Crypto Saga: Regulatory Actions Unveiled

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Martin Walker
Oct 15, 2023 at 09:33 am

The United States Commodity Futures Trading Commission (CFTC) recently took notable legal action by filing a formal complaint against Stephen Ehrlich, the former CEO of Voyager Digital. In this complaint, serious allegations were made, implicating Ehrlich in fraudulent activities and underscoring his failure to properly register the now bankrupt crypto lender with the regulatory agency.

In a closely related development, another significant regulatory body in the United States, the Federal Trade Commission (FTC), made a public announcement regarding a settlement reached with Voyager Digital. This further underscored the complexity and depth of the situation.

Stephen Ehrlich Faces Allegations by CFTC

Delving into the specifics of the CFTC's accusations against Stephen Ehrlich, it becomes apparent that they are not to be taken lightly. The regulatory body chose to make this matter public through an official press release published on Tuesday, October 12, 2023. According to the detailed information provided by the CFTC, Ehrlich and Voyager Digital stand accused of engaging in deceptive practices, misleading customers by portraying the crypto asset platform as a trustworthy and secure option for acquiring and safeguarding assets. Moreover, the CEO and the company allegedly enticed customers with promises of substantial returns, reaching as high as 12%.

The impact of these deceptive representations cannot be underestimated. Customers, drawn in by the allure of safety and lucrative returns, proceeded to deposit cryptocurrency assets, a total amount exceeding a staggering $2 billion, into Voyager. Shockingly, the CFTC claims that Ehrlich and Voyager Digital proceeded to lend customers’ assets to third-party entities known to carry a high risk of generating returns.

A pivotal moment in this narrative occurred when one of these third-party companies, identified as “Firm A” by the regulator, defaulted on its repayment, triggering a severe liquidity crisis for Voyager Digital. Despite the worsening financial state of Voyager, Ehrlich continued to assure customers that their funds were secure. This continued until the crypto lender eventually filed for Chapter 11 bankruptcy in July 2022, leaving a trail of distressed users owed over a whopping $1.7 billion.

Ian McGinley, CFTC’s Director of Enforcement, delivered a strong statement regarding the lawsuit, emphasizing the alleged recklessness and deception:

While publicly assuring the safety and responsibility of customers' digital asset commodities, they engaged in shockingly reckless risks with their customers' assets, resulting in Voyager’s bankruptcy and substantial customer losses. Even as their business faltered, they persisted in deceiving their customers, concealing Voyager’s true financial condition. In exacerbating their deception, Ehrlich and Voyager violated the trust of customers while occupying roles that required CFTC registration, which they failed to secure.

Simultaneously, the regulatory agency is vigorously pursuing legal action, seeking civil monetary penalties, disgorgement, and restitution, and pushing for permanent bans on trading and registration, underscoring the gravity of the situation and their commitment to accountability.

Voyager Digital Settles with FTC, Facing a $1.65 Billion Penalty

In a parallel legal action, the FTC is pursuing Ehrlich for misleading customers, focusing on the false claim that their deposited funds were insured by the Federal Deposit Insurance Corporation (FDIC). This misleading assertion is alleged to have taken place, further complicating the already intricate narrative surrounding this case.

The FTC emphasized in its complaint that FDIC insurance did not extend to cover cryptocurrency assets, exposing the misleading nature of the claim made by Voyager Digital. This misleading statement had come under scrutiny earlier in July 2022, when the FDIC and the Federal Reserve jointly called for corrective action, citing the need to rectify the "false and misleading" information disseminated regarding customer deposit insurance.

Meanwhile, as the legal proceedings continue to unfold, the FTC has succeeded in reaching a tentative settlement with Voyager and its associated entities. This settlement involves a substantial payment of $1.65 billion. In addition to this financial aspect, the agency has also taken a decisive step by imposing a permanent prohibition on the companies from managing customer funds, reaffirming their commitment to safeguarding consumer interests.

However, it's important to note that Ehrlich has not yet agreed to a settlement with the FTC, which implies that this intricate legal saga is far from its conclusion. The regulatory body has made it clear that they are prepared to proceed with their case against the former Voyager CEO in a federal court, demonstrating their determination to pursue justice in this complex and evolving situation.

Read more: Crypto Phishing Surge: A Rising Menace

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