Celsius was cheating investors ‘from the start’ claims audit • The Register


A court-appointed examiner investigating the collapse of the Celsius cryptocurrency business has issued a report of its findings, which are summarized in the first sentence of its executive summary.

“The business model that Celsius advertised and sold to its clients was not the business that Celsius actually operated,” lawyer and independent examiner Shobal Pillay said of his findings.

He later notes on the 476 pages damning report [PDF] “Behind the scenes, Celsius conducted its business in a markedly different manner than the way its clients were marketed in all key aspects. Celsius abandoned its promise of transparency early on.”

Since its inception as a public company, Celsius lied by hiding from investors that it failed to hit its profit target of $50 million from its initial coin offering, or ICO, of its company’s CEL tokens, it alleges.

“Despite its promises of transparency, Celsius internally debated whether to tell its community how the ICO actually turned out, but decided against it because it feared that its community would be upset,” Pillay said in the report, noting that former CEO Alex Mashinsky promised to buy the unsold tokens from the ICO, but never did.

A couple of years after the company’s initial CEL coin offering in 2018, Celsius had expanded buying its own coin substantially, and was doing so in a way that propped up the price to hide the fact that most of the market came from Celsius. ‘ Own purchase of your coins.

Celsius, which was founded to act as a lending platform where cryptocurrency owners could deposit their coins to lend to others in exchange for a percentage of the interest paid on the loans, began to collapse in June last year when froze withdrawals, exchanges and transfers in the midst of a larger crypto recession.

Celsius never earned enough on its cryptocurrency implementations to fund the CEL buybacks needed to pay clients their interest rewards, according to the report, and “as a result, began using Bitcoin (BTC) and Ether (ETH) deposited by the customer to finance their CEL. purchases”.

If he walks like a Ponzi, he squawks like a Ponzi…

It wasn’t long after Celsius froze withdrawals that it began to be accused of being a Ponzi scheme which, you may recall, involves using money from new investors to pay off previous investors.

A former Celsius employee alleged in July that the company became a Ponzi scheme when the prices of Ethereum and Bitcoin began to rise in 2021 and the company did not have the cash to pay its investors the CEL due to them.

The report does not conclude that Celsius was a Ponzi scheme, but it does leave heavy some room for interpretation, most of which is gleaned from statements by Celsius’s own people.

Celsius coin implementation specialist Dean Tappen, according to the report, said that Celsius’s habit of using client stablecoins to buy CEL was “very Ponzi-like,” and a few weeks later told VP of Celsius treasury that cash was coming in to buy CEL. of “users as usual”.

Celsius archived filed for Chapter 11 bankruptcy in July of last year. The company recently proposed to reorganize into a publicly traded “recovery corporation” which honestly sounds like another scam waiting to happen.

Accordion to Coindesk, lawyers Celsius saying in court last week that the as-yet-unapproved plan would give creditors “with assets locked up above a certain threshold” another type of token called an Asset Share Token (AST) that would “reflect the value of their assets” tied up in Celsius. .

Holders of newly issued ASTs could sell them on the open market or hold them in the hope of earning dividends. Everyone else, who the company says would make up 60 to 70 percent of Celsius customers, would receive a one-time payment in liquid cryptocurrency.

That payment, of course, would be at a discount, as Celsius’s lawyers said they don’t envision a full recovery, but rather a “significant” one.

The next scheduled hearing in Celsius bankruptcy test is scheduled for February 6 and parties wishing to file a claim against the company have until February 9 to submit the necessary documentation. ®