Robert first met Voyager Digital in March 2020.
Like countless others, he decided to give the cryptocurrency broker a try. The platform was easy to navigate. It offered him up to 9% annual percentage return (APY), much higher than a traditional savings account. He claimed to be insured by the FDIC (Federal Deposit Insurance Corporation). And being a publicly traded company on the Toronto Stock Exchange, he thought, how bad could Voyager be?
Robert, who asked to be identified only by his first name for privacy reasons, ended up investing six figures on Voyager, or 70% of his savings, he says Fortune. Another user, who has invested in Voyager for around six years and asked to remain anonymous for security reasons, invested around $38,000 on the platform.
But now they are both unable to withdraw some of their money, as the company suspended operations on July 1 and filed for Chapter 11 bankruptcy on Tuesday evening.
Voyager is also uninsured by the FDIC, despite its advertisements that “in the rare event that your USD funds are compromised due to the failure of the company or our banking partner, you are assured of a full refund (up to $250,000).” Its “banking partner,” Metropolitan Commercial Bank, is FDIC-insured, but Voyager is not.
Learning this, said the six-year-old user, was “like a kick in the stomach”.
“Every day, honestly, I cry,” Robert says. “I don’t know what to say to my wife. As partners, we decided to [invest on Voyager]but she trusted me, more than anyone, to make the right decision.
Now these investors are learning how overleveraged Voyager was and how he invested their life savings in a now-defunct hedge fund that engaged in extremely risky behavior.
Voyager mainly blamed former hedge fund Three Arrows Capital (3AC) for its troubles, saying 3AC failed to repay a $650 million loan.
Like the rest of the crypto market, 3AC took a hit after the Terra ecosystem collapsed in May. In June, leading cryptocurrency lender Celsius Network reportedly went bankrupt, and 3AC was not far behind. Their failures sparked an industry-wide domino effect, as many of the major crypto lenders and funds appeared exposed to each other, and last week 3AC’s creditors filed for liquidation in court. of the British Virgin Islands.
Voyager, however, is trying to restructure, not liquidate, which means it hopes to recover at least a percentage of its clients’ investments, according to its court documents. Voyager also said in court filings that he could potentially offer stock or tokens of his reorganized company to clients after bankruptcy. But in the meantime, his customers are struggling not to be able to withdraw their savings. While waiting for the next steps, some even shared thoughts online suicide and depression.
“It’s heartbreaking,” Robert said. “I feel extremely bad because I was unprepared.”
Voyager acted like a bank and most of its users treated it as such. Over time, the broker began to offer its clients a high return for their deposits. To leverage their offerings, Voyager loaned these funds to others for sometimes even higher returns.
Until the company announced it was halting withdrawals and filing for bankruptcy protection, Voyager continued to tell customers it was doing well.
Just weeks before Voyager filed for bankruptcy, CEO Stephen Ehrlich said customer assets were safe. At the beginning of June, Voyager tweeted that “all products and services are fully operational and unaffected by current market conditions, including trading, rewards, deposits and withdrawals. We take risk management and asset protection very seriously. of our customers is our number one priority.
The the company said that he “never engaged in DeFi [decentralized finance] lending activities.
Whether or not it engaged in DeFi lending, Voyager’s overexposure to 3AC became evident once the market deteriorated. The company hoped to shore up its finances after securing a line of credit of around $500 million from quantum commerce boutique Alameda Ventures in late June. But, still worried about a “run on the bank” due to users attempting to withdraw their funds, as its court filing indicates, Voyager ultimately decided to move forward with the Chapter 11 filing.
“I had no idea that Voyager would lend [customers’ USDC] to a hedge fund,” the six-year-old user said. “If I had known it might be loaned out, I probably would have kept it in cash in my safe.”
“I did everything a reasonable person would do, which is review the business,” Robert said. He noticed the company was not being targeted by regulators and thought that was a good sign. “I should have known. Everything in retrospect, obviously, is a different thing.
Scott Melker, a well-known crypto investor and podcaster with over 851,000 Twitter followers, recounts Fortune that he’s been using Voyager since 2019 and has “multiple sevens” stuck on the platform.
It “hurts” not being able to access an account he used to save, he says, but notes he has hedged his wallet and understands he took a big risk. Above all, Melker feels bad about those he’s spoken to on Voyager, including his friends, family, and viewers.
“I understand that people make their own decisions, but they wouldn’t even have thought about it if I hadn’t brought [Voyager] to their attention. And, frankly, that’s worse than losing my own money,” he said.
What awaits us
Bankruptcy Lawyer and Crypto Lawyer Says Fortune that it is not clear how long the bankruptcy process will take. But, they pointed out that Voyager hopes to restructure, not liquidate, a sign of hope for retail investors getting some of their money back.
The company mentioned that it hopes to provide its users with at least some of their funds after its reorganization. Due to the variety of assets that users have purchased on the platform, it is not certain that users can be completely complete.
Melker tells Fortune that he is one of the top 50 holders of assets on the platform, and that the top 10 or 20 holders could have a say in what happens in the bankruptcy proceedings, citing an upcoming hearing to occur.
Voyager recently stated that it has approximately $1.3 billion in crypto assets on its platform, adding that the company has over $110 million in cash and crypto assets in its possession, which “will provide liquidity to support day-to-day operations during the Chapter 11 process.” ,” it says. Voyager also mentioned that it had $350 million in customer cash held in an account at the Metropolitan Commercial Bank.
This experience scarred some of them so much that they vowed never to invest in cryptocurrency again. Others, on the other hand, remain bullish.
Melker, for example, has nothing against the company or its creators. His history with Voyager runs deep — the company even briefly sponsored his podcast for a short time when he first launched it, he says. He hopes he and others will see their assets back.
“Look, I lost millions of dollars,” he says. “You know, it’s embarrassing. I’m a person who talks about managing risk and protecting your assets, but I was probably, in hindsight, overexposed, but that was what I was comfortable with.
Of course, Voyager users also hope to have access to their savings soon.
“Hope, unfortunately, is not a plan, but I have no control over it,” Robert says. “All I need is to get my original assets back. I don’t need the rewards or interest earned. I just need to get the assets back.
Voyager Digital did not immediately respond to Fortunerequest for comment.
This story was originally featured on Fortune.com