Crypto

Crypto lender Celsius backed its token, benefiting insiders – US Bankruptcy Examiner

SINGAPORE/LONDON, Jan 31 (Reuters) – Bankrupt crypto lender Celsius Network has used investor money and customer deposits to back its own token while two of its founders have made millions from the token sale, a US court-ordered examiner’s report released on Tuesday showed.

Crypto lenders such as Celsius have exploded during the COVID-19 pandemic, luring customers by promising high interest rates on their cryptocurrency deposits. New Jersey-based Celsius filed for bankruptcy in the United States in July after freezing customer withdrawals.

US Bankruptcy Judge Martin Glenn, who is overseeing the Chapter 11 case, in September appointed former prosecutor Shoba Pillay as an independent reviewer.

She investigated claims by Celsius clients that the company was a Ponzi scheme and also reported on its handling of cryptocurrency deposits.

The Examiner’s report did not conclude that Celsius was a Ponzi scheme, but it presented evidence that could lead Glenn to that conclusion.

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Celsius has never generated enough profit to pay the high rewards promised to customers, and Celsius has used new customer deposits to fund customer withdrawal requests in June 2022 and possibly on other occasions, found. the examiner.

Celsius Coin deployment specialist Dean Tappen said during the company’s chat that he should be called a “Ponzi consultant”, and later described Celsius’ practice of using customer stablecoins to redeem its own proprietary tokens as “very much like a Ponzi”, according to the report. Tappen told the Examiner that the “Ponzi consultant” comment was an attempt at a “bad joke” and that he did not believe Celsius was a Ponzi scheme.

Celsius did not immediately respond to requests for comment on the reviewer’s report. The company said in a statement Tuesday that it had cooperated with the examiner’s investigation and looked forward to working with creditors to emerge from bankruptcy.

Celsius collected crypto deposits from retail clients and invested them in the wholesale crypto market equivalent.

Celsius told customers that its own crypto token, called “CEL,” would be used to pay out customer rewards, but it hid how much it supported CEL’s price by buying back the token in secondary markets, according to the report. report.

Starting in 2020, Celsius embarked on a “buying spree” to push the price of CEL “higher and higher”, the report said. Celsius spent at least $558 million to purchase its token.

In 2022, employees regularly said the token was “worthless” and wondered if anyone other than Celsius would buy it, according to the report.

“The business model that Celsius advertised and sold to its customers was not the business that Celsius actually operated,” the report said. For years, Celsius promised more funds to customers as rewards than it was able to generate revenue, according to the report. Between 2018 and June 30, 2022, it had obligations to its customers of $1.36 billion more than the net income generated from customer deposits, the report adds.

Price gains in the CEL token benefited insiders who held most of it, according to the report. Celsius founder Alex Mashinsky, who faces fraud allegations in the US and resigned as CEO in September, made at least $68.7 million from selling CEL tokens in 2018 and filing for bankruptcy. Co-founder Daniel Leon has sold at least $9.7 million worth of tokens, according to the report.

According to the report, Mashinsky repeatedly made false claims to clients in video shows and tweets. Celsius executives kept an internal list of his incorrect statements, sometimes editing them from video recordings without informing the thousands of members of the public who heard the inaccurate statements in real time, the examiner found.

Reuters could not reach Mashinsky and Leon for comment. A lawyer for Mashinsky previously said his client denies the allegations and looks forward to vigorously defending himself in court.

Reporting by Rae Wee, Elizabeth Howcroft and Alun John, additional reporting by Tom Westbrook and Dietrich Knauth; Editing by Clarence Fernandez, Louise Heavens, Alexia Garamfalvi and Cynthia Osterman

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