Toronto-listed centralised finance (CeFi) platform Voyager Digital (CSE:VYGR, OTCQX:VYGVF) has filed for a Chapter 11 in the New York courts in the second large-scale bankruptcy to hit the cryptocurrency sector following Three Arrows Capital.
Voyager was left exposed to 3AC after the hedge fund defaulted on US$650mln worth of loans, while a July 6 press release also cited market volatility and contagion as contributing factors.
Despite Voyager’s chief executive officer Stephen Ehrlich claiming that the Chapter 11 will “maximise value for all stakeholders, including customers”, how much of customers’ trapped funds will be returned is unclear.
Voyager has previously suggested that “all customers’ USD held with Voyager is now FDIC (Federal Deposit Insurance Corporation) insured (up to US$250,000)”.
In contradiction, Voyager’s Customer Agreement clearly states: “FDIC insurance does not protect against the failure of Voyager or any Custodian.”
One such custodian, Metropolitan Commercial Bank, provided a sobering clarification on the matter.
“FDIC insurance coverage is available only to protect against the failure of Metropolitan Commercial Bank,” the bank announced, continuing: “FDIC insurance does not protect against the failure of Voyager, any act or omission of Voyager or its employees, or the loss in value of cryptocurrency or other assets.”
Furthermore, Voyager’s consolidated creditor list submitted to the United States Bankruptcy Court shows that Sam Bankman-Fried’s Alameda Research investment firm is the primary claimant with an outstanding claim of US$75mln, while total outstanding claims for the following 49 unnamed creditors exceeds US$79mln.
Put simply, as low-priority unsecured creditors, the average user looks to be back of the queue for any reimbursements arising from Voyager’s Chapter 11, even if the company manages to claw back a portion of 3AC’s outstanding debt.
A spokesperson for Voyager told Proactive: “Customers with USD deposits in their account(s) will receive access to those funds after a reconciliation and fraud-prevention process is completed with Metropolitan Commercial Bank.”
The bankruptcy question came to a head in the crypto markets when NASDAQ-listed Coinbase’s May SEC filings disclosed that customers’ fiat funds could be treated as unsecured should the exchange fold.
Coinbase’s chief executive officer Brian Armstrong responded to the consternation by Tweeting: “For our retail customers, we’re taking further steps to update our user terms such that we offer the same protections to those customers in a black swan event. We should have had these in place previously, so let me apologise for that.”
With uncertainty abound, Voyager Digital (CSE:VYGR, OTCQX:VYGVF)’s Chapter 11 could act as a test case for how customers’ funds are treated when a major exchange or lender goes bust, an event likely to become more common if the crypto winter continues to bite.
Voyager’s Investor Relations contact has been approached for comment.