On July 5, 2022, the popular cryptocurrency services firm Voyager filed a petition for Chapter 11 bankruptcy. With over three million customers, Voyager’s bankruptcy has had rippling effects throughout the cryptocurrency industry. Dressel/Malikschmitt LLP has received numerous inquiries from affected customers, as well as others within the industry, about what could happen going forward and what Voyager customers could do to protect themselves. This blog is designed to answer some of the most common questions.
What is/was Voyager?
Voyager is a family of companies providing financial services in the cryptocurrency industry. Specifically, Voyager provided three main services: (1) it was a broker, allowing buyers and sellers of various crypto-tokens to match with each other; (2) it provided deposit services, whereby depositors could store their crypto-assets while earning interest; (3) it provided lending services by which customers could borrow tokens and pay interest. In layman’s terms, Voyager was a “crypto-bank.”
What Went Wrong?
While Voyager has largely been the victim of an overall downturn in the crypto-markets, the real deathblow has come from the fall of the Singapore-based hedge fund Three Arrows Capital. Three Arrows had invested hundreds of millions of dollars in the Luna token, developed by Terraform Labs. Luna was backed by TerraUSD, a “stablecoin” tied to the value of the US dollar.
However, due largely to panic selling during the general crypto downturn, TerraUSD became unpegged from the dollar, leading to a collapse in TerraUSD and a subsequent collapse in Luna. This led to huge losses for Three Arrows and equally huge losses for one of its largest lenders, Voyager.
On June 23, 2022, Voyager first signaled its troubles to customers by lowering its withdrawal limit to $10,000 (it had previously been $25,000). On July 1, 2022, Voyager suspended all trading, deposits, and withdrawals. On July 5, 2022 it filed for Chapter 11.
What is Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is a process by which a business can be reorganized in order to be in a position to better pay out its creditors. It does not mean that the company is without assets, it simply signals that the company at issue is in significant financial distress and requires reorganization. The most important effect of the Chapter 11 petition is the automatic stay on collections efforts by creditors.
Are the Customers Creditors?
The present petition lists customers as creditors, but it is unclear precisely how these creditors will be treated under any proposed reorganization. It seems Voyager may be approaching this reorganization by taking the position that it is a broker/dealer operation, in which case customers would have some priority of claim. However, there are other large creditors out there, including Sam Bankman-Fried’s crypto-fund, Alameda Ventures. Those creditors may seek to oppose such a designation in order to receive priority on payment. The potential is there for lengthy litigation over these very unique bankruptcy issues.
What Can a Voyager Customer Do?
Unfortunately, the bankruptcy process can be a lengthy one, and this one appears set to be especially contentious. Bankman-Fried seems to be viewing this as an opportunity to acquire either Voyager or Voyager’s customers. Indeed, Bankman-Fried has sent out, via Twitter and other media, offers to Voyager’s customers about transferring their assets to FTX, Bankman-Fried’s rival platform. Dressel/Malikschmitt LLP has no view on that offer, including whether it is a valid offer under United States bankruptcy law.
While we believe it is unlikely to matter much in the context of bankruptcy law, especially now that a bankruptcy petition has been filed, Dressel/Malikschmitt LLP does believe it is a prudent move for customers to continue to contact Voyager’s customer relations team in order to express any interest in withdrawing funds or moving them to another platform, if a customer has such interest. Again, given the ongoing bankruptcy process, it is not our view that these requests are likely to result in any action on Voyager’s part. However, our firm does not see the harm that could come in providing such a notice if it reflects a customer’s actual interest.
If you wish to discuss the Voyager situation further, please visit our website www.d-mlaw.com and complete an online contact form or call us at (848) 202-9323. The above is not intended to constitute legal advice and should not be relied upon as such.