Celsius Failed To Disclose $800 Million In Losses, CFO Speaking Of “Potential Illegal Behavior”
A court-appointed bankruptcy examiner found that crypto lender Celsius was running a business model that differed from what it had advertised to its clients.
Valentin
March 13, 2023
The court-ordered report on crypto lender Celsius’ bankruptcy revealed that the company conducted a riskier business than advertised and failed to disclose hundreds of millions in losses, all while its CEO cashed out over $68 million.
The Block reported that according to the nearly 700-page report released by independent examiner Shoba Pillay, Celsius did not live up to its promises of transparency and deviated greatly from how it portrayed itself to its customers. The report also highlighted concerns among staff about potential legality issues, including a remark from former CFO Harumi Urata-Thompson that “we are doing something possibly illegal.”
The independent examiner’s report stated that Celsius represented itself to its customers as making low-risk and fully collateralized investments, but when it filed for Chapter 11 bankruptcy protection in July 2022, a $1.2 billion shortfall was reported on its balance sheet. The firm faced financial difficulties as early as 2020, despite the crypto bull market in 2021.
By June 2021, a significant portion of Celsius’s institutional loan portfolio was found to be unsecured and under-collateralized. The company recognized $800 million in losses from investments with various firms in 2021, but failed to inform its customers about these losses at the time they occurred.
The role of Celsius’s founder and CEO
Pillay accused Celsius CEO and founder, Alex Mashinsky, of selling CEL tokens while claiming to the public that he was either buying more or holding on to them. Between 2018 and the company’s downfall, Mashinsky sold CEL tokens for at least $68.7 million, despite repeatedly asserting that he was not a seller, according to Pillay.
The firm used outside investor’s equity to support the price of CEL, a practice that raised concern among some managers who believed the money could have been better utilized to grow the company. One manager candidly noted that “We spent all our cash paying execs and trying to prop up alexs [sic] net worth in CEL token,” referring to Mashinsky, who was recently sued for fraud by the New York Attorney General.
A classic Ponzi scheme
The bankruptcy examiner’s report documented an instance where Celsius used customer funds to buy tokens to cover the liabilities of other customers. The firm’s coin deployment specialist referred to this as “very Ponzi like” in April 2022.
The report stated that the pause seemed to fulfill the withdrawal requests, however there were instances in June 2022 where Celsius used new customer deposits to directly fund customer withdrawal requests, according to the report.