Book and gavel

Voyager founder Stephen Ehrlich hit with fresh charges

The U.S. Commodity Futures Trading Commission (CFTC) and Federal Trade Commission (FTC) have filed separate civil charges against Voyager co-founder Stephen Ehrlich for fraud and failure to register with the CFTC concerning Voyager’s digital asset lending program, and for falsely claiming that Voyager customers were insured by the Federal Deposit Insurance Corporation (FDIC).

According to the CFTC complaint, from at least February 2022 to July 2022, Ehrlich and Voyager defrauded customers by ‘misrepresenting the safety and financial health of the Voyager digital asset platform’ via public postings to the Voyager website and social media. The two promoted Voyager as a ‘safe haven’ for digital assets and promised that Voyager was operated with the “same level of rigor and trust” as a traditional financial institution.

They also promised customers returns of up to 12% on the digital assets loaned to Voyager. In order to meet these returns, Ehrlich and Voyager pooled together customer funds and loaned them out to high-risk third parties, including $650 million transferred to an unnamed digital asset hedge fund (almost certain to be Three Arrows Capital) in February 2022 with ‘grossly inadequate’ due diligence. When Voyager called back the ‘loan,’ the hedge fund went under and left Voyager—and its customers—holding the bag. Voyager itself went under as a result.

According to the CFTC complaint, by effecting this pooling, Voyager became a commodity pool operator (CPO) for the purposes of the Commodity Exchange Act, which requires registration with the CFTC. Ehrlich was also required to register with the CFTC as an associated person of a CPO. Neither Voyager nor Ehrlich registered as required and instead promoted Voyager as a ‘safe haven’ that could offer high returns on loaned digital assets.

The CFTC is seeking a permanent injunction against Ehrlich, preventing him and his affiliates from trading on any registered entity entering into any transaction involving commodity interests or digital asset commodities for or on behalf of anyone’s account. It also seeks a civil monetary penalty, which can reach over $200,000 per violation under the Commodity Exchange Act. They also seek disgorgement of profits and full restation to be made to the customers Ehrlich and Voyager deceived.

“This is yet another CFTC action seeking to hold accountable a chief executive officer for his role in the fraudulent operation of a digital asset platform,” said CFTC Director of Enforcement Ian McGinley.

“Ehrlich and Voyager lied to Voyager customers. 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.”

FTC enters the fray

In parallel, the FTC announced that it had settled charges against Voyager itself in a deal that would permanently ban the company from handling customer assets.

It also announced fresh charges against Stephen Ehrlich for falsely claiming that customer assets were insured by the FDIC, which insures depositors of certain regulated financial institutions, of which Voyager was not one. These actions amounted to a violation of both the Federal Trade Commission Act (the statute governing the Federal Trade Commission) and the Gramm-Leach-Bliley Act (which reformed the financial services industry by introducing a new legal framework to govern it).

Ehrlich’s wife, Francine Ehrlich, is named a relief defendant in the FTC suit. A relief defendant is a person named in a civil suit who is not accused of wrongdoing but who is alleged to have received illegally obtained property. The FTC alleges that Francine Ehrlich received millions of dollars, which ‘can be traced directly to Defendants’ deceptive acts or practices.’

Against Ehlrich, the FTC is seeking a permanent injunction restraining the CEO from further violations of the Federal Trade Commission Act. It also seeks any monetary relief that is within the Court’s power to grant.

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