The United States Commodity Futures Trading Commission (CFTC) filed a complaint against former CEO of Voyager Digital, Stephen Ehrlich, alleging that the ex-chief committed fraud and failed to register the bankrupt crypto lender with the agency.

In a related development, another US regulatory body, the Federal Trade Commission (FTC), announced that it reached a settlement with Voyager Digital.

CFTC’s Charges Against Stephen Ehrlich

The CFTC announced the lawsuit in a press release published on Tuesday (Oct. 12, 2023). According to the regulator, Ehrlich and Voyager Digital defrauded customers by falsely promoting the crypto asset platform as a trustworthy one and a “safe haven” for users to purchase and store assets. Also, the CEO and the company promised customers as high as 12%.

The misleading representation of Voyager Digital as a safe platform, coupled with the promise of high-yield returns, encouraged customers to deposit cryptocurrency assets worth over $2 billion on Voyager. However, Ehrlich and Voyager Digital loaned customers’ assets to third-party entities deemed to have a high risk of generating income for the returns.

According to the CFTC statement, one of such third-party companies, which the regulator referred to as “Firm A,” defaulted in its repayment, causing Voyager Digital’s liquidity crisis. Amid Voyager’s failing financial health, Ehrlich still assured customers that funds were safe until the crypto lender filed for Chapter 11 bankruptcy in July 2022 while owing users over $1.7 billion.

Commenting on the lawsuit, CFTC’s Director of Enforcement, Ian McGinley, said:

“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. Amplifying their fraud, Ehrlich and Voyager broke their trust with customers while acting in capacities that required CFTC registration, which they failed to obtain.”

Meanwhile, the regulatory agency is seeking civil monetary penalties, disgorgement, and restitution, along with permanent bans on trading and registration.

FTC’s Settlement With Voyager Includes $1.65 Billion Fine

The FTC is also suing Ehrlich in a parallel action for misleading customers with the statement that their deposited funds were insured by the Federal Deposit Insurance Corporation (FDIC), which was false.

As stated by the FTC in its complaint, the FDIC insurance did not cover cryptocurrency assets. In July 2022, the FDIC and the Federal Reserve issued a joint letter asking Voyager to correct its “false and misleading” statement about customer deposit insurance.

Meanwhile, the FTC reached a proposed settlement deal with Voyager and affiliated entities, which includes a payment of $1.65 billion. The agency also permanently prohibited the companies from handling customer funds.

Ehrlich, on the other hand, has not agreed to a settlement with the FTC, with the regulator stating that it would proceed in its case against the former Voyager CEO in a federal court.