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During a five-hour Chapter 11 bankruptcy hearing for crypto firm Voyager Digital earlier this month, a customer named Magnolia was the first user to go ahead and talk about his experience.
Magnolia, who only revealed her first name, said she had more than $1 million stuck on stage, including $350,000 that was earmarked for her children to pay for college. he said it took him 24 years to save him, and he had She sacrificed spending time with her kids to build that nest egg.
“I feel like we’re paying the ultimate price for them being financially irresponsible,” Magnolia said. “They trusted us, they had our money, and they didn’t run this company properly.”
Magnolia wanted to know why Voyager borrowed money instead of cutting costs, when she knew things were going south. She also asked whether CEO Stefan Ehrlich was still being paid and receiving bonuses.
Magnolia is one of Voyager’s 3.5 million customers, a group that has been desperate for answers more than a month after the company suspended all business and, shortly thereafter, filed for Chapter 11 bankruptcy. Voyager, once a popular lending platform, attracted retail investors by offering them double-digit annual returns in exchange for parking their tokens with Voyager.
As the crypto market boomed last year, Voyager signed sports sponsorships with the NBA’s Dallas Mavericks and owner Mark Cuban, Tampa Bay Buccaneers with Rob Gronkowski, NASCAR driver Landon Cassill and the National Women’s Soccer League.
While those names helped publicize the service, they didn’t change the risk that customers faced when joining the platform. His funds were insecure.
Crypto Prices to Decline in 2022, Mainly Due to the Federal Reserve Rate The increase in riskier assets and the rotation of investors created a liquidity crisis for hedge funds and crypto sites with the added exposure of digital assets. Many of those firms defaulted on loans, creating a massive impact that infected the broader industry and lenders such as Voyager.
In addition to hearings in the Southern District of New York in early August, Voyager customers also had the opportunity to express their displeasure last week in a 52-minute livestream chat with the virtual town hall. There they could make their arguments to the “Voyager Official Committee of Unsecured Creditors,” a group formed by SDNY’s bankruptcy court to resolve asset distributions.
The committee includes attorneys for McDermott Will & Emery, as well as restructuring advisors from FTI Consulting and a group of creditors. they say focus is “Immediate withdrawal of USD and crypto to creditors.”
The committee members gave information about the bankruptcy proceedings so far, an estimated timeline for reimbursement and the procedure for submission of claims. However, a committee member noted that the guidance they were providing was “not legal advice” and that it was “strongly recommended” that individual creditors consider retaining an attorney to assist in the process.
By the time of publication, the recording of Town Hall had over 4,000 views on YouTube. Voyager customers were given the opportunity to submit questions ahead of the event last week. Many also thought about real-time chat on YouTube.
Cindy Wheeler wrote, “When I first heard about the loan, I was not carrying my crypto.” “Thought Voyager was a safe exchange.”
Another participant, Ari Gurewitz, referred to Three Arrows Capital (3AC), a crypto hedge fund that filed for bankruptcy due to Voyager over $650 million.
“Interesting that Voyager declares bankruptcy before knowing how the 3AC bankruptcy impacts them,” Gurewitz wrote. “One has to wonder if this is just a ploy to restructure and remove a lot of their losses – at the expense of their customers!”
Voyager said it has about 100,000 creditors. They will have to vote on a plan set up by Voyager in bankruptcy court, but many say they don’t have much of a voice in the process. That’s why many customers are begging for help from US Bankruptcy Court Judge Michael Wills.
‘Where was the head on this?’
At the bankruptcy hearing, Magnolia said it thought Voyager had defrauded its customers. In very short order, it all went from boom to bust.
“This is a company talking about how well they are doing,” she said. “They have Mark Cuban, Rob Gronkowski. They have the Dallas Mavericks Arena with ‘By Voyager’ all around. They’re spending big money on their marketing, on their people, on their venues. Where was the head on this? ?”
Another customer, who did not share his name but said he was 32, said at the hearing that he had “more than seven figures” stuck on the app.
“I just want to establish myself as an owner and depositor of my own cryptocurrency,” he said. “I see 10 years of my life frozen on a platform I trusted.”
The issue of ownership is proving to be particularly troubling for this customer and others. In crypto, one of the mantras is – “not your keys, not your coins” – meaning that true ownership of a token comes through custody of the associated private key. Clients cannot simply ask for their money back and expect to receive it, even though they view the fund as a deposit, not an investment.
“I have always identified myself as an owner and rightful depositor of the cryptocurrency provided on their platform,” the customer said. “I just want to find out more about why I am being labeled a creditor, or unsecured creditor, rather than the owner of my cryptocurrency.”
Customers have a right to be confused.
The Federal Deposit Insurance Corporation, which protects bank deposits, and the Board of Governors of the Federal Reserve System Voyager issued a joint letter in late July, alleging that the company had made false and misleading statements about its deposit insurance position.
In the bankruptcy hearing, a client named Ginger Little said that when he put money on the platform, he had to convert from the US dollar to the US dollar-denominated stablecoin USDC in order to earn the attractive annual percentage yield that attracted him. . Application.
“We were never told that didn’t equate to cash,” Little said. “We were told it had to be listed that way so that we could get interest for the money we put in as investments.”
Magnolia echoed that sentiment, saying she thought Voyager called its USDC “FDIC insured.”
Kirkland & Ellis partner Christine Okiak, representing Voyager, said during the bankruptcy hearing that the current effort is focused on cash recovery, not USDC.
“USDC is a type of cryptocurrency, a type of coin,” Okike said. “And so that it is not being discussed or decided in the context of the release of cash being requested by the debtors.”
A Voyager spokesperson declined to comment.
Other clients have submitted letters addressed directly to the judge.
Jacob Redburn said he has deposited 100 Ether on Voyager’s digital trading platform, or roughly $198,800 at today’s price and $480,000 at the market’s peak.
Redburn wrote on a yellow legal pad, “I have spent years saving, investing and trading crypto assets to build a life-changing amount of money, which I will one day sell to fund college and other needs. ”
Redburn wrote that the CEO “lyed straight to us,” when he said a week before the filing that the company had no issues.
“It will ruin my future, my daughter’s future, and will cost me hundreds of thousands in capital gains when I plan to sell,” he wrote. “I beg we get our crypto that we owe, not worthless stock or Voyager tokens worth anything.”
Christine Marcy, a newly retired senior citizen living in Florida, said Voyager’s “deliberate and willful action (malicious) is causing emotional and financial hardship to an entire community of customers.” She said she was denied in her attempt to remove some of the properties just before the withdrawal freeze.
“I have a sudden freeze account and my assets are now held hostage,” Marcie wrote. “I invested with Voyager, a publicly traded company, with the hope that there would be a sense of accountability and responsibility to customers.”
Donald A., who currently has about $31,000 deposited on the Voyager exchange, said that “losing this money out of sight has been unbearable for his family”. He said the company was not transparent with customers about such risks, such as lending large sums of money to 3AC.
He wrote, “I wake up most nights and walk up and down the stairs contemplating my mistakes and wondering if this will ever end.” “My anxiety has been a struggle.”
struggle for money
The Committee on Unsecured Creditors told customers at the town hall that Voyager will soon send proof-of-claim forms to all creditors that Voyager believes owed them crypto, cash, or both.
Voyager currently has approximately $1.3 billion in crypto assets on the platform, $104 million in cash, and approximately $650 million of claims against the now defunct 3AC. The creditor claims a total of $1.8 billion so far. Updated figures are expected this week when Voyager presents its schedule.
The committee said it was able to negotiate a “very aggressive” planning timeline, targeting the end of October, although the timing is subject to change. At that point, distributions to creditors will happen in November at the earliest.
The committee said it is taking the “unprecedented” step of advocating for interim distribution to provide some relief to creditors during the bankruptcy process.
Last Thursday was the first day that customers were supposed to be able to get some of their money back from the platform, but the conditions for eligibility were very strict.
Judge Wills granted qualifying Voyager users access to Voyager $270 million in cash with Metropolitan Commercial Bank. Customers who had US dollars in their bank accounts are now allowed to withdraw up to $100,000 in a 24-hour period via the Voyager app.
Other Voyager users with funds held in crypto still cannot touch their money.
“We believe that many of you believed that the crypto you held on the Voyager platform was your property,” a committee member said during the town hall. “Unfortunately for all of us, bankruptcy does not have a legal test to determine whether crypto is your property or the property of the bankruptcy estate.”
— CNBC’s Rohan Goswami contributed to this report.
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