U.S. Commodity Futures Trading Commission (CFTC) Commissioner Kristin Johnson has publicly criticized Voyager Digital for the mishandling of customer funds that led to significant losses. Johnson's comments, made on October 12, lambasted Voyager for misleading practices, inadequate due diligence, and a lack of customer protection.
Johnson emphasized that Voyager had overlooked concerning practices within its subsidiary investment firm, and when the company faced issues, it essentially crumbled. She said, "With the failure of Voyager, the company became a house of cards." The commissioner also expressed surprise that Voyager had failed to exert pressure on the companies it entrusted with its clients' assets.
Furthermore, Johnson pointed out that Voyager did not prioritize transparency from the investment firms receiving client assets. Instead, it transferred client funds without implementing adequate safeguards to protect them.
Regulators, along with the Federal Trade Commission, filed lawsuits against former Voyager CEO Stephen Ehrlich on October 12. The CFTC lawsuit alleged fraud and failure to register regarding the platform and its pool of unregistered assets. Separately, the FTC reached a proposed settlement with Voyager, prohibiting the company from offering products or services related to deposits, exchanges, investments, or withdrawals of assets.
To address the issues, Voyager and its affiliates have agreed to a $1.65 billion judgment, which will be used to repay customers during the bankruptcy proceedings. CFTC Commissioner Caroline Pham also expressed the agency's intent to take action against cryptocurrency firms that mishandle customer funds, highlighting the importance of distinguishing between managing investor funds for derivatives trading and accepting deposits and making loans to others.
Pham, however, voiced concerns about the CFTC potentially exceeding its authority by broadly interpreting what constitutes a commodity pool operator, which could have implications for the legal and regulatory framework surrounding institutional lending and consumer finance.
Voyager filed for Chapter 11 bankruptcy in July 2022, and it currently faces the prospect of repaying between $1 billion and $10 billion in assets to over 100,000 creditors. The cryptocurrency brokerage resumed withdrawal services for its clients in June.
