CFTC Charges Former CEO of Voyager Digital with Fraud in Massive Commodity Pool Scheme

The U.S. Commodity Futures Commission (CFTC) filed a lawsuit in the District Court for the Southern District of New York against Stephen Ehrlich, the former CEO of bankrupt crypto entities Voyager Digital Ltd.​, Voyager Digital Holdings, Inc., and Voyager Digital, LLC (collectively, Voyager)​, charging him with fraud and registration failures in connection with the Voyager digital asset platform and Voyager's operation of an unregistered commodity pool.

The CFTC complaint alleges that from at least February to July 2022, Ehrlich and Voyager engaged in a scheme to deceive customers and induce them to invest by exaggerating and misrepresenting the security and financial health of the Voyager digital asset platform.

Ehrlich and Voyager touted Voyager on social media platforms and on their company website as a "safe haven" for customers' digital assets in the volatile market environments, and deceived customers that Voyager would operate with the "same level of rigor and trust" as a traditional financial institution. They also promised customers high-yield returns of up to 12% on certain digital asset commodities stored on the Voyager platform.

To generate revenue to pay for the returns they promised customers, Ehrlich and Voyager pooled customer assets stored on the Voyager platform and transferred billions of dollars' worth of customers' digital asset commodities as "loans" to high-risk third parties. In early 2022, without fulfilling inadequate due diligence, Ehrlich and Voyager transferred more than $650 million in customer digital asset commodities to the digital hedge fund, Three Arrows Capital (or "3AC") on an unsecured basis, with the understanding that 3AC would generate returns for Voyager by pooling Voyager's investment and trading commodity interests. In so doing, Voyager operated the Voyager Pool and acted as a commodity pool operator (CPO) without the required CFTC registration.

In June 2022, 3AC filed for bankruptcy, as a result, Voyager experienced dire operational liquidity issues. Ehrlich concealed this fact and continued to claim that customer funds stored on the Voyager platform were safe. On July 5, 2022,, Voyager finally filed for bankruptcy, owing its U.S. customers more than $1.7 billion.

Ian McGinley, Director of Enforcement at CFTC, said: "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. 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."

In its continuing litigation against Ehrlich, the CFTC seeks restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.