How Clients, Investors Lost Millions & What’s Done 102.3 KRMG

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NEW YORK – It looked like cryptocurrency was having a moment.

In early 2022, the Super Bowl featured celebrities like Tom Brady, Larry David, and Matt Damon in commercials for crypto companies. Logos for crypto companies like FTX could be seen plastered across multiple sports arenas and a new wave of crypto influencers emerged gathering hundreds of thousands of followers. Cryptocurrency was everywhere.

It was meant to be an alternative to traditional finance.

Instead of exchanging money through a third party, such as a bank, cryptocurrency allows users to directly transfer digital currency. However, unlike traditional forms of currency such as the US dollar, the government does not insure deposits, and federal agencies have taken limited steps to regulate the crypto industry.

But the major crypto market crash last year has caused headaches, fear and anger among the millions of people around the world who have invested their savings and wonder if they will ever see their money again. .

Curt Dell, a father of three from California, told ABC News’ Rebecca Jarvis that he lost more than $200,000 in Bitcoin after digital crypto lending firm Celsius went bankrupt last year.

“He stole [my family] of so much potential,” said Dell, a California resident who works in sales. “It’s such a bad situation.”

“Impact x Nightline” takes a closer look at the chaos in the industry, speaking to executives from some of the biggest crypto companies, senior officials from regulatory agencies, and regular customers who have suffered from the meltdown. This episode is now streaming on Hulu.

“Crypto kind of came out of the financial crisis of 2008,” David Yaffe-Bellany, a New York Times reporter who covers crypto, told “Impact.”

“This whole disaster was an example of the failures of the centralized financial system, and it helped inspire this movement to create a parallel financial system that did not rely on the kinds of institutions whose misbehavior had caused so many people to suffer. . “

The crash shook the entire industry – and several companies, including Celsius Network, filed for bankruptcy.

“What the crash caused was kind of a run on the bank. People freaked out,” Yaffe-Bellany said. “They thought their cryptocurrencies were in jeopardy, and they decided to withdraw everything they were depositing in Celsius, and that kind of exposed the kind of shaky foundations of the whole business.”

Celsius was founded by Alex Mashinsky and two partners in 2017. Mashinsky has used social media to promote his business and high-yield crypto earnings.

“The whole idea of ​​the Celsius network was that it was some kind of crypto bank, except it was better than a bank,” Yaffe-Bellany said. You would deposit your crypto. It would be safe there, but you would also get those huge returns on top of that.

At its peak, Celsius had 2 million customers and a valuation of $3 million. The company filed for bankruptcy in July.

In early January, New York Attorney General Letitia James sued Mashinsky, accusing him of defrauding investors. He did not respond to ABC News’ multiple requests for an interview or comment.

It’s too early to know how Celsius’s bankruptcy process will unfold and whether customers will get any of their money back.

“I would like to stay optimistic that I will at least recoup a significant portion of it,” Dell said of its investment. “I don’t think anyone really knows that.”

Celsius’ bankruptcy has also been linked to the biggest scandal in the crypto industry: the fall of one of the biggest cryptocurrency exchanges, FTX.

Sam Bankman-Fried, the founder and CEO of FTX, posted on social media suggesting he could make an offer to take over Celsius’s assets soon after the company filed for bankruptcy.

But that was before FTX also found itself in trouble.

In early November, FTX filed for bankruptcy after a series of events revealed a multi-billion dollar hole in the company’s balance sheet. Just over a month later, Bankman-Fried was charged in federal court with eight counts of fraud. He pleaded not guilty and his trial is due to begin in October.

The series of high-profile collapses in the crypto industry have prompted calls for more regulation from the federal government.

The high-profile crypto meltdowns have prompted calls from activists, elected officials and others for more regulation from the federal government.

Christy Goldsmith Romero, commissioner at the Commodity Futures Trading Commission, told ‘Impact’ that she agrees the industry needs more oversight.

“We need, as regulators, the ability to go out to inspect, to go in for reviews, to set rules. And we need to make sure there’s no mixing of assets” , she said.

Gary Gensler, chairman of the U.S. Securities and Exchange Commission, told “Impact” that he was willing to work more with the CFTC to protect consumers from shady crypto investments. In the meantime, he warned consumers to think carefully before investing their money in crypto.

“Don’t get caught up in FOMO, but you also run the risk of an area where the business model takes your assets [and] mixing them, often in ways that are not allowed by our current laws,” he said.

Copyright 2023, ABC Audio. All rights reserved.

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