Toronto-based Voyager Digital has filed for Chapter 11 bankruptcy protection to halt a “run on the bank.” CEO Stephen Ehrlich estimates that the company owes money to a stunning 100,000 creditors.

Typifying the irrational exuberance of crypto investors, the firm’s equity (USD$49 million market cap) is trading lower than its crypto token VGX ($59 million market cap). 

VGX is subordinate to equity, confers no voting rights, and enjoys no investor nor consumer protection oversight. Instead, VGX is a “loyalty and rewards program” that allows token holders to earn “referral bonuses, lower transaction fees, prioritized customer support, higher PIK Interest rates, and access to special events and investment opportunities.”

Bankrupt crypto hedge fund Three Arrows Capital (3AC) owes more than $650 million to Voyager, Ehrlich signed in a Notice of Default. 3AC is in court-ordered liquidation in the British Virgin Islands and filed for Chapter 15 protection in New York bankruptcy court on Friday (non-US companies use Chapter 15 to stay creditors amid court proceedings abroad).

Voyager’s intimacy with Alameda Research

When the news of Voyager’s bankruptcy first broke, most publications simply reported a line item of its unsecured loan of $75 million owed to Alameda Research. That factoid mischaracterizes financial reality.

In fact, Alameda owns 9.49% of Voyager’s equity, aligning founder Sam Bankman-Fried’s interests with certain shareholders during bankruptcy proceedings. More importantly, Alameda actually owes the firm $376.7 million. Allegations of complex financial relationships led to rumors that Sam Bankman-Fried might lose no money due to Voyager’s collapse.

In summary:

• Alameda Research loaned $75 million to Voyager.
• Confusingly, Alameda is simultaneously Voyager’s second-largest debtor (second to 3AC), owing $376 million to Voyager.
• Alameda also owns 9.5% of Voyager’s equity.

False advertising led to severe customer harm

Billions of dollars of Voyager’s customer deposits are frozen pending the outcome of bankruptcy proceedings. Bloomberg columnist Matt Levine estimates that customers might only receive pennies on the dollar after it’s all finalized.

Some customers are considering calling their bank to reverse their automated clearing house (ACH) deposit into Voyager on the basis of a fraud claim.

Read more: How Sam Bankman-Fried became crypto’s curliest billionaire in 4 years

Voyager’s marketing led customers to believe FDIC insurance would protect their assets in the case of the company collapsing — the fine print shows that to be incorrect.

Late Wednesday afternoon, the Toronto Stock Exchange halted trading of its stock at approximately $0.27 per share. OTC Markets has also halted its US listing.

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