- Former Celsius CEO, Alex Mashinsky, misled investors.
- CTFC Investigators’ findings show that the former Celsius CEO broke several rules.
- The agency may sue him if most Commissioners agree with the investigation results.
Commodity Futures Trading Commission (CFTC) investigators revealed that the bankrupt crypto company, Celsius, and its former CEO broke U.S. rules before the company went bankrupt.
A potential lawsuit looms if most Commissioners agree with the investigators’ findings.
Meanwhile, other agencies like the Securities and Exchange Commission and federal prosecutors in Manhattan are looking into the bankrupt crypto lending company, Celsius.
The Collapse of Celsius
Celsius thrived during the pandemic. The bankrupt crypto lender enticed users with its loan offerings and a very high paid interest rate on digital token deposits. But by July 2022, the crypto lender who promised a 17% interest rate went bankrupt.
Although Celsius CEO cited the company’s bankruptcy to the declining price of Bitcoin, court-ordered investigations revealed that to be a half-truth.
The price of Bitcoin was only one of the various factors that led to the collapse of the Celsius Network. Investigations revealed that the crypto lender was doomed to collapse from the start. In the words of the former federal prosecutor who investigated the Celsius bankruptcy case, Shoba Pillay,
“Celsius Network on a stand-alone basis has been insolvent since inception…”
Just like FTX, Celsius’ customer-centric outlook contrasts with the operations behind the scene. The investigative report stated that the former CEO, Mashinsky, in collaboration with other executives, used customer funds to buy CEL, the company’s native crypto token. While these actions benefited Mashinsky and the executives, they affected the company’s liquidity. The commingling of customer funds contrasts with the duty to keep customer funds safe.
Customer funds were used for various purposes that were against U.S. rules. Employee testimonies showed that the company, under the leadership of the former CEO, was run like a Ponzi scheme.
In April 2022, the former crypto lender began showing signs of distress. In a blog post, the company announced the removal of certain features.
“We have been in ongoing discussions with United States regulators regarding our Earn product. As a result, there will be changes to how our Earn product will work for users based in the United States,” the company stated in a blog post.
In May, crypto winter descended on the crypto industry after the shocking crash of TerraLUNA. The collapse of TerraLUNA triggered several withdrawals on Celsius. By late June 2023, Celsius halted withdrawals without details on reopening due to “extreme conditions.” This sparked rumors of insolvency, and in July, the company filed for bankruptcy under Chapter 11.
The beginning of investigations on Celsius and its former CEO, Mashinsky, began when a $1.3 billion hole in the company’s balance sheet was found and acknowledged.
After the bankrupt crypto lender halted withdrawals in June 2022, five securities regulators in the United States started investigating Celsius.
On the 5th of January, Letitia James, New York Attorney General, filed a lawsuit against Mashinsky on the allegations of misleading investors leading to losses in billions.
Conclusion
With the conclusion of the investigation into Celsius and Mashinsky, the potential rate of a lawsuit springing from the reports is very high.
