The Daily Telegraph

Crypto lender Celsius ‘was insolvent for three years’

Financial regulators call on US judge to appoint independen­t overseer as user accounts stay frozen

- By Gareth Corfield

COLLAPSED cryptocurr­ency “bank” Celsius Network had been trading while insolvent for three years before seeking bankruptcy protection, according to an explosive new court filing.

The Vermont Department of Financial Regulation (DFR) said the company’s “liabilitie­s would have exceeded its assets since at least February 28, 2019”, meaning Celsius was insolvent.

The filing alleged Celsius Network’s bosses “engaged in improper manipulati­on of the price of the CEL token”, a cryptocurr­ency issued by the business, to prop up its value in the face of a market-wide decline. Celsius allegedly used consumer deposits to buy up its token and drive the value higher.

The crypto lender fell into bankruptcy in July after halting all consumer transactio­ns a month earlier. Celsius’s collapse was one of the most high-profile corporate blow-ups during the cryptocurr­ency market wipeout that began earlier this year. The incident was described as cryptocurr­ency’s “Lehman moment” at the time.

“At a minimum, Celsius has been operating its business in violation of state securities laws,” the DFR filing yesterday charged.

The report suggests Celsius’s decline was driven by more than simply market swings.

Ethan Mclaughlin, an assistant general counsel at the DFR, said in the filing that balance sheets analysed by the DFR showed “liabilitie­s substantia­lly exceeding assets” whether or not Celsius Network’s holding of its own CEL digital tokens was taken into account.

At its peak, Celsius had assets of $25bn (£22bn). It froze withdrawal­s from its 1.7m users shortly before its collapse, blaming “extreme market conditions”. A filing made by Celsius chief executive Alex Mashinsky in July revealed a $1.2bn hole in the cryptocurr­ency business’s balance sheet. Celsius’s representa­tives did not respond to a request for comment on the DFR’S allegation­s.

Vermont’s financial regulators made their allegation­s against Celsius Network while urging a US federal judge to appoint an independen­t overseer of the cryptocurr­ency company’s affairs.

The claims form part of ongoing bankruptcy proceeding­s against Celsius in the US federal court system.

Celsius’s user accounts remain frozen today amid legal arguments over a potential restructur­ing of the company.

The cryptocurr­ency company operated similarly to a real-world bank, taking deposits and lending them out.

However, Mr Mashinsky, a serial entreprene­ur, pitched the business as an alternativ­e to mainstream lenders, frequently wearing a T-shirt with the slogan “banks are not your friends” at events. Users were able to deposit real currencies with New Jersey-based Celsius in return for cryptocurr­ency tokens.

‘At a minimum, Celsius has been operating its business in violation of state securities laws’

Celsius promised customers high interest rates and financial stability.

At the time of the June freeze, Celsius bosses said: “We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations.”

The bankruptcy proceeding­s, before the US federal court for the Southern District of New York, continue.

The latest allegation­s came as global cryptocurr­ency markets once again dipped below $1trillion, far from last November’s peak of $3trillion.

Celsius was founded in 2017. When it collapsed, the business blamed a “run on the bank” but Mr Mashinsky, 56, said: “The company made what, with hindsight, proved to be certain poor asset deployment decisions.”

A report by Arkham Intelligen­ce said Celsius “engaged in high-risk leveraged crypto trading strategies”, which resulted in huge losses.

Newspapers in English

Newspapers from United Kingdom