Ex-Voyager CEO Sued by US Regulators Over “Safe Haven” Claims

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  • The CFTC has filed a complaint against Stephen Ehrlich for fraud and registration violations related to the Voyager platform
  • Allegations include false promises, unsafe transfers of customer assets, and unregistered operation
  • The FTC has also charged Ehrlich and Voyager with violations of the FTC Act and Gramm-Leach-Bliley Act.

The Commodity Futures Trading Commission (CFTC) yesterday took legal action against the former CEO of Voyager Digital, Stephen Ehrlich, alleging fraud and registration failures in connection with the exchange. Ehrlich and Voyager are accused of falsely promoting the platform as a “safe haven” for high-yield returns, which the CFTC says enticed customers to invest in and store their digital assets, when in fact no such safety was provided. The Federal Trade Commission (FTC) also charged Ehrlich and Voyager with violations of the FTC Act and the Gramm-Leach-Bliley Act.

CFTC Says Erlich Misrepresented Platform Safety

According to the CFTC, from February 2022 through July 2022, Ehrlich and Voyager engaged in a fraudulent scheme by misrepresenting the safety and financial stability of the Voyager exchange. The authority alleges that marketed Voyager as a secure place for customers’ digital assets in a volatile market and promised high-yield returns, up to 12%, for assets stored on the platform.

To generate the promised returns, Ehrlich and Voyager pooled customer assets on the Voyager platform and transferred billions of dollars’ worth of funds to high-risk third parties. In one instance, they transferred over $650 million in customer digital assets to a company referred to in the complaint as Firm A, a “digital assets hedge fund”, without conducting proper due diligence. This, as everyone knows, was the defunct Three Arrows Capital.

The CFTC adds that Voyager acted as a commodity pool operator (CPO) without the necessary CFTC registration and that Ehrlich didn’t register as an associated person of a CPO, despite soliciting contributions to the Voyager Pool from the public.

Voyager Offered False Reassurances

Despite customers collectively storing over $2 billion worth of digital asset commodities on the platform, Ehrlich and Voyager did not provide the promised safety, according to the complaint. They are accused of transferring customer assets to risky counterparties, ultimately causing Voyager to face liquidity issues when Three Arrows defaulted in June last year. Voyager then allegedly continued to falsely reassure customers about the safety of their assets until it filed for bankruptcy on July 5, 2022, owing over $1.7 billion to US customers.

The CFTC’s litigation against Ehrlich seeks various remedies, including restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction to prevent further violations of the Commodity Exchange Act (CEA) and CFTC regulations.

In a separate action on October 12, the Federal Trade Commission (FTC) charged Ehrlich and Voyager with violations of the FTC Act and the Gramm-Leach-Bliley Act. Seeing as these are civil charges Erlich will not face any criminal action, but this could come later if further evidence is found of more serious fraud.