good article on the 3 Arrow blowup.
Voyager looks like they’re going down too. No withdrawals, spending what they have left on lawyers.
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That was quick. There but by the Grace of God go I.
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Glad you got out in time. Good advice from Margin Call.
“If you’re first out the door, that’s not called panicking.”
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I have a close friend I am afraid is going to lose a bunch. He was in Voyager before I was and he was part of the reason I got in for the few months I did. I’ve been messaging him the past few weeks about getting his money out and telling him that I got mine out and couldn’t stomach it. I messaged him at 2:45 PM today and asked if he was all the way out. He said no. I sent him the link to the press release about closing withdrawals at 2:00 PM (he’s on vacation in Switzerland so I don’t think he had heard yet). I didn’t hear back from him after sending the link. I hope he does okay.
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First section of this post covers the 3 Arrow blowup.
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Housing correction a la 2009?
Voyager is gone too.
Guess we’ll get a decent sample of how bankruptcy law judges treat crypto investors in these types of companies at this rate.
It’s a good thing there weren’t any, like, major professional sports franchises helmed by super-visible billionaires that introduced Voyager to a bunch of unsuspecting noobs who, we have to imagine, were subsequently enticed to get in to crypto on the heels of “an unprecedented $100 CRYPTO REWARD,” right?
https://twitter.com/investvoyager/status/1471220596591710213
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More on voyager
https://www.bloomberg.com/opinion/articles/2022-07-06/voyager-has-some-tokens
At a similarly high level of abstraction, one way for a centralized platform to become a decentralized platform is by going bankrupt . Oops! Voyager Digital Ltd. is a New York-based, Toronto-listed cryptocurrency brokerage platform that blew itself up by lending hundreds of millions of dollars of customer money to troubled crypto hedge fund Three Arrows Capital. Last night it filed for Chapter 11 bankruptcy in New York and, while it doesn’t have enough money to pay back its customers, it does have some tokens to give them.
Look back options are good, if you’re fast on the draw
If you sent Voyager $40,000 to buy Bitcoin, and then Bitcoin fell to $20,000 and Voyager froze your account, you would rather have the $40,000 back than the Bitcoin, and you would certainly rather have the $40,000 back than a bankruptcy claim on Voyager that will be settled partly in Bitcoin and partly in Voyager tokens, bankruptcy claims against Three Arrows, etc. But Voyager is offering you that miscellaneous grab bag of bankruptcy claims. Whereas calling your bank up to say “hey this transfer was fraudulent, Voyager didn’t give me what they promised” might get you the $40,000 back. And you’re not even lying! Voyager did not really provide a great product, did it?
Meanwhile though Voyager doesn’t have your $40,000; it spent the $40,000 to buy a Bitcoin for you, and then loaned the Bitcoin to Three Arrows, which didn’t give it back. Giving you the $40,000 back would be doubly disastrous: Voyager doesn’t have the Bitcoin, and the Bitcoin isn’t worth $40,000. Giving you the $40,000 would dramatically reduce the recovery for the rest of Voyager’s customers. So it’s asking the bankruptcy court to stop these chargebacks[5]:
I dunno. This is correct, but unsatisfying. If you got customers to deposit money with your crypto brokerage by promising them “a straightforward, low-risk approach to lending and asset management” that will “make crypto as simple and safe as possible for consumer use,” and then you freeze their money and lose it, it’s a bit rich to accuse them of fraud for trying to get it back.
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In what world is a bank, that sent your $40,000 to voyager via ACH or debit card transactions, going to put $40,000 back into your account, knowing that they will not get the $40,000 back from Voyager?
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I mean, credit cards will reverse your payments (and maybe theirs if there’s time) if you say it’s fraud. I mean, whatever Voyager was claiming in the last week or so was probably also fraud.
Obviously it’s not economic for the financial companies to do this on a transaction level (paying for fraudsters to keep the money), but if it’s not too much, it could be a marketing cost to keep you from switching all your banking to their competitor (or to crypto, ha!).
Only up to a certain dollar amount. After a threshold, they do an investigation first.
If that’s the case, then every single public company that’s ever gone under that was putting out statements trying to stop everyone from dumping their stock is guilty of fraud.
Voyager had all this stuff in the fine print of their terms and conditions. The only people that should be protected are the folks that sold all their coins that voyager held, had the proceeds from those sales in USD, but just couldn’t get all their USD out before the collapse because of withdrawal limits. According to Voyager’s terms, that USD (and that USD only) was FDIC insured. At this point, Voyager is claiming that there is enough in the bank to cover those folks (but we’ll see if the bank claims Voyager shortchanged them and the FDIC has to step in). Everything else was an investment subject to loss.
I’m just saying, only a really stupid bank would consider what Voyager did fraud when it comes to determining if they should allow chargebacks on debit card funding of accounts. Plus, what is the debit card owner going to show the bank to show it’s fraud? Anyone that opens their Voyager app right now sees their full balance still in there. They just can’t touch it (which the terms and conditions they agreed to allow).
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Not sure how well the Voyager fine print is holding up to their original claims. Their bank is disclaiming any FDIC coverage…
Metropolitan Bank, the financial institution at which customer deposits from bankrupted crypto exchange Voyager Digital are deposited, has confirmed that the deposits held by the bank are insured only if Metropolitan runs into trouble, not Voyager.
This means that even though those deposits are safe, how they will be distributed to customers as part of Voyager’s restructuring process can only be determined by the court during the bankruptcy proceeding.
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Doesn’t sound like they’re “disclaiming” it. What you quoted sounds exactly how FDIC coverage should work, no?
Yes, but that wasn’t the way Voyager described it would work, or at least was my take on the article. I admit I was nowhere close to giving money to crypto lending firms so I wasn’t reading their claims super carefully.
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OK I see. A user might assume that their USD funds on deposit at Voyager are FDIC insured, but technically Voyager is not a bank so the balance isn’t insured if Voyager loses it somehow, but it is insured if the bank where Voyager deposited the money goes under. This interpretation could be a problem for Wealthfront and other similar businesses which aren’t banks themselves and instead spread the cash balances across multiple FDIC-insured partner banks. The Wealthfront statement tells me which bank supposedly has my balance.
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I think the difference is that (I hope) Wealthfront and others that do these types of FDIC cash sweeps are funds and accounts in your personal name. I know IB works this way if you’ve got lots of cash, they’ll spread it around lots of $250k blocks at a dozen banks or something so you get more coverage.
The main difference here is that “your” cash wasn’t really yours in a segregated way, much in the way futures brokers work. This is why when MF Global blew up, all the client cash was tied up for years since the clients were just other creditors of the bankruptcy mess, rather than having secured or senior claims the way you do as a bank depositor. Here at Voyager, those with assets aren’t segregated and were lent out and lost, or the business incurred large enough losses that you won’t be made whole in the end and of course the traditional government and banking sector aren’t at all interested in any bailouts.
Mr. Gensler questioned the ability of crypto lenders to offer high yields on crypto deposits. “How in today’s markets, in June of 2022, somebody says I can offer you 10% and there is something really there?” he said. “What stands behind those claims? That is what we are really looking at here.”
Government regulators are unlikely to swoop in to assist Voyager customers or others who are in similar circumstances, said Steven Kelly, a senior research associate at the Yale Program on Financial Stability. The crypto industry doesn’t appear to pose a systemic threat to the financial system, he said. “The government’s not going to play the Atlas role,” Mr. Kelly said. “It’s going to let it burn.”
In another example of hostile regulators, they fined one company $100M for technical securities violations (not for losing customer money), and then kept it rather than returning those funds to the harmed individuals.
in the case of BlockFi Lending LLC. That firm paid $100 million earlier this year to settle SEC allegations that interest-bearing accounts it offered to hundreds of thousands of users were investment contracts that should have been registered with the SEC. In the BlockFi case, the SEC didn’t direct that penalty funds be shared with customers of the business.
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This sounds shady as hell. This is the closest thing to fraud as anything in this whole Voyager blowup. If the money isn’t in the bank on deposit, then yeah, it’s not FDIC insured, clearly. But if it is in the bank, and its being held there FBO Voyager account holders, it shouldn’t be part of the money that is divvyed up to creditors in the bankruptcy. It’s not Voyager’s money and its not Metropolitan Bank’s money.
According to the bank, it is Voyager’s responsibility to keep accurate records of how much of that money belongs to which customers, not the bank.
Well no $hit. But even if there are only two accounts at the bank, one for Voyager and one FBO Voyager’s customers, Voyager can’t touch the FBO account during its bankruptcy and they know exactly how much each of their customers are holding in USD. The issue will be, how much USD did they actually have in that account before it got locked down.
Well there is a FBO account, but it remains to be seen who gets it. I think this article is public (if not, lmk).
A. The FBO Account
Judge Wiles seemed concerned about the nature of the $350mm held in the FBO account at Met Bank. He raised questions as to whether Voyager was a bailee/custodian holding assets for customers without taking ownership or, rather, whether Voyager had taken deposits like a traditional bank, in which case those funds are property of the (opco) debtor’s estate and the customers would be general unsecured claimants. Counsel to the debtors firmly took the position that the standalone agreements governing this money make clear that the money is the customers’ money and, therefore, that money will be part of the account holder recovery pool. There is sure to be some controversy over this point.
B. Crypto Assets on Platform
The $1.3b of crypto assets on platform — assets that customers lent to Voyager in exchange for ludicrously high yield — might also become an issue. The debtors, based on the plan on file, don’t appear likely to return crypto 1-for-1. Section 5(c) of the debtors’ Customer Agreement seems to account for the possibility that crypto loaned to the debtors (which the debtors can then loan to third parties) is not property of the customer:
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Voyager just sent out an email regarding their First Day Motions. It reads more like a FAQ:
How does the reorganization process impact my cash?
We are working to restore access to USD deposits. Customer USD belongs to customers and will return to those same customers, subject to a reconciliation and fraud prevention process.
Is the USD in my account FDIC insured?
Yes. USD in your Voyager cash account is held at Metropolitan Commercial Bank of New York (“MCB”) and is FDIC insured. That means you are covered in the event of MCB’s failure, up to a maximum of $250,000 per Voyager customer. FDIC insurance does not protect against the failure of Voyager, but to be clear: Voyager does not hold customer cash, that cash is held at MCB.
What will happen to the crypto in my account?
Voyager currently has approximately $1.3 billion of crypto assets on its platform, plus claims against Three Arrows Capital (“3AC”) of more than $650 million (it fluctuates due to the exchange rate between Bitcoin and USD).
Under Voyager’s proposed reorganization plan, which is subject to change and requires Court approval, customers will receive a combination of the following, with the ability to select the proportion of crypto and common equity they receive, subject to certain maximum thresholds:
- Pro-rata share of crypto;
- Pro-rata share of proceeds from the 3AC recovery;
- Pro-rata share of common shares in the newly reorganized Company; and
- Pro-rata share of existing Voyager tokens.
Can you tell me how much of my crypto I’ll get back?
At this stage, we are proposing that customers will receive their crypto as described above. However, the exact numbers will depend on what happens in the restructuring process and the recovery of 3AC assets. We understand how important this issue is and will provide updates as soon as possible.
What’s next?
Our next Court hearing is on August 4, 2022, where we will seek further relief to stabilize operations and further advance the restructuring. As the restructuring continues, you may receive notices with updates on additional legal and procedural milestones. This includes a Notice of Commencement, a required, customary legal document indicating that Voyager and its subsidiaries have filed voluntary petitions for Chapter 11 reorganization. This notice requires no action on your part.
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