Thousands of crypto investors have frozen their savings as Voyager files for bankruptcy protection

Robert first encountered 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 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 publicly traded company on the Toronto Stock Exchange, he thought, how bad could Voyager be?

Robert, who wanted to be identified only by his first name for privacy reasons, ended up investing six figures in Voyager, or 70% of his savings, he says. Fortune† Another user, who has invested in Voyager for about six years and has asked to remain anonymous due to security concerns, has invested about $38,000 on the platform.

But now they’re both unable to withdraw their 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 the advertising that “in the rare event that your USD funds are compromised due to the bankruptcy of the company or our banking partner, you are guaranteed a full refund (up to $250,000). ” Its ‘bank partner’, Metropolitan Commercial Bank, is FDIC-insured, but Voyager is not.

Learning this, said the six-year-old user, was “like a kick in the stomach.”

“Honestly, I cry every day,” says Robert. ‘I don’t know what to say to my wife. As partners we have decided to: [invest on Voyager]but she trusted me more than anyone else to make the right decision.”

Now these investors are learning how overloaded Voyager was and how it invested their savings in a now-defunct hedge fund that engaged in extremely risky behavior.

‘It’s heartbreaking’

Voyager has mainly blamed the defunct hedge fund Three Arrows Capital (3AC) for its problems, saying that 3AC has failed to repay a $650 million loan.

Like the rest of the crypto market, 3AC took a hit after the Terra ecosystem collapsed in May. Back in June, major cryptocurrency lender Celsius Network was rumored to be out of business, and 3AC wasn’t far behind. Their failures caused a knock-on effect across the industry as many of the major cryptocurrency lenders and funds appeared to be exposed to each other, and last week 3AC creditors sought his liquidation in a court in the British Virgin Islands.

However, Voyager is trying to restructure, not liquidate, meaning it hopes to recoup at least a percentage of its customers’ investments, according to its court records. Voyager also said in court files that it may be able to offer stock or tokens in its reorganized company to customers after the bankruptcy. But in the meantime, his clients struggle with not being able to withdraw their savings. While they wait for the next steps, even shared thoughts suicide and depression online.

“It’s heartbreaking,” says Robert. “I feel terrible for not being prepared.”

Voyager behaved like a bank and most users treated it as such. Over time, the broker started offering clients high returns on their deposits. To make up for their offer, Voyager lent such funds to others for sometimes even greater returns.

Until the company announced it was stopping withdrawals and filing for bankruptcy protection, Voyager continued to tell customers that things were going well.

Just weeks before Voyager filed for bankruptcy protection, CEO Stephen Ehrlich stated that customer assets were safe. Beginning of June, Voyager tweeted that all “products and services are fully operational and unaffected by current market conditions, including trading, rewards, deposits and withdrawals. We take risk management very seriously and protecting clients’ assets is our number one priority.”

The company stated: that it was “never involved with DeFi” [decentralized finance] credit activities.”

Regardless of whether it dealt with DeFi loans or not, Voyager’s overexposure to 3AC became apparent as the market deteriorated. The company hoped to bolster its finances after obtaining a credit line of about $500 million from quant trading retailer Alameda Ventures in late June. But, still concerned about a “run on the bank” from users attempting to withdraw their funds, as the court points out, Voyager finally decided to move forward with Chapter 11 filings.

“I had no idea Voyager would borrow [customers’ USDC] looking forward 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 deposit box.”

“I did everything a reasonable person would do, which was go through and look at the company,” said Robert. He noticed that the company was not being targeted by regulators and thought that was a good sign. “I should have known. In retrospect everything is of course something else.”

Scott Melker, a well-known crypto investor and podcaster with more than 851,000 Twitter followers, shares: Fortune that he has been using Voyager since 2019 and has “several seven figures” stuck to the platform.

It “hurts” that he can’t access an account he used to save, he says, but notes that he has hedged his portfolio and understands that he took a big risk. Most of the time, Melker feels bad about those he’s told Voyager about, including friends, family, and his viewers.

“I understand people make their own decisions, but they wouldn’t have even thought about it if I hadn’t brought them.” [Voyager] under their attention. And, frankly, that’s worse than losing my own money,’ he said.

What awaits us?

A bankruptcy lawyer and a crypto lawyer told: Fortune It is unclear how long the bankruptcy process will take. But they stressed that Voyager hopes to restructure, not liquidate, a hopeful sign for small investors getting their money back.

The company said it hopes to provide its users with at least some of their money after it reorganizes. Due to the variety of assets that users have purchased on the platform, it is uncertain whether users can be fully completed.

Melker tells Fortune that he is one of the top 50 asset holders on the platform, and the top 10 or 20 holders can have a say in what happens next in the bankruptcy proceeding, citing a hearing that just happened.

Voyager recently said it had about $1.3 billion in crypto assets on its platform, adding that the company holds more than $110 million in cash and crypto assets, which will “provide liquidity to support day-to-day operations.” support during the Chapter 11 process,” it says. Voyager also said it has $350 million in customer cash in an account with Metropolitan Commercial Bank.

This experience has so marked some that they have vowed never to invest in cryptocurrency again. Others, on the other hand, remain bullish.

For example, Melker has nothing against the company or its makers. His history with Voyager runs deep: the company even sponsored his podcast for a short time when he started it, he says. He is hopeful that he and others will see their belongings again.

“Listen, I’ve lost millions of dollars,” he says. “You know, it’s embarrassing. I’m someone who talks about risk management and protecting your wealth, but in hindsight I may have been overexposed, but I was comfortable with that.”

Of course, Voyager users also hope that they will soon have access to their savings.

“Hope isn’t a plan, unfortunately, but there’s nothing I can control,” says Robert. “All I need is to get my original ability back. I don’t need the rewards or the interest earned. I just need the assets back.”

Voyager Digital did not immediately respond Fortune‘s request for comment.

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