In early 2022, crypto lender Voyager Digital issued a default notice against Three Arrows Capital for failing to repay a loan worth approximately $650 million. Per the official documents, 3AC had a debt of 15,250 Bitcoin and 350 million USDC to Voyager Digital. However, the loaned crypto was valued at almost $1 billion [to be precise, $935 million] in April 2022.
When Voyager filed for bankruptcy protection earlier this year, it stated that 3AC’s loan default was a major factor that instigated its insolvency.
Read More: Crypto Lending Firm Three Arrows Capital Gets Notice; $650M Debt
Settlement recommendation
Now according to reports, Voyager Digital’s internal special committee has proposed to settle claims against company executives who flashed a green light with minimal due diligence for the loan to the failed crypto hedge fund.
According to the court filing, Voyager said that pursuing litigation against Chief Executive Officer Stephen Ehrlich and another executive would not be cost-effective. Alternatively, the board proposed to settle with the executives who will pay $1.125 million in cash under the committee’s proposal and up to $20 million via directors’ and officers’ liability insurance.
The execs reportedly approved the 3AC loan on the basis of merely a one-page summary that stated that the hedge fund had $3.729 billion in crypto assets. 3AC refused to provide more detailed financial information. It justified the same by claiming that it previously had a bad experience with a competitor that used information about its crypto HODLings to replicate its trading strategy.
Both Ehrlich and Chief Commercial Officer Evan Psaropoulos, remain in leadership positions at Voyager. Per the company filing, the settlement is merely “a small fraction” of the potential 3AC loss. The investigation found that it will be challenging to pursue negligence claims against the executives, and thus they’ve resorted to settling. The filing said,
“The Special Committee made the decision to settle, subject to Court approval, based on the fact that the individuals do not have personal assets available to satisfy any potential judgment even if the claims were successfully prosecuted, whereas the cost of prosecuting would likely dissipate the available D&O insurance coverage and the assets that are being paid through the settlement in defense costs.”
The settlement is now subject to approval by the bankruptcy judge in the case.