When Toronto-based crypto lender Voyager Digital filed for Chapter 11 bankruptcy protection on June 5 in the US Southern District Court in New York, its more than 100,000 creditors are asked if they would ever see their assets – worth a combined $1 billion – down to -$10 billion – again.
The company presented itself as safe and told its customers that its deposit accounts were protected by the national safety net – the United States Federal Deposit Insurance Corporation or the FDIC banking insurance system – in the event of default. , reported the Wall Street Journal.
It was an attractive pitch in the volatile world of cryptocurrency, and now some customers are saying online that they just found out their deposits weren’t FDIC-insured like they thought. The FDIC is now looking into Voyager’s marketing, according to a person familiar with the matter.
Jeffery Cosey, a 37-year-old personal banker in Lansdale, Pennsylvania, had such a high opinion of Voyager that he deposited 90% of his savings there, believing it was a better place to keep his money than a traditional bank. .
Another client, a 25-year-old Chicago-area financial advisor, said, “It broke me. I have to start all my life over.
As a crypto broker and lender, Voyager enabled merchants to trade crypto assets, spend crypto in the real world using a debit card, and earn high interest on their deposits. , which the company used to make loans to third parties.
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Voyager blamed volatility and contagion in the crypto markets for its bankruptcy after seeing its stock price drop more than 90%. In June, the company said it was unable to recoup more than $650 million it loaned to the crypto hedge fund Three Arrows Capital, or 3AC, which went bankrupt.
According to writer Frances Coppola, Voyager’s loan portfolio represented almost half of its total assets, and almost 60% of that loan portfolio were loans to Three Arrows.
Several other crypto companies, particularly lenders, have experienced solvency crises over the past month, forcing some to freeze client withdrawals. Celsius sparked the contagion, if that’s what it is, by suspending withdrawals in mid-June.
Voyager listed its assets and liabilities as each ranging between $1 billion and $10 billion.
Cosey said Voyager gave him a sign-up bonus. He liked the high rate of return on deposits compared to what regular banks offered, and while he understood the risks associated with crypto, he said he felt comfortable Voyager was listed. publicly traded in Canada and led by a former eTRADE executive, Stephen Ehrlich. “They all seemed trustworthy. They all seemed legit, not sketchy, improbable, or risky,” he told Vice’s Motherboard.
Cosey’s investments have been split between Bitcoin, Ethereum, other smaller crypto holdings, and USD Coin (USDC), a “stablecoin”.
Voyager had an account at a small New York bank, the Metropolitan Commercial Bank, called a “For the Benefit of Customers” account — standard for crypto firms and other fintech companies that act like banks by taking deposits from customers but don’t have the licenses or the ability to actually be a bank, the Wall Street Journal reported.
Voyager froze all activity, including withdrawals on $350 million in customer deposits at Metropolitan Commercial Bank, saying customers will be able to access those dollars after “a reconciliation and fraud prevention process is complete.”
At Voyager, accounts hold the cash customers use to buy crypto assets or accumulate by selling them. Metropolitan is one of the few banks willing to work with crypto companies. He held around $1.1 billion in crypto-related deposits, 19% of his total, according to the disclosures.