CFTC brings fraud costs in opposition to former CEO of Voyager Digital

The Commodity Futures Buying and selling Fee (CFTC) right this moment introduced it filed a grievance within the U.S. District Courtroom for the Southern District of New York in opposition to Tennessee resident Stephen Ehrlich, the previous chief government officer of now-bankrupt entities Voyager Digital Ltd., Voyager Digital Holdings, Inc., and Voyager Digital, LLC.

The grievance costs Ehrlich with fraud and registration failures in reference to the Voyager digital asset platform and Voyager’s operation of an unregistered commodity pool. Ehrlich and Voyager falsely touted the Voyager platform as a “secure haven” to earn high-yield returns to induce prospects to buy and retailer digital asset commodities.

In its persevering with litigation in opposition to Ehrlich, the CFTC seeks restitution, disgorgement, civil financial penalties, everlasting buying and selling and registration bans, and a everlasting injunction in opposition to additional violations of the Commodity Change Act (CEA) and CFTC laws, as charged.

The grievance alleges, from a minimum of February 2022 via July 2022, Ehrlich and Voyager engaged in a scheme to defraud prospects by misrepresenting the security and monetary well being of the Voyager digital asset platform. Ehrlich and Voyager, through publicly out there postings on social media and their web site, touted Voyager as a “secure haven” for purchasers’ digital belongings in an in any other case unstable market surroundings and that Voyager would function with the “similar degree of rigor and belief” as a standard monetary establishment. Ehrlich and Voyager additionally promised prospects high-yield returns—as a lot as 12%—on sure digital asset commodities saved on the Voyager platform.

To generate revenue to pay its prospects the promised returns, Ehrlich and Voyager pooled buyer belongings saved on the Voyager platform and transferred billions of {dollars}’ value of shoppers’ digital asset commodities as “loans” to high-risk third events. In early 2022, following grossly insufficient due diligence, Ehrlich and Voyager transferred over $650 million in buyer digital asset commodities to Agency A (a digital belongings hedge fund) on an unsecured foundation, with the understanding that Agency A would generate returns for Voyager by pooling Voyager’s funding and buying and selling commodity pursuits.

In so doing, Voyager operated the Voyager Pool and acted as a commodity pool operator (CPO) with out the required CFTC registration.

Moreover, Ehrlich didn’t register as an related particular person of a CPO, regardless of soliciting members of the general public to contribute to the Voyager Pool. Primarily based on the false guarantees associated to the security of Voyager’s operations and receipt of high-yield returns, prospects typically collectively saved greater than $2 billion value of digital asset commodities on the Voyager platform. Nonetheless, as a substitute of offering a “secure haven,” Ehrlich and Voyager transferred buyer digital belongings to dangerous counterparties, similar to Agency A, to gas the high-yield returns used to draw and retain prospects.

In June 2022, Voyager recalled its buyer digital belongings commodities from Agency A. Agency A defaulted and, consequently, Voyager skilled dire operational liquidity points. Nonetheless, Ehrlich continued to falsely assert publicly that buyer belongings had been secure with Voyager.

On July 5, 2022, Voyager filed for chapter, owing its prospects in the USA greater than $1.7 billion.