• Voyager’s loan to 3AC, once valued at $935 million, remains unpaid
  • 3AC’s insolvency contributed to Voyager’s bankruptcy

(Reuters) – Crypto lender Voyager Digital has agreed to settle claims against company executives who approved a nearly $1 billion risky loan to bankrupt crypto hedge fund Three Arrows Capital (3AC) after minimal due diligence, a misstep that contributed to Voyager’s own bankruptcy.

Voyager said in court on Monday deposit that pursuing litigation against Chief Executive Stephen Ehrlich and another executive would be unprofitable. Instead, Ehrlich will pay Voyager $1.125 million in cash, and the company will pursue recoveries for directors’ and officers’ insurance policies worth up to $20 million, according to the filing.

Voyager filed for bankruptcy protection in July, citing 3AC’s June 2022 default on the loan as a major factor in its insolvency. 3AC began liquidation proceedings in the British Virgin Islands at the end of June.

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Voyager had lost significant value during an industry-wide cryptocurrency crisis caused by the collapse of stablecoin Terra Luna in May 2022 and prevented customers from withdrawing their crypto assets shortly before. his bankruptcy filing.

The loan to 3AC consisted of 15,250 bitcoins and $350 million in US dollar coins, a stablecoin whose value is pegged to the US dollar. The loaned crypto was valued at $935 million in April 2022, according to court documentsbut the price of bitcoin has since halved, making the loan closer to $650 million today.

Ehrlich approved the 3AC loan solely on the basis of a one-page summary stating that the hedge fund had $3.729 billion in cryptocurrency assets, according to court documents. 3AC had declined to provide more detailed financial information, saying it had previously had a bad experience with a competitor who used information about its crypto holdings to duplicate its trading strategy.

Voyager’s board of directors has elected to settle the company’s 3AC-related claims against Ehrlich and chief commercial officer Evan Psaropoulos, both of whom retain executive positions at Voyager, according to Monday’s court filing.

Although the settlement represents “only a small fraction” of 3AC’s potential loss, fighting to recover more of the two men’s personal assets would only result in higher legal costs and less recovery of D&O policies, according to Voyager. .

Ehrlich and Psaropoulos could not immediately be reached for comment.

Crypto exchange FTX was the winning bidder in a bankruptcy auction for Voyager assets last month.

Voyager intends to sell its business to FTX for $1.42 billion, after rejecting an earlier proposal from FTX as a “low offer disguised as a white knight bailout”.

The FTX sale and 3AC loan settlements must be approved by the bankruptcy court before taking effect.

The case is In re: Voyager Digital Holdings Inc., US Bankruptcy Court for the Southern District of New York, No. 22-10943

For Traveling: Joshua Sussberg, Christopher Marcus and Christine Okike of Kirkland & Ellis

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