Robert first came across Voyager Digital in March 2020.
Like countless others, he decided to give the cryptocurrency broker a try. The platform was easy to navigate. It offered him an annual percentage return of up to 9% (APY) — much higher than a traditional savings account. It claimed to be FDIC (Federal Deposit Insurance Corporation) insured. And as a public company on the Toronto Stock Exchange, he thought how bad could Voyager be?
Robert, who asked to be identified by his first name only for privacy reasons, ended up investing six figures in Voyager, or 70% of his life savings, he says wealth. Another user who has invested in Voyager for about six years and wished to remain anonymous for security reasons has invested about $38,000 in the platform.
But now both are unable to withdraw funds as the company suspended trading on July 1 and filed for Chapter 11 bankruptcy protection late Tuesday.
Voyager is also not FDIC-insured, despite its advertising that “in the rare event that your USD funds are compromised due to the failure of the company or our banking partner, you are guaranteed a full refund (up to $250,000).” Her “Banking Partner”, the Metropolitan Commercial Bank, is FDIC insured, but Voyager is not.
Learning to do this, said the six-year-old user, is “like a kick in the stomach.”
“To be honest, I cry every day,” says Robert. “I don’t know what to say to my wife. As a partner, we have decided to do this [invest on Voyager]but she trusted me more than anyone to make the right decision.”
Now these investors are learning how heavily indebted Voyager was and how it invested its savings in a now-defunct hedge fund that behaved extremely risky.
“It’s heartbreaking”
Voyager has blamed its troubles primarily on defunct hedge fund Three Arrows Capital (3AC), saying 3AC failed to repay a $650 million loan.
Like the rest of the crypto market, 3AC took a hit after the collapse of the Terra ecosystem in May. In June, major cryptocurrency lender Celsius Network was rumored to be bankrupt, and 3AC was not far behind. Their failure set off a domino effect across the industry as many of the major crypto lenders and funds appeared to be exposed to one another, and last week 3AC creditors filed for their liquidation in a British Virgin Islands court.
However, Voyager is trying to restructure rather than go into liquidation, meaning it hopes to repay at least a percentage of its customers’ investments, according to its court filings. Voyager also said in court filings that it could potentially offer customers shares or tokens in its reorganized company post-bankruptcy. But in the meantime, its customers struggle with not being able to withdraw their savings. While waiting for the next steps, some even shared thoughts of suicide and depression online.
“It’s heartbreaking,” says Robert. “I feel extremely terrible because I was unprepared.”
Voyager behaved like a bank, and most of its users treated it like one. Over time, the broker began offering its clients high returns on their deposits. To fulfill her bids, Voyager lent such funds to others, sometimes for even greater returns.
Until the company announced it was pausing payouts and filing for bankruptcy protection, Voyager continued to tell customers it was fine.
Just weeks before Voyager filed for bankruptcy, CEO Stephen Ehrlich declared that customers’ assets were safe. At the beginning of June, Voyager tweeted that all “Products and Services are fully functional and unaffected by current market conditions including trading, bonuses, deposits and withdrawals. We take risk management very seriously and protecting client assets is our top priority.”
That company specified that it “never participated in DeFi [decentralized finance] lending.”
Regardless of whether it is DeFi lending or not, Voyager’s overexposure to 3AC became apparent as the market deteriorated. The company hoped to shore up its finances after securing a roughly $500 million line of credit from quantitative trading firm Alameda Ventures in late June. However, Voyager was still concerned about a “run on the bank” from users trying to withdraw their funds, according to the court filing, and eventually decided to proceed with the Chapter 11 filing.
“I had no idea Voyager would lend anything [customers’ USDC] to a hedge fund,” said the six-year-old user. “Had I known it might be loaned out, I probably would have just kept it in cash in my safe.”
“I did everything a sane person would do, which is go through and look at the company,” said Robert. Noting that the company hasn’t been targeted by regulators, he thought that was a good sign. “I should have known. All hindsight is another matter, of course.”
Scott Melker, a well-known crypto investor and podcaster with over 851,000 Twitter followers, narrates wealth that he has been using Voyager since 2019 and has “several seven digits” on the platform.
It “saches” not being able to access an account he’s saved in, he says, but notes he’s hedged his portfolio and understands he’s taking a huge risk. Melker feels bad mostly about those he told Voyager about, including friends, family, and his viewers.
“I understand that people make their own decisions, but they wouldn’t have even thought about it if I hadn’t brought them with me [Voyager] to her attention. And frankly, that’s worse than losing my own money,” he said.
what’s ahead
A bankruptcy attorney and a crypto attorney narrated wealth that it is unclear how long the bankruptcy proceedings will last. However, they stressed that Voyager is hoping for a reorganization rather than liquidation, a hopeful sign that retail investors are getting their money back.
The company mentioned that it hopes to make at least part of their funds available to its users after the reorganization. Due to the variety of assets users have purchased on the platform, it is uncertain whether users can be fully recovered.
milker tells wealth that he is one of the top 50 wealth holders on the platform and that the top 10 or 20 holders may have a say in how the bankruptcy process advances, citing a hearing that just took place.
Voyager recently announced that it has approximately $1.3 billion worth of crypto assets on its platform, adding that the company has $110 million in cash and proprietary crypto assets that ” Provide liquidity to support day-to-day operations during the Chapter 11 process,” it says. Voyager also mentioned that it holds $350 million in client funds in an account with the Metropolitan Commercial Bank.
This experience has scarred some so much that they have vowed never to invest in cryptocurrency again. Others, however, remain bullish.
Melker, for example, has nothing against the company or its makers. His history with Voyager is deep — the company even sponsored his podcast for a brief stint when he first started, he says. He hopes that he and others will see their fortunes again.
“Look, I’m missing millions of dollars,” he says. “You know, it’s embarrassing. I’m a person who talks about risk management and protecting your assets, but in hindsight I may have been overexposed but I was comfortable with that.”
Of course, Voyager users are also hoping to have access to their savings soon.
“Hope is unfortunately not a plan, but there is nothing that I have control over,” says Robert. “All I need is to get my original fortune back. I don’t need the rewards or the interest earned. I just need the fortune back.”
Voyager Digital did not respond immediately wealth‘s request for comment.
This story was originally featured on Fortune.com