Metropolitan Commercial Bank aided bankrupt cryptocurrency firm Voyager’s scheme to defraud and mislead crypto customers because the bank stood to financially gain from the continued deceit, Voyager’s wind-down plan administrator alleged in a lawsuit last month.
Michael Wyse alleged that New York-based MCB, which served as banking partner for Voyager from 2018 until its bankruptcy in 2022, knowingly allowed Voyager to claim that the exchange’s customers were protected by the Federal Deposit Insurance Corp. insurance the bank was backed by.
Despite “repeated misleading statements that caused some to conclude that FDIC insurance protected customer deposits, including their crypto, in the event of the failure of Voyager,” deposits were never protected in the event of a Voyager collapse, the lawsuit contends. And while fiat deposits within Voyager’s platform would have been protected in the event of MCB’s collapse, crypto held on the platform never was.
“Both Voyager and MCB believed FDIC insurance to be a major selling point for their product. [Voyager CEO Stephen] Ehrlich recalled that it was MCB that suggested to Voyager that Voyager make FDIC insurance a differentiating factor worthy of inclusion in their marketing,” Wyse alleged in the lawsuit filed in the Southern District of New York on Nov. 21
The 53-count, 149-page lawsuit alleged that MCB knew that Voyager was conducting business without the required money transmitter licenses, and that the bank even helped the crypto exchange evade money transmitter license regulations.
“MCB’s actions were a substantial factor in causing actual damages to Voyager’s customers … including the lost value of their assets held on the Voyager Platform and not receiving the FDIC insurance they had been led to believe would cover that loss,” Wyse alleged.
“Had MCB not encouraged and assisted Voyager in evading MTL regulations, Voyager would have had to post surety bonds in additional states that would have covered or mitigated [customer] losses after Voyager filed for bankruptcy, and Voyager would have been subject to regulatory scrutiny that could have prevented or deterred the conduct that led to Voyager’s demise,” he alleged.
A Metropolitan Commercial Bank spokesperson told Banking Dive via email that, based on the bank’s understanding of the facts and the law, Wyse’s “claims are meritless, and we will defend ourselves vigorously.”
“The alleged false and deceptive statements and actions by Voyager are the sole responsibility of Voyager, its principals and successors and not of Metropolitan Commercial Bank,” the spokesperson said.
Wyse also alleged that without MCB’s help, Voyager would not have been able to grow and retain its customer base, and therefore those customers would not have incurred losses when Voyager filed for bankruptcy.
At the time of its bankruptcy, Voyager owed U.S. customers some $1.7 billion. Much of that has yet to be returned more than two years later, according to the lawsuit.
Wyse, who as plan administrator is representing 31,867 creditors who were all former Voyager customers, seeks punitive and exemplary damages in an amount to be determined at trial, along with reasonable costs and expenses including counsel and expert fees.
In January 2023, about six months after Voyager’s bankruptcy, MCB announced it would be leaving the crypto business. It had “never represented a material portion” of its business, the bank said, claiming at the time that the pivot from crypto began in 2017.
Earlier this year, the bank also exited the banking-as-a-service space, noting at the time that the decision to terminate BaaS partnerships would “reduce the Company’s exposure to the heightened, and evolving, regulatory standards related to these activities.”
