Voyager Digital Holdings, Inc.

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re: 	) 	Chapter 11
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VOYAGER DIGITAL HOLDINGS, INC. et al., 	) 	Case No. 22-10943 (MEW)
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Debtors. 	) 	(Jointly Administered)
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DECISION AS TO MOTION TO PERMIT WITHDRAWALS BY CUSTOMERS OF
FUNDS HELD IN FBO ACCOUNTS AT METROPOLITAN COMMERCIAL BANK
Voyager Digital Holdings, Inc. and its affiliated debtors and debtors-in-possession in
these cases (the “Debtors”) have filed a motion seeking, among other things, to permit customers
to withdraw funds from two “for the benefit of” (or “FBO”) accounts held at Metropolitan
Commercial Bank (“MC Bank”). The Debtors argued, among other things, that the funds that
are actually on deposit in the FBO accounts belong directly to Voyager’s customers and are not
property of the Debtors’ bankruptcy estates. The Official Committee of Unsecured Creditors
(the “Committee”), and MC Bank, have filed papers in support of this request for relief, and no
party in interest has opposed the relief. During a hearing on the motion held on August 4, 2022
(the “Hearing”), the Committee and MC Bank concurred with the Debtors’ contentions that the
funds in the relevant bank accounts belong to customers and are not property of the estates.
The Customer Agreement that governs the Debtors’ relationships with customers, as
updated through January 7, 2022, was submitted as an attachment to the Debtors’ motion. [ECF
No. 73.] The Customer Agreement has different provisions regarding the manner in which cash
and cryptocurrency will be held. With respect to cash, paragraph 5(A) of the Customer
Agreement states that customers may deposit cash that will be held in an omnibus account at MC
Bank. More particularly, it states:
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Cash deposited into the Customer’s Account is maintained in an omnibus
account at Metropolitan Commercial Bank (the “Bank”), which is a member
of the Federal Deposit Insurance Corporation (“FDIC”). Voyager maintains
an agreement with the Bank whereby the Bank provides all services
associated with the movement of and holding of USD in connection with the
provision of each account. Therefore, each Customer is a customer of the
Bank. All U.S. regulatory obligations associated with the movement of, and
holding of, USD in connection with each Account are the responsibility of
the Bank. For purposes of clarity, any services pertaining to the movement
of, and holding of, USD are not provided by Voyager or its Affiliates. Cash
in the Account is insured up to $250,000 per depositor by the FDIC in the
event the Bank fails if specific insurance deposit requirements are met.
See Customer Agreement, ¶ 5(A).
Different arrangements were set forth with respect to cryptocurrencies. Paragraph 5(C)
of the Customer Agreement states that “Customer authorizes and instructs Voyager to hold
Customer’s Cryptocurrency . . . on its behalf. Customer understands that Voyager may hold
Customer’s Cryptocurrency together with the Cryptocurrency of other Voyager customers in
omnibus accounts or wallets.” Id. ¶ 5(C). The same paragraph then warns that the treatment of
such cryptocurrency holdings in the event of an insolvency proceeding was uncertain:
In the event that Customer, Voyager or a Custodian become subject to an
insolvency proceeding it is unclear how Customer Cryptocurrency would be
treated and what rights Customer would have to such Cryptocurrency. How
an insolvency court would characterize and treat Customer Cryptocurrency is
a highly fact-depending inquiry that necessarily depends upon the
circumstances of each individual case. In addition, within the U.S. there is
notably little case law addressing insolvency proceedings involving
Cryptocurrency. As such, the law governing the likely treatment of Customer
Cryptocurrency in the event of a Customer, Voyager or Custodian insolvency
proceeding remains largely unsettled. Voyager does not make any
representation as to the likely treatment of Customer Cryptocurrency in the
event of a Customer, Voyager, or Custodian insolvency proceeding whether
in the U.S. or in any other jurisdiction. Customer explicitly understands and
acknowledges that the treatment of Customer Cryptocurrency in the event of
a Customer, Voyager or Custodian insolvency proceeding is unsettled, not
guaranteed, and may result in a number of outcomes that are impossible to
predict, including but not limited to Customer being treated as an unsecured
creditor and/or the total loss of all Customer Cryptocurrency.
Id. ¶ 5(C). Paragraph 5(D) then specified that cryptocurrency would be held in Voyager’s own
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name, and granted certain rights to Voyager with respect to the use, lending, “staking” and
rehypothecation of such cryptocurrency, “with all attendant rights of ownership:”
Customer grants Voyager the right, subject to applicable law, without further
notice to Customer, to hold Cryptocurrency held in Customer’s Account in
Voyager’s name or in another name, and to pledge, repledge, hypothecate,
rehypothecate, sell, lend, stake, arrange for staking, or otherwise transfer or
use any amount of such Cryptocurrency, separately or together with other
property, with all attendant rights of ownership, and for any period of time
and without retaining a like amount of Cryptocurrency, and to use or invest
such Cryptocurrency at Customer’s sole risk.
Id. ¶ 5(D). The Debtors have contended that, pursuant to these terms, customers have only the
rights of general unsecured creditors with respect to their cryptocurrency holdings. That
particular contention has not been challenged at this stage of these cases and is not before the
Court in connection with the present motion.
At the request of the Court the Debtors also filed copies of the agreements that govern the
FBO accounts at MC Bank. [ECF No. 145.] One such agreement is the “FBO Account Payment
Services Agreement,” executed in 2019. The recitals to that agreement state that Voyager wishes
to promote services to the public that entail “access to the payment system and a depository
institution to hold USD denominated funds” and that the Bank desires to “support a program”
under which “Bank provides cash management and payment concentration services through a
custodial ‘for the benefit of’ or ‘FBO’ account established by and at the Bank.” See FBO
Agreement, p. 1. For that purpose, the Bank appointed Voyager as the Bank’s representative to
“market, offer and sell crypto currency exchange services.” Id. ¶ 2.1. Voyager agreed to open
FBO pooled accounts that would hold “all funds that the Customers remit to Bank . . .” Id. ¶
3.4(a). The parties also agreed that “[f]or clarity, at no time shall [Voyager] or any Licensee ever
collect, hold, or remit any Customer Program funds.” Id. ¶ 3.6.
The FBO Agreement further stated that the Bank would be the “holder” of the FBO
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accounts through which funds sent by customers would be held. Id. ¶ 6.2. As a practical matter,
Voyager gave instructions to the Bank with respect to movements of funds, and the FBO
accounts were reconciled each business day. Voyager took responsibility for all expenses and
losses resulting from fraud or certain processing errors. Id. ¶ 8.2. The Bank reserved rights of
setoff against certain other accounts held in Voyager’s name in the event of a breach of
Voyager’s obligations. Id. ¶ 8.4.
Voyager and MC Bank also executed an “ACH Origination Agreement” in 2018. It does
not appear that this agreement has any terms that pertain to the ownership of the funds contained
in the FBO accounts.
The Court also asked the Debtors to file copies of sample bank statements. [ECF No.
189.] The bank statements for the main FBO Account were issued in the name of “Metropolitan
Commercial Bank FBO Voyager Customers.” The statement for the other FBO account, used to
handle wire transfers rather than ACH transfers, was issued in the name of “FBO Voyager
Wires.” Other accounts that Voyager held with MC Bank were stated to be in the names of
various Voyager entities themselves.
During the course of the Hearing the Court asked the Bank to confirm whether it agreed
that Voyager’s customers were customers of the Bank for purposes of the cash held in the FBO
accounts. The Bank’s counsel did not wish to adopt that characterization, since the Bank did not
have direct dealings and relationships with Voyager’s customers. However, the Bank
acknowledged that “FBO” accounts generally hold funds that are administered by one entity but
that belong to someone else. The Bank also agreed that customers whose funds are held in such
accounts have the benefit of FDIC insurance in the event of a failure by the bank. The Bank also
confirmed that pursuant to the terms of the FBO Agreement Voyager itself is not permitted to
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hold or to take ownership of customer funds.
The FBO agreement included a number of terms that were capitalized but that were not
defined, and it referred to the need for authorization by MC Bank of various “Programs” that
apparently were not separately described or authorized. However, the Bank and Voyager
assured the Court that all relevant agreements and documents had been provided.
The Debtors have argued that the Debtors have no legal or equitable rights to the funds in
the FBO accounts. They have further contended that even if the Debtors had legal title to the
funds in the FBO accounts that would be insufficient to permit those funds to be treated as
property of the Debtors’ estates, since the Debtors have no equitable or beneficial interests in
such funds. The Debtors have cited numerous authorities in support of those propositions. [ECF
No. 73]. It appears to the Court, based on the agreements cited above, that the Debtors do not
have either legal title or equitable interests to the funds in the FBO accounts. No party in interest
has argued to the contrary. The Debtors had administrative rights to direct cash movements, but
that is all. The funds held in the FBO accounts therefore are not “property of the estate.” See 11
U.S.C. § 541.
Based on the foregoing, and for the reasons stated at the Hearing, the Court has
determined that customers should be permitted to withdraw funds actually held for them in the
two FBO accounts at MC Bank, and that such funds are not property of the Debtors’ bankruptcy
estates. A separate Order that has granted this and other relief has been entered by the Court.
One final word of caution: I am aware that the treatment of cash and cryptocurrency in
this and similar cases is a subject of avid interest among investors and insolvency attorneys, and
that similar issues may arise in other cases. These chapter 11 cases are somewhat unusual, in
that the overwhelming percentage of claims are held by customers, with very few other creditors.
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As a result, there really were no parties before the Court who had any strong financial interests in
disputing the relief sought with respect to the FBO accounts, or in presenting any competing
arguments or facts as to how the funds in the FBO accounts should be treated. Other courts who
may be presented with similar issues therefore should understand, not only that my decision in
this case is based on the particular agreements that have been presented to the Court, but also that
my decision has been rendered without the kind of vigorous opposition by competing creditors
that may be present in other cases. This decision is not intended to be a ruling as to the rights
that customers might have in cryptocurrency cases generally, or as a ruling on any issues that
competing creditors might raise in other cases.
Dated: New York, New York
August 5, 2022
/s/ Michael E. Wiles
Honorable Michael E. Wiles
United States Bankruptcy Judge
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