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Crypto Firm Voyager Seeks To Honor Customer Withdrawals From Custodian Bank
Blocking withdrawals from the $350 million custodian account could harm Voyager's business ‘to the detriment of all stakeholders,’ it said in bankruptcy court filings.
Himanshu S.
11:49 15th Jul, 2022
Adoption

Cryptocurrency brokerage and lending firm Voyager Digital Ltd. has asked for a bankruptcy judge’s permission to honor withdrawal requests for $350 million in cash funds held on behalf of its customers at a custodian bank, court filings show.

Voyager filed for chapter 11 bankruptcy protection last week facing a “run on the bank” as customers flooded the firm with requests to withdraw their deposits, becoming one of the first victims of the sharp cryptocurrency pullback of recent months.

The funds Voyager is seeking to release are held in an account at New York-based Metropolitan Commercial Bank, which provides custodial services to Voyager. Normally, customers’ funds would be routed from their personal bank accounts into the Metropolitan Commercial Bank for use by Voyager.

The crypto firm halted all trading on its platform and froze customer withdrawals on July 1 to avoid “irreparable damage” to the business, Voyager’s lawyers said in a court filing late Thursday.

Keeping withdrawals from the Metropolitan Commercial Bank account frozen could “harm the Debtor’s business to the detriment of all stakeholders,” Voyager’s lawyers said in the filing.

While the ability to get the cash from the external bank account is good news for customers, the bigger risk for them lies in how much of their crypto holdings Voyager will return and when, said other bankruptcy lawyers not involved in the case.

“This is not a motion to give people back their crypto. It’s purely a housekeeping motion,” said Ropes & Gray LLP restructuring lawyer Daniel Gwen, who isn’t involved in the case.

“This is a step of trying to restore customer confidence,” Mr. Gwen said.

According to the rough outlines of a restructuring plan Voyager laid out when it filed for bankruptcy, account holders will receive a fraction of their crypto holdings as well as equity shares of the reorganized company, with the amount of crypto to be determined in the bankruptcy proceedings.

The customers would also receive Voyager cryptocurrency tokens and any capital the company can claw back from Three Arrows Capital Ltd., a Singapore-based crypto hedge fund now in liquidation that had defaulted on a loan borrowed from Voyager.

The firm is also seeking court permission to sell crypto assets that belong to customers with negative U.S. dollar balances.

Some Voyager customers have written letters to Judge Michael Wiles, who oversees the case in the U.S. Bankruptcy Court in New York, asking him to ensure that Voyager promptly returns the funds held at Metropolitan Commercial Bank.

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