Voyager Digital filed for Chapter 11 bankruptcy in New York on Tuesday as the crypto crunch claimed another victim.
According to a court filing from the crypto broker and a later statement, Voyager has approximately $1.3 billion of crypto assets on its platform, over $350 million in cash held at a For Benefit of Customers (FBO) account at Metropolitan Commercial Bank and claims against crypto hedge fund Three Arrows Capital for more than $650 million. The estimated number of creditors exceeds 100,000.
CEO Stephen Ehrlich shared the firm’s statement on Twitter on Wednesday before saying, “We strongly believe in the future of the industry but the prolonged volatility in the crypto markets, and the default of Three Arrows Capital, require us to take this decisive action.”
Voyager’s woes are a symptom of a broader market downturn, which began in May with the collapse of the Terra blockchain — which wiped $40 billion in value off the market. The crypto market woes followed ever-worsening macroeconomic conditions and throughout June a slew of crypto companies faced liquidity issues, including crypto lending platforms Celsius and BlockFi.
The statement outlined Voyager's proposed restructuring plan, which aims to resume account access and return value to customers. Clients will be reimbursed with a combination of the crypto in their accounts, proceeds from the 3AC recovery, shares in the newly reorganized company and Voyager’s native crypto tokens. These plans are subject to change and first require court approval.
The firm said users with US dollar deposits will receive access to their funds after a reconciliation and fraud prevention process is completed. Meanwhile it “continues to evaluate all strategic alternatives to maximize value for stakeholders.”
Voyager Digital has over $110 million of cash and owned crypto assets on hand, which will be used to provide liquidity for day-to-day operations throughout the Chapter 11 process — this is in addition to the $350 million of cash held in its FBO account.
A blog post from 2019 on Voyager's company website advertised that US dollar deposits are covered under the Federal Deposit Insurance Corporation (FDIC) and users are "guaranteed a full reimbursement" of up to $250,000. However, the small print of Voyager's terms points out that FDIC insurance only covers Voyager's bank – Metropolitan Commercial Bank — and "does not protect against the failure of Voyager or any Custodian."
Last Friday, Voyager halted withdrawals, deposits and trading, citing the present market conditions. It then issued a notice of default to hedge fund Three Arrows Capital over failed repayment of a $650 million loan.
Three Arrows itself filed for Chapter 15 bankruptcy on Friday, as previously reported.
Three business entities — Voyager Digital Holdings, Voyager Digital LLC and Voyager Digital Ltd. — are seeking bankruptcy protection. The three largely identical petitions were submitted via the Southern District of New York bankruptcy court.
The firm is being represented by Kirkland and Ellis LLP, according to the filing documents, with Berkeley Research Group LLC as restructuring advisor.
Updates to clarify FDIC insurance situation in eighth paragraph.
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