The crypto company Voyager filed for bankruptcy earlier this year amid claims of fraud and theft from small-time investors who used their platform as a digital wallet for cryptocurrency. The company is now in a firesale to sell off its remaining assets and repay creditors, including the millions who used the platform as an investment tool.
The matter started when the crypto hedge fund, Three Arrows (3AC), defaulted on a loan provided by Voyager. The subsequent default resulted in the collapse of a third company FTX which engaged in shady backroom deals to repay specific investors while ignoring others. That choice has resulted in several criminal fraud cases filed against various executives associated with FTX, and most of those suits have resulted in guilty pleas. Now, lawsuits are flying between the three companies, with FTX suing Voyager to recoup the costs of loan payments and FTX also suing its former executives, including Sam Bankman-Fried, who is still fighting charges of defrauding crypto investors.
The situation is obviously bad and a complete mess for all involved. But it seems unlikely to resolve well for inventors who are told that they may be entitled to recoup 30-35% of their crypto held on the site.
Why can’t investors get their money back?
Bankruptcy works the same way for companies as it does for individuals. When an individual files for bankruptcy, they may have several creditors who are looking to get their money back. Once the bankruptcy is in play, however, the creditors’ hands are tied, and they have to wait for the bankruptcy court to sort out the mess.
Before the bankruptcy system, companies would attempt to out-compete one another to extract as much money as possible from a debtor, who would be pressured to repay that money to the fastest creditor. So, as far as it goes, bankruptcy made a lot of sense for creditors’ interests as well, and specifically, it stopped them from preventing each other from getting anything out of the debtor.
In order to achieve this minor miracle, bankruptcy prevents creditors from taking any adverse action against the debtor until the bankruptcy court and trustee have had the opportunity to go over the financials. This involves appraising the company’s value and assets against its liabilities. The same would be true of any individual in bankruptcy. So, in a case like FTX and Voyager, the majority of creditors are simply users who used the brokerage as a place to stash their digital assets. When FTX filed for bankruptcy, it froze the accounts of every single one of its users who no longer had access to that money and, essentially, ran the risk of not making a dime back. Today, they are being told they may recover as much as 35%, but that is small solace for many who dumped their hard-earned money into a black hole of mismanagement and double-dealing.
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Indiana bankruptcy attorney Chris Arrington can help you out of unmanageable debt. Call our office today to schedule an appointment, and we can begin discussing your options immediately.