Voyager Digital is a publicly listed crypto brokerage firm which filed for bankruptcy on 5th July 2022.
Who is Voyager Digital?
Voyager Digital was founded in 2017 as a cryptocurrency brokerage firm allowing clients to buy and sell cryptocurrencies and other digital assets on its platform. Their main feature was that they did not charge commission fees through utilizing its smart order routing to connect to dozens of other cryptocurrency exchanges and market makers. Voyager Digital is currently listed on the Toronto Stock Exchange under the stock ticker VOYG.
Voyager Digital is also a major creditor of Three Arrows Capital, which has also recently filed for bankruptcy. Since 1st July 2022, Voyager Digital has temporarily suspended all trading, deposits, withdrawals, and loyalty rewards on its platform.
Voyager Digital files for bankruptcy
Voyager Digital issued a Notice of Default against 3AC on 27th June 2022 and reduced its withdrawal limit to US$10k per day. This spooked shareholders and users of Voyager Digital. The Company saw its share prices plunge over 60% after its ties with 3AC was revealed, combined with its poor performance during the crypto downturn.
The Notice stated that 3AC failed to make timely repayments on its loan of 15,250 BTC and US$350 million USDC. However, Voyager Digital has reassured its users that its platform is still fully functional. Furthermore, as of 24th June 2022, Voyager had approximately US$137 cash and crypto assets on hand. The Company also has US$200 milllon cash and USDC, and a 15,000 BTC revolving loan from Alameda Ventures Limited.
On 5th July 2022, Voyager Digital Holdings filed for bankruptcy in the Southern District of New York. Voyager Digital estimates it has over 100,000 creditors and total debts of somewhere between US$1 to US$10 billion in liabilities. The Company believes that notwithstanding its liabilities, it still has around US$1 to US$10 billion in assets. They also assure that will have sufficient funds available for distribution to its unsecured creditors.
According to a tweet by CEO Stephen Ehrlich, the purpose of filing for bankruptcy was to “…protect assets on the platform, [and] maximize value for all stakeholders.”
This is certainly a huge relief to Alameda Research. They are listed in court documents filed by Voyager as its largest unsecured creditor with over US$75million in unpaid debts. This is substantially larger than its second largest unsecured creditor with a US$9.7million claim.
Meanwhile, the share prices of Voyager Digital Ltd (VYGVF) plummeted by almost 12% as a result of this development. Share prices for the Company took a huge hit since their involvement with 3AC was discovered. VYGVF share prices have been down nearly 89% since early June 2022.
Voyager rejects Alameda and FTX buyout offer
FTX exchange and its investment arm Alameda Ventures- also Voyager Digital’s largest creditor offered a buyout offer. FTX’s proposal was to purchase all of Voyager Digital’s digital assets and digital asset loans at market value, except the loan to Three Arrows Capital. Also, a buyout of all of Voyager Digital’s customer information, trademarks and intellectual property for US$15 million. Finally, FTX would write off the US$75 million loan by Alameda Ventures against Voyager Digital.
FTX and Alameda also proposed to give Voyager Digital customers an opportunity to open a new FTX account. This account will have an opening cash balance funded by an early distribution of a portion of their bankruptcy claims. Customers can withdraw the cash balance immediately or use it for trading on the FTX platform. Meanwhile, customers that reject this proposal can retain their rights in the bankruptcy proceedings and wait for the outcome. However, they will not receive any early reimbursement.
However, on 24h July 2022, Voyager Digital filed a rejection letter to the Court rejecting Alamada and FTX’s buyout offer. In the letter, Voyager Digital criticized the offer as not value maximizing and “designed to generate publicity for itself rather than value for Voyager’s customers.” The letter also outlined 6 ways in which FTX’s offer could harm customers. For example, it would unfairly cap the value of each customer’s account at the value on 5th July 2022. The proposal would also effectively eliminate the VGX token- worth over US$100 million.
FTX’s Sam Bankman-Fried in his tweet doubled down on FTX’s proposals. He says that under the traditional bankruptcy process, it will be years before customers will see their funds returned. Meanwhile, bankruptcy agents will be bleeding the customer’s frozen assets by charging consultancy fees. Ultimately, according to Bankman-Fried, FTX believes Voyager Digital’s customers should have the right to choose to quickly recoup their assets without “rent-seeking” by consultants. Adding that, “they’ve been through enough already”.
Voyager Digital suspends withdrawals, will customers get their USD and crypto back?
According to the latest blog post from Voyager Digital, they are working to restore access to customers’ USD deposits. However, it does not mention when withdrawals will be reopened. Voyager Digital also alleged that customers’ USD in their Voyager cash account is held in a For Benefit of Customers account at the Metropolitan Commercial Bank of New York (and not by Voyager themselves) and is Federal Deposit Insurance Corporation (FDIC) insured. However, a joint letter dated 28th July 2022 from the Federal Reserve and the FDIC to Voyager requests them to remove “false and misleading” statements that its user deposit accounts are FDIC insured.
As for customers’ cryptocurrencies, Voyager states that they have approximately US$1.3 billion worth of crypto assets on their platform. This is inclusive of its over US$650million claim against Three Arrows Capital.
Voyager has proposed a reorganization plan which is currently pending the approval of the Court. Customers will be able to select the following options with regards to their cryptocurrencies held by Voyager:
- Pro-rata share of cryptocurrencies;
- Pro-rata share of proceeds recovered from Three Arrows Capital;
- Pro-rata share of common shares in Voyager after it is reorganized; and
- Pro-rata share of existing Voyager tokens.
However, according to Voyager, this is not the finalized plan. Voyager’s customers will have the opportunity to vote on whether or not they agree with the reorganization plan. It is likely that it will be a long time before customers will have their funds and cryptocurrencies returned.
Voyager details claim process for customers
Voyager’s blog post details how affected customers with cryptocurrencies in their accounts can begin to claim their crypto. Voyager will be sending an email from “Voyager Digital Restructuring” containing a unique link and personal identification number. The link will set out the customers’ account holdings. If customers agree with the account information set out in the email, they are not required to submit a claim form. On the other hand, if customers disagree with the information, or the claim is marked as “contingent”, “unliquidated” or “disputed”, they must submit a proof of claim form. This Proof of Claim form must be filed on Voyager’s case website on or before 3rd October 2022 at 5:00pm EST.
However, there is still no information on when affected customers can actually receive the cryptocurrencies locked in their Voyager Digital accounts.
Voyager customers say no to “retention bonus” totaling US$1.9 million to employees.
Voyager had asked the Court to approve a US$1.9 million payment to 38 of its employees as a “retention bonus”. The Company claims that these employees are essential to its continued operation and restructuring, and are apparently non-executive employees. Voyager is also asking the Court to allow them to redact the names, titles, salaries, proposed bonuses and other information relating to the 38 persons. Their reasoning is that this is non-public and personal information which could be sensitive.
However, a group of Voyager customers objected to Voyager’s proposal, stating that its employees are already well-compensated and that there is little evidence that they plan to resign. They also argue that the Company has otherwise done little else to reduce costs. The US Trustee’s Office is also objecting to Voyager’s proposal, particularly to the request to redact the employees’ information. This is because they see it as critical information that stakeholders should have in order to evaluate whether the proposed bonus is necessary.
On 24th August 2022, the Court ultimately approved Voyager’s application to pay US$1.9 million in retention bonuses to employees.