Voyager customers beg New York judge for money back after bankruptcy

During a five-hour Chapter 11 bankruptcy hearing earlier this month for crypto firm Voyager Digital, a customer named Magnolia was the first user to step forward and speak about her experience.

Magnolia, who only disclosed her first name, said she had over $1 million trapped on the platform, including $350,000 that was earmarked to pay for college for her children. She said it had taken her 24 years to save, and she had sacrificed spending time with her kids in order to build that nest egg.

“I do feel like we’re paying the ultimate price for them being fiscally irresponsible,” Magnolia said. “They had our trust, they had our money, and they did not run this company properly.”

Magnolia wanted to know why Voyager borrowed money instead of cutting costs when it knew things were going south. She also asked whether CEO Stephen Ehrlich was still getting paid and receiving a bonus.

Magnolia is one of Voyager’s 3.5 million customers, a group that’s desperate for answers more than a month after the company suspended all trading and, soon after, filed for Chapter 11 bankruptcy. Voyager, once a popular lending platform, drew in retail investors by offering them up to double-digit annual returns in exchange for parking their tokens with Voyager.

As the crypto market boomed last year, Voyager inked sports sponsorships with the NBA’s Dallas Mavericks and owner Mark Cuban, Tampa Bay Buccaneers tight end Rob Gronkowski, NASCAR driver Landon Cassill and the National Women’s Soccer League.

While those names helped hype the service, they didn’t change the risk that customers faced when they joined the platform. Their funds were unsecured.

A crash in crypto prices in 2022, largely due to Federal Reserve rate hikes and investor rotation out of the riskiest assets, created a liquidity crisis for hedge funds and crypto sites with excess exposure to digital assets. Many of those firms defaulted on loans, creating a cascading effect that infected the broader industry and lenders like Voyager.

In addition to the hearing in early August in the Southern District of New York, Voyager customers also had an opportunity to voice their displeasure in a livestream chat accompanying a 52-minute virtual town hall last week. There they could make their pleas to the “Voyager Official Committee of Unsecured Creditors,” a group formed by the bankruptcy court of SDNY to resolve asset distribution.

The committee consists of lawyers from McDermott Will & Emery as well as restructuring advisors from FTI Consulting and a select group of creditors. They say the focus is the “prompt return of USD and crypto to creditors.”

Members of the committee gave an overview of the bankruptcy proceedings so far, an estimated timeline to reimbursement and a how-to on the claim submission process. One committee…