Cryptocurrency lender Celsius backed its token while insiders profited, according to a US bankruptcy examiner

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A US court-ordered examiner’s report made public on Tuesday revealed that bankrupt cryptocurrency lender Celsius Network had inflated its balance sheet as two of its founders paid out millions using investor money and customer deposits to back its own currency.

During the COVID-19 pandemic, cryptocurrency lenders like Celsius have seen a boom in business, attracting depositors with high interest rates and convenient access to loans. After suspending customer withdrawals from its platform, the New Jersey-based company Celsius filed for bankruptcy in the US in July last year.

Investigation

Sobha Pillai, a former attorney general, was appointed as an independent investigator by US bankruptcy judge Martin Glenn, who is presiding over the Chapter 11 case, in September. She was assigned the responsibility of looking into complaints from Celsius clients that the company was being run like a Ponzi scheme and reporting on how it handled bitcoin deposits.

Requests for comment from reporters were directed to several addresses, including an email on Celsius, a public relations firm that represented Celsius at the time of its bankruptcy, and an attorney for CEO Alex Mashinsky. Celsius did not immediately respond to any of these requests. After the report was published and during the night EST, the demands were made.

Cryptocurrency deposits of retail customers were collected by Celsius, and then used to purchase cryptocurrency in the equivalent of a wholesale market. It raised some of the first funds to fund its business by inventing and selling its own cryptocurrency, dubbed “CEL”.

According to the investigation, the company promised customers that it would buy CEL on the secondary market and hand it over to them as rewards. The report claimed that this would increase CEL’s prices while at the same time bringing in new customers for the company, creating what it calls a self-sustaining “flywheel”.

However, the article said that as of 2020, Celsius has gone on a “buying spree” to drive the price of CEL “higher and higher”. When Celsius told consumers it was growing “on its own,” it concealed how much it was creating a market for CEL. The report stated that Celsius spent at least $558 million to purchase its token, which is the reason for the token’s price hike.

“The business Celsius operated in fact was not the business Celsius advertised and sold to its customers,” the investigation stated. Behind the scenes, Celsius has acted in every way significantly different from the way it presented itself to its clients.

According to the research, Celsius handed out more money in prizes to customers than it was able to generate revenue. According to the study, between 2018 and June 30, 2022, it owed its customers more than $1.36 billion in net revenue from customer deposits.

The insiders who own the majority of CEL tokens have benefited from the price hike

According to the article, co-founder Daniel Lyon sold at least $9.7 million in CEL tokens between 2018 and filing for bankruptcy, and Celsius founder Alex Mashinsky, who is currently handling fraud claims in the US, sold at least $68.7 million. from the token.

Reporters could not immediately reach Mashinsky and Lyon for comment. Mashinsky’s lawyer has already stated that his client intends to vigorously defend himself in court and refute the charges.

According to the study, Celsius employees have repeatedly admitted that the token is “worthless” and that the company’s holdings in it cannot be sold. Thirty-four people were questioned by the legal examiner’s team as they compiled the report, including Mashinsky and Celsius’s current and former workers, as well as its customers and suppliers.

As part of the Chapter 11 process, Celsius and our counselors have worked diligently to provide the examinee with information throughout the investigation. Its report is now available at Stretto’s website, https://t.co/CwuKhM0ZtM

– Celsius (@CelsiusNetwork) January 31, 2023