A report filed before the US Bankruptcy Court today has accused collapsed cryptocurrency lending platform Celsius Network of “Ponzi-like” behaviour under the leadership of founder and former chief executive Alex Mashinsky.
Across nearly 500 pages of evidence, examiner Shoba Pillay of corporate law firm Jenner & Block accused Celsius of misleading investors with false promises of “financial freedom” using falsified information all the while emphasising transparency, trust, and altruism.
“The business model Celsius advertised and sold to its customers was not the business that Celsius actually operated,” stated Pillay.
Celsius promised investors substantial returns via the platform’s Earn product by earning high yield on their borrowed crypto assets by conducting supposedly overcollateralised loans.
Celsius’ CEL token was pitched to customers as a sort of self-sustaining “flywheel” whereby the token’s value would rise by generating more users and thus more assets for Celsius to invest.
“From its inception, however, Celsius and the driving force behind its operations, Mr Mashinsky, did not deliver on these promises,” Pillay explained. “Behind the scenes, Celsius conducted its business in a starkly different manner than how it marketed itself to its customers in every key respect.”
Pillay contended that starting in 2020, Celsius decided to substantially expand its CEL token purchases for the purpose of increasing the token’s price, alleging that “instead of buying CEL when it needed to pay rewards, Celsius began timing its purchases so that they would prop up CEL’s price by creating activity in the market”.
By “making the market” for CEL tokens by pumping its market capitalisation as high as US$1.5bn in December 2021, Celsius Network artificially inflated the size of its balance sheet.
Pillay alleged that insiders, including Mashinsky himself, profited by dumping CEL tokens onto the market at opportune times.
“Between 2018 and the petition date, Mr. Mashinsky sold at least 25 million CEL tokens, realizing at least US$68.7mln on these sales,” while “S. Daniel Leon, also a founder of Celsius, sold at least 2.6 million CEL tokens for at least $9.74mln.
Celsius Network's brittle ground was exposed when the group permanently froze its customers out of billions worth of assets amid a bank run on the lender in June 2022.
The group filed for Chapter 11 bankruptcy protection the following month and Mashinsky resigned as chief executive shortly after.