In June, Celsius, a multi-billion dollar lender, went bankrupt. Celsius was a crypto trading and lending company that at one point had over $5 billion in “assets.” It was only founded in 2017, but quickly attracted crypto traders and speculators: you could deposit crypto with Celsius with the promise of high-yield returns, or take out a cash loan secured against your crypto holdings.
Then it spectacularly crashed and burned with over a billion owed. Almost unbelievably, the company tried to put a positive spin on the news, but given that the biggest losers would be “normal” investors, the collapse caught the attention of both the US Department of Justice and Vermont’s regulators, who are looking over rocks. to investigate what happened.
To say the least, the regulators don’t like what they see. The Vermont Department of Financial Regulation has now filed a complaint against the New York company, and the state regulator is “particularly concerned about the losses suffered by retail investors; for example, unaccredited middle-class investors who may lose entire college funds or retirement accounts have invested with Celsius.” Vermont prosecutors support the DOJ’s request for a legal investigator to protect such interests.
I’ll get you in the weeds in a minute, but of all the legal cases and claims to come, here’s the single most important line in the filing against Celsius: “This shows a high level of financial mismanagement and also suggests that at least on a At one point, returns to existing investors were likely paid with the assets of new investors.”
For example, a prosecutor calls a Ponzi scheme a Ponzi scheme.
The regulators say Celsius, through CEO Alex Mashinsky and through other channels, has made “false and misleading claims” to investors about “the company’s financial health and compliance with securities laws.” Both are seen as an incentive for retail investors to keep their money in Celsius.
Mashinsky, at least until bankruptcy, was a bold and forward-thinking figure who, of course, was extremely optimistic about Celsius. He often boasted that the company had the capital to back up his claims and, when things went wrong, continued to insist that everything was in order.
In this context, Celsius and its representatives are accused, among other things, of “statements about the company’s ability to meet its obligations and to safeguard customers’ assets, when in fact Celsius did not have sufficient assets to repay its obligations.” pay at the time such statements were made.”
For those of us who live in the normal world, the explanations are starting to become dazzling at the sheer amount of money involved. Celsius apparently suffered losses of “$454,074,042 between May 2 and May 12, 2022.” This loss of $450 million in 10 days meant that the depositors’ money was not safe, but Mashinsky and Celsius continued to pretend they were financially healthy.
It’s starting to get hot in here
More seriously, at least for the Ponzi scheme, state regulators say Celsius was not financially sound about two years before that. Not only had it “endured catastrophic losses in 2021 and failed to earn enough revenue to support returns for Earn Account investors,” but the company’s ex-CFO’s testimony went further:
“Celsius admitted through its CFO Chris Ferraro that the company’s insolvency began with financial losses in 2020 and through 2021, echoing claims in Celsius’s First Day statements that the company’s insolvency stemmed from the fall of the crypto market in the spring of 2022 and the associated “run on the bank”, further demonstrating the inaccuracy of Celsius’s statements to investors.”
Under state and federal securities laws, Celsius was required to provide much more detailed information about its financial condition and risk factors. “Instead, Celsius and his management kept the huge losses, the shortfall and the deteriorating financial condition a secret from investors.”
Perhaps most astonishingly, “Celsius also admitted at the 341 meeting that the company had never earned enough revenue to support the proceeds paid to investors.” This is the classic of the financial scam business: create artificial returns through new investors attracted by a scheme that produces unusually high returns. This is where the most important rule, the one that can end up damning those involved with Celsius, comes in: “at some point, the proceeds to existing investors were probably paid for with the assets of new investors.”
If it looks like a duck, swims like a duck and quacks like a duck… it’s probably a duck. The regulator has made this application in the capacity of supporting an examiner appointment: that is, an independent legal expert who will have the power and authority to really dig through this matter, with no means left untried. These are not charges yet, but the basis on which regulators believe charges will eventually be imposed. One thing seems obvious: no matter how much heat Celsius has created, the creators will get a lot more in return.
0 Comments