Representations of cryptocurrencies and Voyager Digital logo are seen in this illustration taken, July 7, 2022. REUTERS/Dado Ruvic/Illustrations
(Reuters) – Bankrupt crypto lender Voyager Digital described a rocky relationship with its customers at an initial bankruptcy hearing on Friday, saying it had received threats after freezing customers' crypto accounts.
In the company's first bankruptcy hearing before U.S. Bankruptcy Judge Michael Wiles in Manhattan, Voyager attorney Christopher Marcus of Kirkland & Ellis said the company had proposed a bankruptcy restructuring plan as early as it could in order to assure customers that they had not "lost everything" after the company froze their accounts.
Voyager filed for bankruptcy protection in Manhattan on Tuesday, blaming a recent slump in crypto markets that caused it to freeze customer withdrawals. The company said it had 3.5 million active users and over $5.9 billion in cryptocurrency assets at the time of its filing.
The recent crash led one fellow crypto lender, Three Arrows Capital (3AC), to file for bankruptcy in the British Virgin Islands. Two others, Celsius Network and Vauld, have blocked customers from withdrawing crypto assets.
Voyager's relative silence before its bankruptcy filing caused some customers' anger to escalate into personal threats against company management and their families, Marcus said.
"We are focused on a path forward," Marcus said. "It is not correct to think that there is no hope."
The bankruptcy plan, filed on Wednesday, describes Voyager's efforts to find an outside buyer or to partially repay its customers. Under the plan, if no buyer emerges, Voyager would give its customers all existing Voyager tokens, 100% of the company's equity shares, any proceeds from a $650 million dispute with 3AC, and a to-be-determined partial repayment of the specific cryptocurrency held in their accounts.
While Voyager attempted to reassure customers, it also told Wiles that customers did not own the specific crypto assets in their accounts. Voyager considers those assets to be the company's property, saying that its customers hold unsecured claims for the value of those assets.
Voyager drew a distinction between the crypto assets and the portion of customer accounts held in cash, which it did not claim.
Customers' cash accounts were held in a $350 million commingled account with Metropolitan Commercial Bank, and Voyager will not interfere with the cash account unless it has concerns about fraudulent customer withdrawals, Josh Sussberg of Kirkland said.
Wiles said the case presented several novel legal questions, including Voyager's position that it owned the crypto assets. The judge questioned whether Voyager had even filed the right type of bankruptcy case, suggesting that it met the criteria for liquidating as a broker-dealer with protected customer accounts.
Sussberg said a traditional Chapter 11 restructuring would be better for customers. A broker-dealer liquidation would completely halt Voyager's operations and result in a lot of expensive litigation that would benefit no one, Sussberg said.
The case is Voyager Digital Holdings Inc, U.S. Bankruptcy Court for the Southern District of New York, No. 22-10943,
For Voyager: Josh Sussberg, Christopher Marcus and Christine Okike of Kirkland & Ellis
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Crypto broker Voyager Digital issues default notice to Three Arrows Capital
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