“The business model Celsius advertised and sold to its customers was not the business that Celsius actually operated.” – Court Document, Filed January 31, 2023
Celsius, one of the first big crypto firms to fail and file for bankruptcy protection, continues to meander its way through the US bankruptcy court, Southern District of New York. Today, an enormous document was filed by examiner Shoba Pillay, who was tasked with investigating and reporting on Celsius’ activity before it went bust, including allegations that Celsius was a Ponzi scheme.
In the summary, Pillay noted that Celsius promoted itself as safer than big banks, touting the importance of community and its transparency, operating as a crypto firm “built on trust.”
Pillay reminds observers that Mashinsky told customers repeatedly that customer-deposited coins “are your coins, not our coins.” Asked what would happen in the event of a failure, and Mashinsky told his customers that “coins are returned to their owners even in the case of bankruptcy.”
As we know today, these statements were not true, and according to one observer, the facts may lead to a criminal indictment.
High Returns, Low Risk = Too Good To Be True
The document states that Celsius stated it held “over 100% collateral” on loans for its Earn accounts. In reality, the examiner reports that Mashinsky operated the business very differently than he claimed.
In regard to the native “CEL” token, market manipulation was a ploy Mashinsky utilized to prop up the digital asset to keep the game going. Celsius employees apparently viewed their customers as stooges who thought CEL is “going to the moon.” Employees talked about how CEL was worthless even while it was utilized to balloon Celsius’ balance sheet.
Mashinksky was a big beneficiary of the pump, as he “sold at least 25 million CEL tokens, realizing at least $68.7 million on these sales.”
As Celsius could not generate sufficient revenue to pump CEL buybacks, it then took things a step further, plundering customer accounts holding Bitcoin and Ethereum to keep the scam going. Celsius justified its actions because they were just using customer funds as collateral for loans, exacerbating an already big problem.
“we spent all our cash paying execs and trying to prop up alexs [sic] net worth in CEL token.” – Celsius Executive
Mashinsky is quoted telling the Financial Times that “from a risk standpoint, we are probably one of the least risky businesses that regulators worldwide have ever seen.”
Right.
While Celsius claimed to have an exceptional ability to manage risk, the examiner reports that before 2021, Celsius did not have a risk management function in place. It was only later, in 2021, after Celsius had suffered losses, it hired employees with experience managing risk in financial services firms. Yet, while people were hired to do a job, Celsius never fully implemented a sufficient risk management policy before it went bankrupt.
Dumpster Fire
By May 2022, Celsius was out of money. Meanwhile, Mashinsky was apparently delusional in his assessment or at least in his public pronouncements;
“Throughout May 2022, as Celsius’s employees openly expressed the view that Celsius was a “sinking ship” without a plan, Mr. Mashinsky continued to assure customers that all was well at Celsius. On May 11, 2022, both Celsius and Mr. Mashinsky posted on Twitter that “All user funds are safe.” That same day, Mr. Mashinsky posted that “Celsius has not experienced any significant losses and all funds are safe.” At the beginning of the May 13, 2022 AMA, he stated “Celsius is stronger than ever.”
The house of cards continued until June as Mashinsky continued to make false claims that Celsius had “billions” in liquidity. On June 12th, withdrawals were halted. A month later, Celsius filed for bankruptcy protection.
The revelations included in the examiner document have led one crypto expert to predict that Mashinsky, along with other executives, “will go to jail for a long time.”
Ram Ahluwalia, CEO of Lumida Wealth, notes that “the lies started immediately after the ICO.” In a Twitter thread, Ahluwalia describes the dumpster fire debacle as the definition of a Ponzi scheme, and like most Ponzi schemes, the funds eventually run out.
1/ The Celsius bankruptcy examiner report is out.
My opinion is that @Mashinsky and other executives will go to jail for a long time.
Celsius propped $CEL token while Mashinsky dumped on retail.
Evidence show willful deception to keep the 'flywheel' going
Highlights🧵
— Ram Ahluwalia, higher for longer crypto CFA (@ramahluwalia) January 31, 2023