Category: Celsius

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Celsius Cryptocurrency Law DeFi Ethereum

Bankrupt Celsius Launches Lawsuit Over Alleged Theft of 1000 ETH

Bankrupted crypto lender Celsius has filed a lawsuit against a former investment manager, alleging he cost the platform tens of millions of dollars through a combination of incompetence and theft.

The complaint, which was filed in New York’s Manhattan bankruptcy court on August 23, alleges that Jason Stone, through his company KeyFi Inc, falsely presented himself as an experienced and highly skilled digital asset manager, but was in fact negligent and “extraordinarily inept” at devising and implementing profitable crypto investing strategies.

Celsius Alleges DeFi Manager Used NFTs, Tornado Cash to Siphon Funds

The filing states that Stone worked with Celsius for about seven months up to March 2021 and was given access to a Celsius-controlled wallet for the purposes of managing the lender’s DeFi investing strategy.

Celsius alleges that rather than managing its assets as requested, Stone instead invested heavily in NFTs – including CryptoPunks and Bullrun Babes – to the tune of 1070 ETH. Allegedly, Stone later sold some of the NFTs for 1071 ETH before funnelling the funds through crypto mixing service Tornado Cash to his own private wallet rather than back into the Celsius-controlled wallet.

Celsius claims Stone had no authorisation to purchase NFTs as part of his role and suggests he might have done so because he was aware it was difficult for Celsius to track NFT purchases through its internal systems, making the theft harder to notice.

In addition to what it claims was intentional theft, Celsius claims Stone also cost the lender over US$50 million through his ineptitude, saying he proved himself “incapable” of investing profitably in cryptocurrencies.

Stone, responding to these accusations through his lawyer, Kyle Roche, claims all of the investments he made on behalf of Celsius were authorised by the lender’s CEO, Alex Mashinsky.

Claims Follow Previous Suit From KeyFi Against Celsius

These complaints come six weeks after Stone’s company, KeyFi, filed suit against Celsius, claiming it was operating a Ponzi scheme and that it owed Stone hundreds of millions of dollars in unpaid compensation. 

Stone claims Celsius ran out of money because it relied on attracting new customers by offering excessively high rates of return, and because it failed to adequately manage risk by hedging its investments. He also says he generated over US$800 million in profit in seven months for the lender, further claiming that he’s entitled to 20 percent of this profit – over US$200 million.

Financial documents filed by Celsius last week as part of its bankruptcy hearing show that the lender has a US$2 billion hole in its books and could be completely out of cash by the end of October.

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Celsius Crypto Exchange Crypto News Zipmex

Zipmex CEO Refuses to Quit Despite A$73 Million Loss

Zipmex co-founder and CEO Marcus Lim is standing firm on his intention to pilot the troubled exchange through a three-month stay of execution from creditors, which it won in the Singapore High Court last week.

Lim vows he will continue to steer the ship unless its new major shareholders tell him to resign, as he works to repay the $US50 million (A$72.8 million) lost through the collapse of crypto lenders Babel Finance and Celsius Network.

‘Key Shareholder’ Sought Lim’s Resignation

Earlier this month, a key shareholder of the exchange had sent Lim a letter requesting his resignation, citing a “loss of confidence between partners” and consequences from the Babel disclosure, according to a Bloomberg story attributed to a source claiming “specialist knowledge” of the situation.

Zipmex halted transfers and withdrawals in July when news broke of the missing millions. Since then the exchange has enabled partial withdrawals of its customers’ Bitcoin and Ether holdings, albeit in minuscule amounts.

Meanwhile, the three-month moratorium providing bankruptcy protection against creditors will hopefully enable the hamstrung exchange to complete a fresh capital raise of between $US50 million and $US80 million. Lim’s intention is to ultimately return funds to investors, all while he oversees a restructuring of the company.

New Shareholders May Seek New Leadership

“This plan includes potentially bringing in new majority shareholders who may want a greater say in management decisions,” Lim told The Australian Financial Review. “Should this happen, my co-founder Akalarp [Yimwilai] and I have made it clear that we will fully cooperate with them and their wishes in the event they may be looking for a management change.”

Zipmex, which employs around 250 people across Singapore, Thailand, Indonesia and Australia, joins two other Singapore-based firms attempting to trade their way out of financial difficulties brought on by the current market downturn. Vauld was also granted a three-month moratorium on its debts by the same court last week, while another crypto lender, Hodlnaut, announced widespread staff layoffs pending “police proceedings” after it too sought protection from creditors.

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Banking Celsius Crypto News DeFi

Celsius Has a $2 Billion Hole, on Track to be Out of Cash by October

Crippled crypto lending platform Celsius, which filed for bankruptcy in July, appears to be in an even worse financial position than previously thought, with papers filed this week revealing it may run out of money completely by October:

The papers filed in the US Bankruptcy Court for the Southern District of New York also showed that the lender holds US$2.8 billion less in crypto assets than it owes to depositors, leaving many users of the platform worried they may lose their deposits.

Celsius’ Books Don’t Make For Pleasant Reading

Celsius’ latest financial disclosure showed it had an opening cash balance of just under US$130 million in early August. The filing forecasts operating expenses and other costs to run to US$137 million over the next three months, meaning the lender will be in the red by the end of October.

The filing also showed that Celsius’ crypto liabilities to depositors exceed US$6.6 billion, while it only actually holds US$3.3 billion in crypto assets. 

The US$2.8 billion shortfall is largely due to deficits in the lender’s holdings of BTC, ETH and USDC. According to its financial disclosure, Celsius is more than US$2 billion short of BTC, over US$1 billion short of ETH and US$666 million short of USDC. These deficits are partially offset by its holdings of stETH, WBTC and its governance token, CEL:

Details of Celsius’ budget including its liabilities, deployment and assets, sourced from documents filed as part of US bankruptcy proceedings.

Could Celsius Sell CEL to Help Itself?

Celsius’ financial disclosure shows the lender holds 658 million of its CEL token of which 279 million are owed to customers, which leaves the lender with 379 million tokens. 

In the document CEL is valued at US$1 but the token has recently been the target of a social media-driven short squeeze, resulting in its price increasing significantly. According to CoinGecko, CEL was changing hands at US$2.45 at the time of writing – meaning Celsius’ CEL assets are notionally worth a lot more than the filing suggested.

So, what’s stopping Celsius selling its CEL tokens to help raise funds to pay its liabilities? Well, almost all circulating CEL is locked on Celsius itself. If the lender were to sell large quantities, the token’s value would likely collapse, leaving Celsius’ books in an even more dismal state.

In a cynical twist, crypto security firm Arkham Intelligence has evidence that it believes shows Celsius CEO Alex Mashinsky sold sizeable quantities of CEL via multiple transactions throughout May and August of this year. If true, this would mean the Celsius chief executive was actively dumping against the community-driven short squeeze to serve his own interests.

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Celsius Crypto News Ripple

Ripple Keen to Scoop Up Bankrupt Celsius’ Assets, Report   

Blockchain payments company Ripple has expressed interest in acquiring the assets of insolvent crypto lender Celsius as a means to grow, according to a report from Reuters.

A spokesperson told Reuters that Ripple wanted to learn more about Celsius’ assets and was “actively looking for [merger and acquisition] opportunities to strategically scale the company”.

We are interested in learning about Celsius and its assets, and whether any could be relevant to our business.  

Ripple spokesperson

Can Ripple’s Interest Help Check Celsius’ Collapse? 

After pausing withdrawals from its platform in June due to liquidity issues, last month Celsius filed for bankruptcy in order to “stabilise its business”. Then, in an astounding twist, the lender laid claim to customers’ deposits in court, casting doubt on the likelihood of customers getting their money back.

Ripple’s comments to Reuters were in response to a query about the company submitting filings to the bankruptcy court seeking to be represented in Celsius’ proceedings, although Ripple is not one of Celsius’ major creditors.

Celsius’ bankruptcy filings show it holds digital assets in custody accounts, loans, a bitcoin mining business, and CEL tokens, bank cash and crypto.

It’s unclear how Ripple’s involvement might help users affected by the platform’s troubles. Following the news, the price of Celsius’ token CEL rose – it’s up over 30 percent in the past 24 hours.

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Celsius Crypto Exchange Crypto News

Celsius Drama Continues as CEO Cashes Out During Recent Short Squeeze

The CEO of bankrupt cryptocurrency lender Celsius has allegedly sold large amounts of the project’s native CEL token during the recent surge. The token’s value shot up almost twofold in the past week in what appears to be a community-driven short squeeze.

First Transaction in Late May

Blockchain data shows a cryptocurrency address identified by intelligence firms Arkham Intelligence and Nansen, as CEO Alex Mashinsky made an initial transaction in late May. According to data from Etherscan, the wallet sold CEL tokens in multiple transactions on August 6 and 9, swapping 17,575 CEL tokens for US$28,242 worth of Ether on the decentralised exchange UniSwap.

The transactions were initially spotted by Twitter user ‘alto’:

Arkham Intelligence managed to identify a few of Mashinsky’s wallets that have regularly sold a large amount of the CEL token on numerous decentralised exchanges. Before it declared bankruptcy, the firm listed its largest owners on its webpage, with the CEO reportedly the largest token holder just after the Celsius treasury.

CEL Token Under SEC Scrutiny

Celsius filed for bankruptcy protection on July 13, only a month after freezing all customer withdrawals. The CEL token issued by the firm as a utility token is also facing regulatory scrutiny from the US Securities and Exchange Commission (SEC) for not being registered as a security.

At its peak in October 2021, the crypto lender had US$25 billion in assets under management, according to Mashinsky, but now Celsius is down to US$167 million “in cash on hand” which it says will provide it with ample liquidity to support operations during its restructuring process.

This is little consolation to investors, as under the terms of its bankruptcy filing Celsius owes its users somewhere around US$4.7 billion. Amid its turmoil, Celsius has also had to withdraw its motion to bring back ex-chief financial officer Rod Bolger on a US$92,000 per month salary. Bolger was set to return to the firm as a consultant to help during the bankruptcy proceedings.

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Celsius Crypto Exchange Crypto News

Singapore-Based Exchange ‘Hodlnaut’ Halts Withdrawals Citing Market Conditions

This year has thus far offered one compelling case after another on the importance of “not your keys, not your coins”. The latest episode in the crypto lending meltdown is Singapore-based firm Hodlnaut, which yesterday announced it was halting withdrawals:

Crypto Lending Market Uncertainty Continues

According to the announcement, the firm has frozen withdrawals, deposits and token swaps due to “difficult market conditions”. When asked about whether it was exposed to the collapse of Celsius and Three Arrows Capital, it referred to an earlier Twitter thread claiming it wasn’t:

While the company indicated it would provide users with an update by August 19, the official announcement offered little in the way of details as to how the liquidation crunch arose, saying only that its focus was on “stabilising our [its] liquidity and preserving assets”. It isn’t clear at this stage how much is at risk, although Hodlnaut claims to have US$500 million of assets under management.

Some Users Saved by Twitter Detective

Even though the rallying cry of 2022 has been to remove all coins from exchanges into self-custody, many have continued to rely on third parties for custodial services. Of course, it goes without saying that not all custodians are created equally, and that users need to do their due diligence to weigh up the relative risks and benefits of leaving coins on exchanges.

One Twitter user who became famous for calling out the Terra ecosystem implosion specifically called out Hodlnaut for its “CeFi degeneracy” in June:

The Twitter thread provides a revealing take on the mechanics of the inherent risks of earning yield on one’s crypto, and unfortunately for the majority of users they are unlikely to have either come across or heeded FatMan’s timely warning. Fortunately for others, they managed to withdraw their investments in time:

Since the announcement, the company’s co-founder has gone offline, with many users viewing this as the ultimate clear signal that they should probably manage their expectations in terms of receiving any of their funds back:

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Celsius Crypto News

Insolvent Crypto Lender ‘Celsius’ Claims Ownership of Customer Deposits in Court

When deeply indebted crypto lender Celsius filed for bankruptcy last week, it was well known that the company had taken enormous risks with user deposits.

Now, in an astounding twist, Celsius’ lawyers have laid claim to most of these deposits, arguing that they were theirs all along:

Writing on the Wall

Prior to Celsius declaring bankruptcy, a report by The Wall Street Journal found that the lender carried more than twice the risk of a traditional bank, reflected in an assets-to-equity ratio of 19:1, compared to the median of North American banks, which is closer to 9:1.

Put differently, Celsius had more than double the liabilities of a traditional bank, making it intrinsically more risky. Couple that with a business model predicated on material leverage and one is left with little margin for error when the tide turns (as the crypto market has in 2022).

At the time, many were ringing the alarm bells, with one prominent crypto sceptic commenting in a piece titled “Why Celsius Network’s depositors won’t get their money back”:

Celsius is not an asset manager, it’s a shadow bank. And deposits in banks aren’t even ‘customer assets’, let alone ‘assets under management’. Celsius’ terms of use make it completely clear that customers who deposit funds in its interest-bearing accounts are lending their funds to Celsius to do with as it pleases. And it specifically says that in the event of bankruptcy, customers might not get all – or indeed any – of their money back.

Frances Coppola, financial journalist

Not Your Keys, Not Your Coins

Unfortunately for Celsius customers, Coppola’s assessment appears to have largely hit the mark, at least according to arguments being made by the Celsius legal team.

Three key segments of Celsius’ retail business were identified – “Earn”,
Borrow”, and “Custody”. Of these, 77 percent were in the “Earn” program, whereas just 4 percent were in the “Custody” program. In the case of insolvency, these differences are significant.

In terms of the company’s terms and conditions, “Earn” users effectively handed over ownership of their crypto to Celsius, who seemingly could do as it wished. Specifically, the wording provided that: “title to coins is transferred to Celsius, and Celsius is entitled to use, sell, pledge, and rehypothecate those coins”.

While the position of “Borrow” users is unclear, “Custody” users are said to retain ownership in their crypto, which sadly accounts for just 4 percent of users.

Attorney David Silver offered a scathing account of day one in Celsius’ insolvency proceedings, commenting:

Creative destruction is inevitable in all free markets, which necessarily entails pain (and, hopefully, some useful lessons for the future). Arguably, one of the key takeaways from this cycle is that the benefits of yield programs were vastly overstated, and the risks significantly misunderstood and understated.

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Celsius Crypto News

Embattled Crypto Lender ‘Celsius’ Files For Bankruptcy

In what some have described as crypto’s “Lehman moment”, troubled lender Celsius has officially filed for “financial restructuring” under Chapter 11 of the US Bankruptcy Code. 

Controversy Reigns

To many in the industry, Celsius has remained one of the more controversial businesses, with many citing its yield as unsustainable.

These claims go as far back as 2019, reflected in a “discussion” where the company’s founder Alex Mashinsky clashed with Bitcoiners Tone Vays and Saifedean Ammous regarding the company’s business model:

In many ways, the writing was on the wall as warning bells flashed in April as Celsius paused interest accounts for users. Later in June, the company halted user withdrawals, but only after sending US$320 million to crypto exchange FTX.

As crypto broker Voyager filed for bankruptcy, in addition to crypto lender Vauld freezing withdrawals, many felt that it would be a matter of time before Celsius caved.

Nail in the coffin

Late on July 13, Celsius finally confirmed it was initiating voluntary Chapter 11 proceedings to “stabilise its business and consummate a comprehensive restructuring transaction that maximises value for all stakeholders”.

Continuing, the board of directors said:

Today’s filing follows the difficult but necessary decision by Celsius last month to pause withdrawals, swaps, and transfers on its platform to stabilize its business and protect its customers. Without a pause, the acceleration of withdrawals would have allowed certain customers—those who were first to act—to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery.

Celsius board of directors’ statement

Interestingly, as Swan Bitcoin founder Cory Klippsten commented, it would appear as if beleaguered users are at the back of the queue when it comes to Celsius’ stakeholders:

While the company apparently has some US$167 million in cash, it noted that initial approval would be sought to allow payment to employees, but that it would “not be requesting authority to allow customer withdrawals at this time”.

While the announcement is not likely to be welcome news to users whose funds remained frozen, it does offer vindication for those who saw it in advance and managed to persuade users to jump ship:

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Banking Celsius Crypto News

Ailing Crypto Lender ‘Celsius’ Found to Have Double the Traditional Banking Risk

With an alleged assets-to-equity ratio near double that of the average US bank in late 2021, crypto lender Celsius had taken on far more risk than it had previously publicly stated and is now seeking to file for bankruptcy.

CEO Plays Fast and Loose with the Truth

Celsius CEO Alex Mashinsky seems to have been omitting the truth from multiple past statements that his company was not “taking a tremendous risk”. This comes as The Wall Street Journal uncovers evidence illustrating that Celsius had effectively doubled the risk profile of the average American bank.

All North American banks in the S&P 1500 Composite index have a median assets-to-equity ratio of close to 9:1. Information uncovered by the WSJ found that Celsius had US$19 billion of assets and approximately US$1 billion of equity just before October 2021.

This wasn’t the only discovery. Investor documents detailed that Celsius had sold undercollateralised loans in the past, which required business borrowers to post approximately 50 percent collateral for their loans. It is alleged that Celsius then used the collateral from these loans to borrow more:

With industry regulators typically looking at the assets-to-equity ratio as an indicator of risk, economist Eric Budish from the University of Chicago has described the Celsius ratio as “a risky structure”. Budish also stated that “it strikes [me] as diversified in the same way that portfolios of mortgages were diversified in 2006 … it was all housing – here, it’s all crypto.”

In October 2021, Celsius had been offering retail investors the chance to earn yields of up to 18.6 percent on deposited crypto assets. The lender had initially projected that deposits would exceed US$108 billion in 2023. However, this year’s industry lows have hit Celsius hard, with the company now considering filing for bankruptcy.

Celsius’ Recent Raft of Troubles

June was a disappointing month for Celsius with its native token (CEL) falling nearly 70 percent following the June 13 announcement that it would pause all withdrawals to “stabilise liquidity”. However, prior to this declaration, it is rumoured that Celsius had quickly transferred US$320 million in crypto to the Bahamian exchange FTX.

This presumed one-way ticket to insolvency also encouraged crypto services business Nexo to come forward and offer to buy Celsius’ “qualifying” assets. Nexo was believed to be interested in Celsius’ collateralised loan portfolio, yet it has since been reported that no prices were disclosed.

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Celsius Crypto Staking DeFi

Goldman Sachs is Raising $2 Billion to Buy Celsius’ Assets

Investment giant Goldman Sachs is said to be attempting to raise US$2 billion in an effort to buy the assets of distressed crypto lending firm Celsius amid the current turmoil engulfing the cryptocurrency industry.

The capital would allow Goldman Sachs to buy Celsius’ assets at a massive discount, should the company file for bankruptcy:

‘Fake News’ Claim Regarding Rumours

The bank has been looking into commitments from Web3 crypto funds specialising in distressed assets, and traditional financial institutions with cash on hand. The assets to be acquired, most likely cryptocurrencies having to be sold at a low, would then likely be managed by participants taking part in the fundraising.

However, angel investor Simon Dixon has claimed that the rumours are fake news, according to a “source” at Goldman Sachs:

Drama unfolded earlier this month with Celsius when the crypto lender had to halt withdrawals as well as other services on its platform, but only after it transferred over US$300 million in digital assets to FTX.

Users May Yet Be Left High and Dry

Concerns also exist that Celsius may be left unable to pay out users wanting to withdraw their funds if the value of staked ETH doesn’t regain parity with ETH. Staked ETH, which is extensively used by Celsius, started to lose parity with ETH when DeFi markets were sent into a spiral following the collapse of the Terra ecosystem. In the time since, Celsius has hired the restructuring consulting firm Alvarez & Marsal.

The company has also reached out to restructuring attorneys from the law firm Akin Gump Strauss Hauer & Feld. Additionally, global investment bank Citigroup has been employed by Celsius to advise on possible solutions, which include an assessment of an offer from rival crypto lender Nexo. Citigroup and Akin Gump have both recommended that Celsius file for bankruptcy.