Voyager Files For Bankruptcy, But Customers Might Not Get All Their Crypto Back
Crypto broker Voyager Digital has filed for bankruptcy in the wake of the collapse of Three Arrows. The crypto hedge fund filed for bankruptcy only days ago, defaulting on a Voyager loan just days before that.
Voyager Files For Bankruptcy
In a press release, Voyager Digital said it’s seeking Chapter 11 protection so that it can restructure. It believes its reorganization plan creates an “efficient path to resume account access and return value to customers.”
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Voyager Digital said it has about $1.3 billion worth of crypto assets on its platform and over $350 million in cash held in its For Benefit of Customers account for customers at Metropolitan Commercial Bank. The firm also has more than $110 million in cash and owned crypto assets on hand, which it expects to support daily operations during the Chapter 11 process. Voyager also holds claims in excess of $650 million against Three Arrows Capital, which borrowed 15,250 bitcoins and $350 million in USD Coin, a stablecoin pegged to the U.S. dollar.
CEO Stephen Ehrlich said in a statement that their reorganization plan is "the best way to protect assets on the platform and "maximize value for all stakeholders, including customers." He explained that the Voyager Digital platform was built to "empower investors by providing access to crypto asset trading with simplicity, speed, liquidity and transparency."
Implementation Of The Plan
Like management at other crypto-related firms that have collapsed in recent weeks, Ehrlich also called attention to the "prolonged volatility and contagion in the crypto markets over the past few months." He also mentioned Three Arrows Capital's default on the Voyager loan.
When implemented, Voyager's proposed reorganization plan would again grant customers access to their accounts and return value to them from multiple sources. The plan involves reimbursing customers via a combination of the cryptocurrency in their accounts, proceeds from whatever Voyager recovers from Three Arrows Capital, common shares in the newly reorganized company, and Voyager tokens.
The reorganization plan could allow customers to choose the proportion of common equity and crypto they will receive, "subject to maximum thresholds." Customers who have U.S. dollars in their accounts won't be granted access to those funds until Voyager completes a reconciliation and fraud prevention process with Metropolitan Commercial Bank.
Voyager Customers Might Not Get Their Crypto Back
Unfortunately, customers who were storing cryptocurrency or cash in their Voyager Digital accounts shouldn't expect to get all their money back. The FDIC protects money stored at traditional banks, but there is no such protection for crypto-related firms.
Voyager's plan also includes a statement to the effect that it expects its account holders to be "impaired" by the bankruptcy process, which means they won't receive back exactly what they are owed. According to court papers seen by Bloomberg, Voyager doesn't store customer assets in designated wallets for each customer. It combines crypto assets into different pots for each crypto type.
The firm also lends its deposits to third parties so that it can pay interest to its customers. According to Bloomberg, Ehrlich said in sworn bankruptcy papers that billionaire Sam Bankman-Fried's Alameda Research, Mike Novogratz's Galaxy Digital and Wintermute Trading are among those that owe Voyager money on their loans. Voyager has about $1.12 billion worth of outstanding loans to third parties.
Stock Halted, Coinbase Tumbles
The Toronto Stock Exchange and the OTC Markets in the U.S. have suspended trading on shares of Voyager Digital amid a review on whether the stock continues to meet the listing requirements. Meanwhile, shares of certain crypto companies, like Coinbase, tumbled during regular trading hours today.
Coinbase had made a statement in a recent regulatory filing that in the event of a bankruptcy or similar type of event, customers might not receive all their cryptocurrency back. Voyager's implementation plan appears to demonstrate that risk in action. Others, like Silvergate Capital, which is somewhat protected from such issues, were seemingly unaffected by the Voyager news.
Updated on Jul 6, 2022, 2:42 pm
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