December 11, 2023

CFTC and FTC file lawsuits against former Voyager Digital CEO for fraud, making false claims

The United States Commodity Futures Trading Commission (CFTC) and Federal Trade Commission (FTC) have filed parallel lawsuits against Stephen Ehrlich, the former CEO of crypto lending firm Voyager Digital.

In an Oct. 12 announcement, the CFTC said it had filed a lawsuit in U.S. District Court for the Southern District of New York against Ehrlich and Voyager for alleged fraud and “registration failures” connected to the platform and its “unregistered commodity pool”. The commission said it planned to seek restitution, disgorgement, civil monetary penalties, and permanent trading and registration bans.

“Ehrlich and Voyager lied to Voyager customers,” said CFTC enforcement director Ian McGinley. “While representing they would treat customers’ digital asset commodities safely and responsibly, behind the scenes, they took shockingly reckless risks with their customers’ assets, leading to Voyager’s bankruptcy and huge customer losses. When their business began to collapse, they continued lying to their customers, concealing Voyager’s true financial health.”

In a parallel action, the FTC said it had reached a settlement with Voyager “that will permanently ban it from handling consumers’ assets” and filed a lawsuit in U.S. District Court for the Southern District of New York against Ehrlich for claiming that Voyager accounts insured by the Federal Deposit Insurance Corporation (FDIC) and were “safe”. As part of the proposed settlement, Voyager and its affiliates will pay a $1.65 billion fee.

The FTC’s complaint focused on Voyager claiming USD Coin (USDC) deposits were insured by the FDIC. Ehrlich allegedly transferred millions of dollars in funds from Voyager to his wife Francine, who was named as a relief defendant in the FTC case. Both lawsuits centered around allegedly fraudulent statements made by Ehrlich in regards to Voyager’s financial health in 2022.

According to a statement from Ehrlich, he was “outraged and deeply dismayed” at the lawsuits, claiming Voyager’s team “consistently communicated and worked closely with our regulators” and adding:

“I am profoundly upset by the losses suffered by Voyager’s customers and creditors due to the conduct of others in the crypto industry. I am currently reviewing the government’s claims, but it is clear I am being used as a scapegoat for the bad actions of others.”

Related: CFTC proposes reducing anonymity to manage risks

Voyager filed for Chapter 11 bankruptcy protection in July 2022 amid the crypto market downturn, with the case still ongoing at the time of publication. In May, the bankruptcy court approved Voyager’s plan to repay customers.

Both the CFTC and FTC have cases pending against crypto firms and their executives, including former Celsius CEO Alex Mashinsky and former FTX CEO Sam Bankman-Fried, whose first criminal trial started on Oct. 3. In July, Binance and its CEO, Changpeng Zhao, pushed for the CFTC to dismiss a lawsuit alleging the company offered unregistered derivatives products.

Magazine: US enforcement agencies are turning up the heat on crypto-related crime

Update (Oct. 13 at 2:35 PM UTC): This article has been updated to include a statement from Stephen Ehrlich.