The CFTC and FTC have filed civil lawsuits against Steve Ehrlich, the former CEO of Voyager Digital, for alleged fraud and misrepresentations made while he worked for the now-defunct crypto lending business.
The regulators contend that Ehrlich misrepresented to customers Voyager’s financial stability and insurance coverage.
Ehrlich was charged by the CFTC on Thursday with misleading customers by overstating Voyager’s advantages while operating illegally. The FTC asserts that he misrepresented the FDIC insured status of consumer cash. Both organizations want to prevent Ehrlich from ever again working in the field.
Ian McGinley, director of CFTC enforcement, stated that Voyager “lied to customers.”
The collapse of Voyager, which lost $5 billion worth of assets, highlights how unstable the bitcoin market is. In light of the lack of crypto regulation, it should serve as a warning to executives making false statements.
Voyager advertised itself at first as a secure, FDIC-insured platform for cryptocurrency trading and staking. However, the company overextended itself by making uncollateralized loans, particularly to the troubled cryptocurrency hedge fund Three Arrows Capital.
The collapse in cryptocurrency prices in the middle of 2022 exposed this precarious situation. Before declaring bankruptcy, the company stopped withdrawals at the beginning of July. Later, Voyager negotiated fruitless agreements to sell assets to FTX and Binance.
According to calculations, former customers may only recover a maximum of 36% of the assets. Claims of safety that turned out to be false were used to entice them.
The legal actions brought by the CFTC and FTC show how likely regulators are to pursue specific CEOs for crypto mistakes. The claims of misrepresenting hazards and safeguards point to possible negligence or fraud.
The incident serves as a cautionary tale for cryptocurrency CEOs who boast about the institutional discipline and security they are unable to ensure. Infringing on licensing restrictions can have repercussions, as the Voyager case demonstrates.
We’ll have to wait and watch whether former CEO Ehrlich is ultimately barred from the cryptocurrency industry. The lawsuits, however, demonstrate that authorities will investigate failed businesses and hold people accountable.
Any regulatory structure that emerges from Washington should include stricter oversight of crypto lending yields, risk management, and custody protections. The Voyager disaster simply confirms lawmakers’ doubts.
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