During a five-hour Chapter 11 bankruptcy hearing earlier this month for crypto firm Voyager Digital, a customer named Magnolia was the first user to step forward and speak about her experience.

Magnolia, who only disclosed her first name, said she had over $1 million trapped on the platform, including $350,000 that was earmarked to pay for college for her children. She said it had taken her 24 years to save, and she had sacrificed spending time with her kids in order to build that nest egg.

“I do feel like we’re paying the ultimate price for them being fiscally irresponsible,” Magnolia said. “They had our trust, they had our money, and they did not run this company properly.”

Magnolia wanted to know why Voyager borrowed money instead of cutting costs when it knew things were going south. She also asked whether CEO Stephen Ehrlich was still getting paid and receiving a bonus.

Magnolia is one of Voyager’s 3.5 million customers, a group that’s desperate for answers more than a month after the company suspended all trading and, soon after, filed for Chapter 11 bankruptcy. Voyager, once a popular lending platform, drew in retail investors by offering them up to double-digit annual returns in exchange for parking their tokens with Voyager.

As the crypto market boomed last year, Voyager inked sports sponsorships with the NBA’s Dallas Mavericks and owner Mark Cuban, Tampa Bay Buccaneers tight end Rob Gronkowski, NASCAR driver Landon Cassill and the National Women’s Soccer League.

While those names helped hype the service, they didn’t change the risk that customers faced when they joined the platform. Their funds were unsecured.

A crash in crypto prices in 2022, largely due to Federal Reserve rate hikes and investor rotation out of the riskiest assets, created a liquidity crisis for hedge funds and crypto sites with excess exposure to digital assets. Many of those firms defaulted on loans, creating a cascading effect that infected the broader industry and lenders like Voyager.

In addition to the hearing in early August in the Southern District of New York, Voyager customers also had an opportunity to voice their displeasure in a livestream chat accompanying a 52-minute virtual town hall last week. There they could make their pleas to the “Voyager Official Committee of Unsecured Creditors,” a group formed by the bankruptcy court of SDNY to resolve asset distribution.

The committee consists of lawyers from McDermott Will & Emery as well as restructuring advisors from FTI Consulting and a select group of creditors. They say the focus is the “prompt return of USD and crypto to creditors.”

Members of the committee gave an overview of the bankruptcy proceedings so far, an estimated timeline to reimbursement and a how-to on the claim submission process. One committee member noted, however, that the guidance they were providing was “not legal advice” and that it was “strongly recommended” that individual creditors consider retaining counsel to assist with this process.

As of the time of publication, the recording of the town hall on YouTube had more than 4,000 views. Voyager customers were given the chance to submit questions in advance of the event last week. Many also chimed in over the real-time chat on YouTube.​

“I was a fool not taking my crypto when I first heard about the loan,” wrote Cindy Wheeler. “Thought Voyager was a safe exchange.”

Another participant, Ari Gurewitz, referenced Three Arrows Capital (3AC), a crypto hedge fund that filed for bankruptcy while owing over $650 million to Voyager.

“Interesting that Voyager declares bankruptcy before knowing what the full impact of the 3AC bankruptcy has on them,” Gurewitz wrote. “Makes one wonder if this is a bit of a ploy to just restructure and remove a lot of their losses — at their customers expense!”

Voyager said it has about 100,000 creditors. They will have to vote on the plan Voyager establishes in bankruptcy court, but many say they don’t have much of a voice in the process. That’s why several customers are begging U.S. bankruptcy court judge Michael Wiles for help.

At the bankruptcy hearing, Magnolia said she felt that Voyager had defrauded its customers. In very short order, it all went from boom to bust.

“This is a company that’s talking about how great they’re doing,” she said. “They have Mark Cuban, Rob Gronkowski. They have the Dallas Mavericks Arena with the ‘Buy Voyager’ all over it. They’re spending big money on their marketing, on their people, on their locations. Where was the heads up on this?”

Another customer, who didn’t share his name but said he was 32, said at the hearing he had “well over seven figures” stranded on the app.

“I just want to position myself as an owner and a depositor of my cryptocurrency,” he said. “I’m witnessing 10 years of my life being frozen on a platform that I trusted.”

The issue of ownership is proving to be particularly vexing for this customer and others. In crypto, one of the mantras is — “not your keys, not your coins” — meaning that rightful ownership of tokens comes through the custody of the corresponding private keys. Customers can’t simply demand their money back and expect to receive it, even though they viewed the funds as deposits, not investments.

“I’ve always identified myself as an owner and a rightful depositor of the cryptocurrency that was provided on their platform,” the customer said. “I just want to get more of a handle on why I’m being labeled a creditor, or unsecured creditor, instead of the owner of my cryptocurrency.”

Clients are right to be confused.

The Federal Deposit Insurance Corporation, which protects bank deposits, and the Board of Governors of the Federal Reserve System issued a joint letter in late July to Voyager, alleging the company made false and misleading statements about its deposit insurance status.

At the bankruptcy hearing, a customer named Ginger Little said that when she put money on the platform, she had to convert it from U.S. dollars to the U.S. dollar-pegged stablecoin USDC in order to earn the attractive annual percentage yield that drew her to the app.

“We were never told that wasn’t the same as cash,” Little said. “We were told that it had to be listed that way in order to get interest for the money that we put in there as an investment.”

Magnolia echoed that sentiment, saying she thought Voyager had touted its USDC as being “FDIC insured.”

Christine Okike, a partner at Kirkland & Ellis, which is representing Voyager, said during the bankruptcy hearing that the current effort is focused on cash retrieval, not USDC.

“USDC is a type of cryptocurrency, a type of coin,” Okike said. “And so that is not being discussed or adjudicated on in the context of the release of cash that’s being requested by the debtors.”

A Voyager spokesperson declined to comment.

Other customers have submitted letters directly addressed to the judge.

Jacob Redburn said he had deposited 100 ether, or about $198,800 at today’s price and $480,000 at the market peak, on to Voyager’s digital trading platform.

“I have spent years saving, investing, and trading crypto assets to build what was a life-changing amount of money that I would one day sell to provide college and other needs for my family,” Redburn wrote on a yellow legal pad.

Redburn wrote that the CEO “straight lied to us,” when he said a week before the filing that the company had no issues.

“This will ruin my future, my daughter’s future, and cost the government hundreds of thousands in capital gains I would pay when I do plan to sell,” he wrote. “I beg that we are to receive our crypto that we’re owed, not worthless stock or Voyager tokens worth nothing.”

Christine Marcy, a newly retired senior citizen living in Florida, said Voyager’s “willful and intentional actions (malfeasance) are causing emotional and economic hardship for an entire community of customers.” She said she was denied in her effort to remove some assets just before the withdrawal freeze.

“I have an abruptly frozen account and my assets are now held hostage,” Marcy wrote. “I made investments with Voyager, a publicly traded company, with the expectation there would be some sense of accountability and responsibility to customers.”

Donald A., who currently has around $31,000 frozen on the Voyager exchange, said that “losing this money with no end in sight has been unbearable” for his family. He said the company was never transparent with customers about the kind of risk it was taking, such as lending large sums to 3AC.

“I wake up most nights and just walk up and down the stairs contemplating on my own mistakes and wondering if this will ever end,” he wrote. “My anxiety has been a struggle.”

The unsecured creditors committee told customers in the town hall that Voyager will soon send proof-of-claim forms to all creditors with what Voyager believes they are owed in crypto, cash or both.

Voyager currently has approximately $1.3 billion in crypto assets on the platform, $104 million in cash, and a claim against the now defunct 3AC for around $650 million. Creditor claims total $1.8 billion so far. Updated figures are expected this week when Voyager files its schedules.

The committee said it was able to negotiate a “very aggressive” plan timeline, which targets the end of October, though the timing is subject to change. On that schedule, distributions to creditors would occur in November at the earliest.

The committee said it’s taking the “unprecedented” step of advocating for an interim distribution to provide creditors with some relief during the bankruptcy process.

Last Thursday was the first day customers were supposed to be able to retrieve some of their money back from the platform, but conditions for eligibility were very strict.

Judge Wiles granted qualifying Voyager users access to $270 million in cash Voyager held with Metropolitan Commercial Bank. Customers who had U.S. dollars in their account at the bank apparently now are allowed to withdraw up to $100,000 in a 24-hour period through the Voyager app.

Other Voyager users with funds held in crypto still can’t touch their money.

“We recognize that many of you were led to believe that the crypto you held on the Voyager platform was your property,” one committee member said during the town hall. “Unfortunately, for all of us, that’s not the legal test in bankruptcy for determining whether the crypto is your property or property of the bankruptcy estate.”

— CNBC’s Rohan Goswami contributed to this report.

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