,000).” Its “banking partner”, Metropolitan Commercial Bank, is FDIC-insured, but Voyager is not.
Learning this, said the six-year-old, was “like a kick in the stomach.”
“Every day, honestly, I cry,” Robert says. “I do not know what to say to my wife. As partners, we decided to [invest on Voyager]but she trusted me, more than anyone else, to make the right decision. “
Now these investors are learning how handed over Voyager was, and how they invested their savings in a now defunct hedge fund that engaged in extremely risky behavior.
“It’s heartbreaking”
Voyager has mainly blamed the defunct hedge fund Three Arrows Capital (3AC) for its problems, saying that 3AC has not repaid a loan of $ 650 million.
Like the rest of the crypto market, 3AC took a hit after the Terra ecosystem collapsed in May. In June, it was rumored that the large cryptocurrency lender Celsius Network was bankrupt, and 3AC was not far behind. Their mistake triggered a domino effect across the industry, as many of the major crypto lenders and funds appeared to be exposed to each other, and last week 3AC creditors sought liquidation of it in a court in the British Virgin Islands.
However, Voyager is trying to restructure and not liquidate, which means they hope to return at least a percentage of customers’ investments, according to court documents. Voyager also said in court documents that they could potentially offer shares or tokens in the reorganized company to customers after bankruptcy. But in the meantime, customers are struggling not to be able to withdraw their savings. While waiting for the next step, some have even shared thoughts of suicide and depression online.
“It’s heartbreaking,” says Robert. “I feel extremely terrible because I was unprepared.”
Voyager behaved like a bank, and most of the users treated it like that. Over time, the broker began to offer clients high returns for their deposits. To monetize their offerings, Voyager lent such funds to others for sometimes even higher returns.
Until the company announced that it stopped withdrawals and requested bankruptcy protection, Voyager continued to tell customers that it was going well.
Just weeks before Voyager filed for bankruptcy, CEO Stephen Ehrlich said customers’ assets were safe. In early June, Voyager tweeted that all “products and services are fully operational and remain unaffected by current market conditions, including trading, rewards, deposits and withdrawals. We take risk management very seriously, and securing customers’ assets is our top priority.”
The the company stated that it “never engaged in DeFi [decentralized finance] lending activities. “
Regardless of whether it engaged in DeFi loans or not, Voyager’s overexposure to 3AC became apparent as the market took a turn for the worse. The company hoped to strengthen its finances after securing a credit line of around $ 500 million from the quantum trading store Alameda Ventures at the end of June. But still worried about a “run on the bank” due to users trying to withdraw their money, as stated in the case document, Voyager finally decided to proceed with filing Chapter 11.
“I had no idea that Voyager would lend [customers’ USDC] out to a hedge fund, ”said the six-year-old user. “Had I known it would possibly be lent out, I probably would have just kept it in cash in my safe.”
“I did every single thing a sensible person would do, which is to go through and look at the company,” Robert said. He noticed that the company was not targeted by regulators and thought it was a good sign. “I should have known. Everything in retrospect is obviously a different thing.”
Scott Melker, a well-known crypto investor and podcaster with over 851,000 Twitter followers, says Fortune that he has used Voyager since 2019 and has “several seven figures” fixed on the platform.
It “hurts” not to have access to an account he used for savings, he says, but states that he has secured his portfolio and understands that he took a big risk. For the most part, Melker feels bad about those he told Voyager about, including friends, family and his viewers.
“I understand that people make their own decisions, but they would not even have thought about it if I had not included [Voyager] to their attention. And honestly, it’s worse than losing my own money, he said.
What’s ahead?
A bankruptcy lawyer and a crypto lawyer told Fortune that it is unclear how long the bankruptcy process will take. But they stressed that Voyager hopes to restructure, not liquidate, a hopeful sign for retail investors to get some of their money back.
The company mentioned that it hopes to give its users at least some of their funds after the reorganization. Due to the variety of assets users purchased on the platform, it is uncertain whether users can be made completely whole.
Milker tells Fortune that he is one of the 50 best owners on the platform, and the 10 or 20 best owners may have a say in what happens next in the bankruptcy proceedings, with reference to a hearing that just happened.
Voyager recently said it had about $ 1.3 billion in cryptocurrencies on its platform, adding that the company has over $ 110 million in cash and owned cryptocurrencies at hand, which will “provide liquidity to support day-to-day operations under Chapter 11-” process, “it says. Voyager also mentioned that it has $ 350 million of customers’ cash in an account with Metropolitan Commercial Bank.
This experience has hurt some to such an extent that they have sworn never to invest in cryptocurrency again. Others, on the other hand, remain bullish.
Melker, for example, has nothing against the company or its creators. His story with Voyager goes deep – the company even sponsored his short podcast for a short time when he first started it, he says. He hopes that he and others will see their possessions again.
“Listen, I’m out of millions of dollars,” he says. ‘You know, it’s embarrassing. I’m a person who talks about risk management and the protection of your assets, but I was without a doubt, in retrospect, overexposed, but that’s what I was comfortable with. “
Of course, Voyager users also hope that they will soon have access to their savings.
“Unfortunately, hope is not a plan, but it is not something I have control over,” says Robert. “All I need is to get my original assets back. I do not need the rewards or interest I have received. I just need the assets back.”
Voyager Digital did not immediately respond Fortunehis request for comment.
This story was originally featured on Fortune.com
