Voyager, Celsius Implosions Spur Expanded Texas, Alabama Investigations
Securities regulators in Texas and Alabama are expanding their investigations into Voyager Digital and Celsius Network
(Bloomberg) -- Securities regulators in Texas and Alabama are expanding their investigations into Voyager Digital Ltd. and Celsius Network Ltd. to account for new information arising from the implosions of the two crypto-lending firms.
The two states are examining if Voyager properly disclosed material information on its loans and the creditworthiness of the borrowers. Texas and Alabama are among a coalition of US states investigating Voyager and Celsius, including a recent freeze on customer withdrawals at both firms, according to Joe Rotunda, director of enforcement at the Texas State Securities Board, and Amanda Senn, chief deputy director at the Alabama Securities Commission.
“What we’re seeing now is that a lot of these crypto-lending firms may not have fully disclosed what they were doing on the backside with investors’ money, the risks associated with those types of lending practices or even the other types of transactions they are engaging in,” Rotunda said in an interview.
Voyager filed for Chapter 11 bankruptcy protection on Tuesday, just weeks after getting a lifeline from billionaire Sam Bankman-Fried’s Alameda Research, citing market volatility and the collapse of a Three Arrows Capital, the crypto hedge fund it had lent money to. Celsius, which halted user withdrawals in June amid liquidity issues, said last week it’s exploring options such as “strategic transactions as well as a restructuring of our liabilities.”
Regulators have been investigating yield-product offerings at Voyager and Celsius, including whether they are unregistered securities. Voyager lends deposits to third parties and passes on some interest to customers, a dynamic that users agree to when they sign up for the platform. In its bankruptcy filing, Voyager disclosed for the first time a lot of names of its biggest borrowers, including Three Arrows Capital and Alameda Research.
With the bankruptcy filing, state litigation against Voyager will be stayed, but investigations are still ongoing, Rotunda and Senn said. Voyager said in its bankruptcy-exit plan that it expects customers to be “impaired” by the Chapter 11 process, meaning they won’t be getting back exactly what they’re owed.
“We are investigating these companies and trying to figure out what happened and why,” Senn said in an interview. “We are making inquiries. It’s still the initial stages, but we have a responsibility on behalf of our investors in our states.”
A Voyager spokesperson declined to comment. Celsius didn’t immediately respond to a request for comment.
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