Celsius is following in the footsteps of its much larger and significantly more failed brother, FTX, with proceedings in bankruptcy court revealing a litany of shocking details. From the way Celsius often operated as a Ponzi scheme to how they are going to pay back their debtors.
There is a lot to unfold here with Celsius, so brace yourself for a bit of legal jargon as we untangle the Celsius mess a year later.
The Tuesday (Jan. 31) filing shows Celsius has the court’s permission to disburse 94% of the assets of the users in question.
This assumes, however, that the users meet specific criteria, such as having sufficient assets in their account to cover withdrawal fees.
“Prior to any withdrawals being processed, Eligible Users will be asked to update their Celsius account with the certain required information to process withdrawals, including specific customer information related to Anti-Money Laundering (AML) and Know Your Customer (KYC).
The filing notes that the court still needs to determine when and if users can withdraw the remaining 6% of their funds.
What Caused the Fall of Celsius?
Celsius Network filed for Chapter 11 bankruptcy in July of last year, soon after freezing customer networks. As PYMNTS noted at the time, the company had become a major player in crypto lending by offering high returns while suggesting it offered less risk than traditional banks.
However, the company got into trouble by offering big yields to crypto depositors while making substantial loans that were backed by insufficient collateral, leaving it vulnerable to a market downturn. The firm’s troubles have continued since then.
A report this week by an independent examiner found that the company used customer deposits and investor money to prop up its token. “The business model Celsius advertised and sold to its customers was not the business that Celsius actually operated,” wrote Shobay Pillay, the court-appointed examiner.
On Twitter Tuesday (Jan. 31), Celsius said it “worked diligently” to provide Pillay with information for her report. The company added that it is working to maximize the value of its estate under the guidance of interim CEO Chris Ferraro.
Details of the New York Lawsuit vs. Celsius
Last month, the New York attorney general sued Celsius co-founder and former CEO Alex Mashinsky, alleging he made false and misleading statements about the platform’s safety and misrepresented and concealed Celsius’ deteriorating financial condition.
The suit says hundreds of thousands of investors, including 26,000 New Yorkers, were defrauded out of billions of dollars worth of cryptocurrency.
“As the former CEO of Celsius, Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,”
New York Attorney General Letitia James said in a news release.
“The law is clear that making false and unsubstantiated promises and misleading investors is illegal.”
Where Did They Go Wrong?
Well, Celsius used its own token called CEL in a way that enriched itself at the expense of its users and other stakeholders. The report alleges that the company bought in the open market over $558 million of CEL tokens, not to distribute as an interest to depositors, as they said, but in order to artificially increase the price of the tokens through market manipulative purchase timing.
Many insiders, including CEO and founder Alex Mashinsky, took advantage of this inflated price to sell their allocation of CEL tokens.
And so now the major question is whether the former CEO will be going to prison or will he be yet another example of power and wealth getting away with millions of people’s investments.
Only time can tell what to expect from the calamity that is Celsius.