Regulators allege Celsius made false claims to investors over firms financial health

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Vermont regulators alleged that bankrupt crypto platform Celsius Network, through its chief executive, Alex Mashinsky, made false and misleading claims to investors about the firms financial health even as it suffered huge losses.

The court papers filed last week cited an analysis by securities regulators from multiple states into Celsius preliminary internal financial records.

The Vermont Department of Financial Regulations filing also noted testimony by Celsius chief financial officer Chris Ferraro in a recent meeting of creditors that the companys insolvency started with financial losses in 2020, running through 2021. That contradicted Mashinskys claims in his sworn declaration in bankruptcy court that blamed the summer crypto crash and a sudden surge in customer withdrawals as causes behind the companys collapse, according to Vermonts filing.

A spokesperson for Celsius didnt immediately respond to a request for comment. Celsius filed for chapter 11 in July and disclosed a roughly $1.2bn hole in its balance sheet.

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Vermonts filing also cited testimony by Ferraro that the company never generated enough revenue to support the interest it promised depositors. The states filing said his testimony shows at least at some points in time, yields to existing investors were probably being paid with assets of new investors.

Forty states have engaged in a multistate investigation into Celsius selling products that might be unregistered securities and potential securities fraud and market manipulation, according to the court filing.

Among the states findings: Celsius suffered catastrophic losses as far back as 2021. At the time, Mashinsky tweeted how the firm, unlike some of its competitors, didnt need to raise money because it was profitable.

Mashinsky continued to make similar statements about the firms financial strength leading up to its bankruptcy filing, Vermont said.

He tweeted on 11 May that, despite extreme market volatility, Celsius had not experienced significant losses. The regulators review of company financial records show Celsius racked up over $454m in unrealized losses between 2 May and 12 May.

State and federal securities laws required Celsius to publicly disclose financial statements and a range of material information about its financial condition, business, and risk factors, the court filing said. Instead, Celsius and its management kept its massive losses, asset deficit, and deteriorating financial condition secret from investors.

In the filing, Vermont also noted that it supports calls by government lawyers and Celsius customers for the appointment of an examiner a neutral third party to investigate the firms financial affairs.

Write to Soma Biswas at [email protected]

This article was published by The Wall Street Journal, part of Dow Jones

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