Last Updated on October 19, 2022 by Bitfinsider
According to court documents, cryptocurrency lender Voyager Digital Ltd. is pursuing settlements with two top executives as a result of potential claims of gross negligence relating to risky loans made to the defunct hedge fund Three Arrows Capital that were discovered during an internal investigation.
According to court documents released on Monday, Chief Executive Officer Stephen Ehrlich and then-Chief Financial Officer Evan Psaropoulos decided to allow Voyager to lend Three Arrows approximately $1 billion in cryptocurrency despite the hedge fund providing very little financial information. Prior to declaring bankruptcy in July, the unpaid loans had a significant impact on Voyager.
However, according to the findings of an investigation performed by two members of Voyager’s board of directors, bringing legal action against Ehrlich and Psaropoulos would be challenging and maybe pointless. The board members came to the conclusion that even if the firm could demonstrate that the executives had violated their fiduciary obligations to Voyager, the cost of litigating would probably outweigh any compensation from future lawsuits.
Instead, the firm is recommending a settlement that requires Ehrlich to pay $1.125 million in cash to Voyager, to pursue claims under up to $20 million in directors and officers insurance coverage, and to continue leading the business into bankruptcy. Voyager’s chief executive officer is still Ehrlich, and its chief commercial officer is now Psaropoulos.
According to court documents, the board’s inquiry revealed no evidence of fraud or theft by any Voyager executives. Voyager’s agent declined to comment on the settlement, and emails sent to Ehrlich and Psaropoulos seeking comment were not immediately answered.
The settlement must first be approved by Voyager’s bankruptcy judge in order to be put into effect.
The hedge fund only gave a one-paragraph declaration signed by co-founder Kyle Davies that said the firm owned net assets worth $3.729 billion, which was significantly less than the information provided by other institutional Voyager borrowers.
According to the bankruptcy filings, when asked by Voyager for more information, Davies stated that the hedge fund only supplied summary net-asset value statements to its lenders. According to Davies, the policy was established after a negative encounter with a former counter party that stooped to using more comprehensive disclosures in an attempt to copy Three Arrows’ trading approach.
Despite the incomplete information, Voyager began lending cryptocurrency to Three Arrows on March 8. As of May 5th, the aggregate loan volume was 15,250 Bitcoin and 350,000,000 USDC, a stablecoin. A little over a month later, Three Arrows disclosed financial losses due to the failure of the Terra blockchain. In June, the hedge fund went into liquidation in the British Virgin Islands, and Voyager still hasn’t received the loan’s principle.
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