Crypto lender Celsius misused customer funds for years, examiner says

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Bankrupt crypto lender Celsius misused investor and customer funds for years before its collapse, including helping its founders bank tens of millions of dollars, a court-appointed examiner has claimed in a new report.

The company founded by Alex Mashinsky has marketed itself as an innovative digital asset alternative to traditional banks, enticing customers with interest rates of up to 17%. But he used the money he received from thousands of ordinary investors to inflate the price of his own token, CEL, in a scheme that an employee described at the time as very Ponzi-like, according to the report. prepared by a law firm appointed by the United States. bankruptcy court.

Mashinsky himself profited from CEL’s $68.7 million dump, while telling the public he wasn’t selling. The insider selling by Mashinsky and others, which was first reported in a Financial Times investigation in July, was made possible by Celsius buying back the token, using money from its customers and blue-chip investors, including Laurence Tosis WestCap and the Canadian public pension fund Caisse de dpt et placement du Québec (CDPQ).

We spent all our money paying executives and trying to support Alex [Mashinsky]s net worth in [the] CEL token, a former employee told the Examiner, according to the report.

The nearly 700-page report by Jenner & Block partner and former U.S. federal prosecutor Shoba Pillay highlights top cryptocurrency lenders who have alleged significant financial manipulation, misrepresentation, tax loopholes and internal systems and dismal risk controls.

Its findings will raise questions for transatlantic regulators who had close contact with Celsius long before its collapse but failed to prevent billions of dollars in customer funds from being tied up. The company was rejected by the UK’s Financial Conduct Authority when it applied for registration as a crypto firm and was forced to move its base to the US in 2021, but was not prevented to solicit customers. Celsius blocked new US customers from signing up for some of its products in April 2022, just two months before its collapse, after US watchdogs intervened.

The New York Attorney General this month sued Mashinsky for allegedly defrauding hundreds of thousands of investors… out of billions of dollars worth of cryptocurrency. He denied wrongdoing. Mashinsky’s attorney did not immediately respond to a request for comment on the reviewers’ report.

As of 2020, Celsius implemented a system it called its OTC flywheel where it bought CEL on the open market and sold it via private over-the-counter transactions, often timing purchases to raise the price, according to the report.

In total, Celsius has spent at least $558 million buying its own token from the market… Indeed, Celsius has bought every CEL token from the market at least once and in some cases twice, Pillay wrote. .

The report revealed that Celsius increased its purchases of CEL to allow Mashinsky to cash in the token. The company’s former chief financial officer expressed concern over the arrangement, according to the report, writing: [We] we’re talking about becoming a regulated entity and we’re doing something that’s possibly illegal and definitely non-compliant.

Another employee wrote on messaging app Slack: If anyone ever finds out where we stand and how much our founders took in USD, it could be a really, really bad image.

Company executives also compiled a list of alleged inaccuracies Mashinsky allegedly made in his ongoing marketing efforts for the company, and sometimes edited his regular YouTube broadcasts to customers after the fact to remove sensitive statements.

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In addition to enriching insiders, the scheme inflated Celsius’ balance sheet by more than $1.5 billion at its peak, as the company held CEL on the balance sheet at market prices, despite routine employee conversations in 2022 that CEL was worthless and its price should be 0, according to the report.

The CEL program sowed the seeds of defeat for the company when the crypto crashed in 2022 and customers withdrew money, meaning Celsius could no longer support CEL.

However, the hole in the company’s balance sheet was born at the start of 2021, as it did not make enough money on its lines of credit and business to fund the interest rates it has. promised customers and its CEL purchases, according to the report. The Examiner described Mashinsky resisting efforts by some insiders to put the company on a more sustainable footing by cutting payments to customers.

Celsius filled the hole it discovered in early 2021 by using $300 million stablecoins to buy and borrow bitcoin and ethereum to match the amount of those tokens it owed customers. The net shortfall between the amount of coins Celsius customers had deposited and the amount it actually held grew over time to over $1 billion.

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