Voyager Digital is trying to recover as its bankruptcy proceedings continue. Will investors get their money back?
Voyager Digital, one of several crypto credit companies that went insolvent in the past month, is currently in the process of implementing its turnaround plan.
Voyager suspended most of its activities on July 1, including exchanges, deposits, withdrawals and loyalty rewards. He then filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on July 5. The resulting hearings began on July 8.
Voyager provided updates on its reorganization plan in recent blog posts. In a July 11 update, it said its recovery would involve distributing assets to users.
Voyager has not promised to provide users with their full balance. However, he indicated that pro rata shares of various assets will likely be distributed to users. These assets include cryptocurrency, proceeds of its recovery from Three Arrows Capital, existing Voyager tokens, and common stock of the reorganized company.
Voyager Digital added that it holds customer funds in an account for the benefit of customers (FBO) at the Metropolitan Commercial Bank.
In a July 22 update, Voyager said it was seeking court approval to allow its customers to withdraw money from these FBO accounts. He says he will learn the timing of the withdrawals after his next hearing on August 4.
The Voyager case is far from over. The company’s recovery plans could change depending on how users vote on its plans and based on future audiences.
Another cryptocurrency company has offered to come to the rescue of Voyager. On July 22, FTX, in cooperation with its sister company Alameda Research, offered a deal that would allow it to acquire Voyager’s debt for $250 million.
This offer would allow Voyager users to open an FTX account funded by a first portion of their bankruptcy filings. Users could then withdraw their funds or trade on FTX with fees temporarily waived.
FTX’s proposal was intended to complement Voyager’s plans and serve as a voluntary option for users, not a mandatory replacement for those plans.
Voyager responded poorly to the proposal. The company’s lawyers called the proposal a “low offer disguised as a white knight rescue” and argued that the offer was intended to generate publicity for FTX itself rather than aid Voyager. Lawyers also called the offer a subversion of the bankruptcy process.
Voyager previously received a $500 million loan from Alameda Research earlier this summer. This loan was intended to replace a loan that Three Arrows Capital had defaulted on, which involved a comparable amount.
Elsewhere, Voyager’s former chief innovation officer, Shingo Lavine, has submitted an objection to the company’s current plans. His objection also suggests another course of action that might help Voyager recover.
The plan, detailed in a July 28 filing, would see a team led by Shingo Lavine and his father, Adam Lavine, replace Voyager’s current leadership.
Lavine’s proposal would force Voyager to cease all lending activities. It would also see Voyager restart its trading platform, introduce a new live trading feature, issue a “recovery token” and make various other changes to its services.
The two parties seem to have a pretty close relationship. Voyager acquired one of Lavine’s companies, Ethos, in 2019. Although Lavine left his executive position at Voyager in 2021, he still owns stock in the company.
However, Voyager has not publicly responded to Lavine’s proposal, and it seems unlikely that he would respond positively given his negative reaction to FTX’s offer.
Recent regulatory developments suggest that insurance will not cover user losses. On July 28, the US Federal Reserve and the Federal Deposit Insurance Corp (FDIC) said Voyager had made false and misleading statements regarding investor insurance.
Voyager has reportedly sometimes suggested that its user accounts be covered by FDIC insurance, which would cover user losses in the event Voyager defaults.
In fact, Voyager’s only FDIC-insured funds are those he holds at the Metropolitan Commercial Bank. While this provides insurance coverage up to $250,000, it only applies if the Metropolitan Commercial Bank fails (not if Voyager fails).
Voyager clarified the issue earlier: in its July 11 post, it said it had changed the wording of its website to reflect these facts.
Although Voyager has addressed the issue, the fact that regulators issued a cease and desist order after that date suggests that the matter is not entirely resolved. Regulators also issued a broader warning against similar errors.
Voyager Digital is not the only company facing a liquidity crisis. Several other crypto companies, especially loan companies, are suffering from insolvency.
Celsius is another company that has frozen withdrawals, declared bankruptcy and is currently undergoing restructuring. CoinFLEX has also suspended withdrawals and is now trying to restructure, although it has not declared bankruptcy.
Vauld and Zipmex, which have both suspended withdrawals, also filed for protection in recent days. Although the two companies have not yet declared bankruptcy, these filings suggest that both companies are at risk.
Since mid-June, the price of Bitcoin has remained near $20,000, a low not last seen in December 2020. These poor market conditions mean crypto lenders will likely continue to have difficulties with their investments.
Disclaimer: The information contained herein is provided without regard to your personal circumstances and should therefore not be construed as financial advice, investment recommendations or an offer or solicitation for trading in crypto- currencies.
