A U.S. court-ordered examiner report made public on Tuesday revealed that the bankrupt cryptocurrency lender Celsius Network inflated its balance sheet as two of its founders paid out millions by using investor funds and client deposits to support its own coin.
During the COVID-19 pandemic, cryptocurrency lenders like Celsius saw a surge in business, luring depositors with high interest rates and convenient loan access. Following the suspension of customer withdrawals from its platform, New Jersey-based Celsius filed for bankruptcy in the United States in July of last year.
Shoba Pillay, a former prosecutor, was designated as an independent examiner by U.S. Bankruptcy Judge Martin Glenn, who is presiding over the Chapter 11 case, in September. She was given the responsibility of looking into complaints from Celsius clients that the business ran like a Ponzi scheme and of reporting on how it handled bitcoin deposits.
Requests for comment from reporters were addressed to several addresses, including an email on Celsius’ website, a public relations company that represented Celsius at the time of its bankruptcy, and CEO Alex Mashinsky’s attorney. Celsius did not immediately react to any of these requests. After the report’s publication and during the night in American time, the demands were made.
Retail clients’ cryptocurrency deposits were collected by Celsius, who then used them to buy cryptocurrency in the equivalent of the wholesale market. It raised some of the first funds to fund its business by inventing and selling its own crypto currency, dubbed “CEL”.
According to the investigation, the corporation promised customers that it would purchase CEL on the secondary market and deliver it to them as rewards. The report claimed that this would increase CEL’s pricing while simultaneously bringing in new customers for the company, creating what it dubbed a self-sustaining “flywheel.”
However, the article said that starting in 2020, Celsius went on a “purchasing spree” to drive the price of CEL “higher and higher.” When Celsius told consumers it was growing “on its own,” it concealed the extent to which it was creating the market for CEL. The report stated that Celsius spent at least $558 million purchasing its token, and that this is why the token’s price has skyrocketed.
The investigation stated that “the business that Celsius actually operated was not the business that Celsius advertised and sold to its clients.” Behind the scenes, Celsius operated in every significant way significantly differently from how it presented itself to its clients.
According to the research, Celsius’ handed out more money in prizes to clients than it was able to bring in in revenue. According to the study, between 2018 and June 30 2022, it owed customers $1.36 billion more than it had net revenue from customer deposits.
Insiders who owned the majority of the CEL token benefited from price increases
According to the article, co-founder Daniel Leon sold at least $9.7 million worth of the CEL token between 2018 and the bankruptcy filing, and Celsius founder Alex Mashinsky, who is presently dealing with fraud claims in the US, sold at least $68.7 million worth of the token.
Mashinsky and Leon could not be reached by reporters for comment. Mashinsky’s attorney has already stated that his client aggressively intends to defend himself in court and refutes the charges.
According to the study, Celsius staff members repeatedly admitted that the token was “worthless” and that the company’s holdings in it could not be sold. 34 people were questioned by the Examiner’s legal team as they compiled the report, including Mashinsky, current and former Celsius workers, as well as its clients and suppliers.
As part of our chapter 11 process, Celsius and our advisors worked diligently to provide the Examiner with information throughout her investigation. Her report is now available on Stretto https://t.co/CwuKhM0ZtM
— Celsius (@CelsiusNetwork) January 31, 2023
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