Executives at cryptocurrency firm Voyager Digital face a proposed class action that alleges the Earn accounts and VGX token once offered by the bankrupt company were unregistered securities that were misrepresented in order to drive demand from retail investors.
The case alleges Voyager execs Stephen Ehrlich, Gerard Hanshe, David Brosgol, Janice Barrilleaux, Philip Eytan, Jarrett Lilien and Brian Brooks broke the law by failing to register the platform’s Earn Accounts, through which crypto investors lent their assets to Voyager in exchange for monthly interest payments, and VGX token with the Securities and Exchange Commission (SEC).
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According to the suit, Voyager generated the interest owed to Earn account investors by pooling their and its assets to fund its income-generating activities, including lending cryptocurrency to institutional and corporate borrowers, lending U.S. dollars and stablecoins to retail investors, and investing in “other highly speculative cryptocurrency ventures.”
In exchange for their investments, consumers were promised “above-market” interest rates that would be paid monthly in cryptocurrency, the filing says. As of March of this year, Voyager had roughly 1.53 million Earn accounts, holding approximately $5 billion in investor assets, the suit states.
On March 29, however, the New Jersey Bureau of Securities hit Voyager with a cease-and-desist order after finding that its Earn accounts were securities and that the firm offered and sold these securities in violation of state law, the case says. Despite this clear notice that its Earn accounts were unregistered securities, Voyager and the defendants continued to offer them to retail investors nationwide anyway, the filing relays.
Then, in mid-2022, the price of cryptocurrency assets and demand for new cryptocurrency investments fell “across the board” amid a broader market downturn that “exposed the fragility of Voyager’s investment products” and revealed that the firm lacked enough assets to meet its withdrawal obligations, the lawsuit says.
On July 1, Voyager suspended withdrawals from its platform, and five days later, the company filed for Chapter 11 bankruptcy, the suit relays.
According to the complaint, Voyager’s Earn accounts were not registered with the SEC or any other regulatory authority, protected by the Securities Investor Protection Corporation (SIPC), or insured by the Federal Deposit Insurance Corporation (FDIC), subjecting investors to additional risks not borne by those who engage with more mainstream investment products.
“Voyager’s inability to honor investor withdrawals and its subsequent bankruptcy filing underscores investors’ reliance on the efforts of Voyager and Defendants to provide the expected profits,” the suit says. “Ultimately, Voyager and Defendants’ efforts fell short, and it is Plaintiffs and the Class that bore the cost of that failure.”
The suit looks to cover all persons or entities who bought Voyager Earn account securities and were subsequently injured thereby, and all persons or entities who bought VGX tokens.
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