Additional Information for Voyager Digital, LLC

The following describes a government action that has been resolved by either a settlement or a decision by a court or administrative agency. If the matter is being appealed, it will be noted below.

On October 12, 2023, the Federal Trade Commission announced a settlement with bankrupt crypto company Voyager that will permanently ban it from handling consumers’ assets and is filing suit against its former CEO, Stephen Ehrlich, for falsely claiming that customers’ accounts were insured by the Federal Deposit Insurance Corporation (FDIC) and were “safe,” even as the company was approaching an eventual bankruptcy. The complaint also names Stephen Ehrlich’s wife, Francine Ehrlich, as a relief defendant.

In the federal court complaint, the FTC charges that from at least 2018 until it declared bankruptcy in July 2022, Voyager used promises that consumers’ deposits would be “safe” to entice them to hand over their funds. When the company failed, consumers lost access to significant assets they had saved, including ongoing salary deposits, college tuition funds, and down payments for homes, according to the complaint, which notes that consumers were locked out of their cash accounts for more than a month and lost more than $1 billion in crypto assets.

The proposed settlement with Voyager and its affiliates will permanently ban the companies from offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw any assets. The companies also agreed to a judgment of $1.65 billion, which will be suspended to permit Voyager to return its remaining assets to consumers in the bankruptcy proceedings. Former executive Stephen Ehrlich has not agreed to a settlement and the FTC’s case against him will proceed in federal court. 

According to the complaint, Voyager enticed consumers to deposit cash and cryptocurrency with the company based on assurances that their assets were especially safe on the platform. The company offered incentives to consumers who converted the cash they deposited into a cryptocurrency called USD Coin, a so-called “stablecoin” that claims to track the value of the U.S. dollar. The company’s marketing included direct promises about the safety of consumers’ deposits. One example cited in the complaint included te line “YOUR USD IS FDIC INSURED.” Voyager, however, is not a bank or financial institution, and the deposits consumers made with Voyager were not eligible to be insured by the FDIC. The complaint notes that the FDIC does not insure crypto assets at all, and consumers’ cash deposits were actually placed in an account held by Voyager at a traditional bank that also issued debit cards on behalf of Voyager. Consumers’ cash was only protected if that bank itself failed, and their cryptocurrency wasn’t protected at all.

The complaint notes that Voyager was aware that the company’s claims could mislead consumers. The bank where Voyager deposited consumers’ funds contacted the company in 2021 saying the claims were “potentially misleading.” A bank representative went on to say that “a reasonable consumer could conclude that his USDC [USD Coin] held with Voyager is FDIC-insured.” While Voyager made some changes to its cardholder agreement, the complaint notes that the company continued its misleading advertisements. The company only removed the FDIC claims from its advertising after receiving a cease-and-desist letter from the FDIC. 

Ehrlich himself, in a June 2022 letter to Voyager customers, reassured them of the company’s stability, claimed it was “well-capitalized and positioned to weather the bear market,” and said that consumers’ funds were “as safe with us as at a bank.” Two weeks later, the company froze consumers’ access to their accounts.

The FTC staff complaint alleges that Voyager and Stephen Ehrlich violated the FTC Act’s prohibition on deceptive practices and the Gramm-Leach-Bliley Act’s prohibition on obtaining a customer’s financial information through false, fictitious, or fraudulent statements.  The complaint also alleges that Stephen Ehrlich transferred millions of dollars to his wife Francine, including funds that can be traced directly to the alleged unlawful conduct.

In addition to banning Voyager and its affiliated companies from handling consumers’ assets, the proposed settlement prohibits the companies from misrepresenting the benefits of any product or service; from making false, fictitious, or fraudulent representations to any customer of a financial institution in order to obtain or attempt to obtain their financial information; and from disclosing nonpublic personal information about consumers without their express consent.

The Commission voted 3-0 to file a complaint against Voyager and its affiliated companies, Stephen Ehrlich, and relief defendant Francine Ehrlich and to approve a stipulated order with Voyager and its affiliated companies. The complaint was filed in the U.S. District Court for the Southern District of New York.

In a parallel action, on October 12, the Commodity Futures Trading Commission separately charged Ehrlich with fraud and registration failures.

The following describes a government action that has been resolved by either a settlement or a decision by a court or administrative agency. If the matter is being appealed, it will be noted below.

On 3/29/2022, Acting New Jersey Attorney General Matthew J. Platkin announced that the New Jersey Bureau of Securities has issued a Summary Cease and Desist Order to stop a Jersey City-based financial services company from selling unregistered securities in the form of interest-earning cryptocurrency accounts that have raised at least $5 billion nationwide.

Voyager Digital Ltd., Voyager Digital, LLC, and Voyager Digital Holdings, Inc.  (Voyager) have allegedly been funding Voyager’s income generating activities—including lending operations, digital asset staking, and proprietary trading—at least in part through the sale of unregistered securities in the form of cryptocurrency interest-earning accounts in violation of the Securities Law, according to the Order the Bureau issued. Unregistered securities offerings pose significant risk to investors because the issuers do not make the same types of disclosures, including, for example, providing detailed financial statements that typically accompany registered offerings.

Investors in unregistered offerings, like the “Voyager Earn Program Accounts” addressed by the Bureau’s Order, may not receive any information about the specific investment strategies used by the issuer to generate investment returns, may not be advised about the creditworthiness of counterparties with whom the issuer does business, and may not be apprised of the use of leverage, or other risky investment strategies employed by the issuer to generate a return. In contrast, registered offerings typically provide detailed information for investors to make reasonably informed decisions about the level of risk a particular investment entails.

According to the Bureau’s findings, Voyager solicits investors to invest in the Voyager Earn Program Accounts by depositing certain eligible cryptocurrencies into the investors’ Voyager account. Voyager then pools these cryptocurrencies together to fund its various income generating activities, including lending operations, digital asset staking, proprietary trading, and investments in other cryptocurrency trading platforms, such as Celsius Network. In exchange for investing in the Voyager Earn Program Accounts, investors are promised an attractive interest rate that is paid monthly in the same type of cryptocurrency as originally invested.

As of March 1, 2022, Voyager had approximately 1,530,000 Voyager Earn Program Accounts representing approximately $5 billion in assets, of which approximately 52,800 were New Jersey-based accounts representing approximately $197 million in assets. The Voyager Earn Program Accounts are not registered with the Bureau or any other securities regulatory authority, nor are they otherwise exempt from registration. Digital assets contained in Voyager Earn Program Accounts are not protected by the Securities Investor Protection Corporation (“SIPC”), insured by the Federal Deposit Insurance Corporation (“FDIC”), or insured by the National Credit Union Administration (“NCUA”).