According to the news in the Financial Times, the reports of the investigator appointed by the US court to the bankrupt crypto credit institution Celsius revealed that the company has abused customer funds for years.
Celsius, one of the world’s leading cryptocurrency companies, filed for bankruptcy in July 2022. The court-appointed law firm said it misused investor and client assets over the years before its bankruptcy, including getting its founders to cash out tens of millions of dollars.
Used customers’ money to inflate CEL
In the news, it was noted that the company used the money it received from thousands of investors to inflate the price of its own token, CEL. This scheme was described by an employee at the time as “too Ponzi-like.”
Celsius founder Alex Mashinsky made a profit by selling off $68.7 million in CEL, while publicly saying it wasn’t selling. insider sales of Mashinsky and others; It was made possible by Celsius customers purchasing the token using money from blue-chip investors, including WestCap, led by Laurence Tosi, and Canada Pension Fund CDPQ.
It first buys on the open market and then sells via “over the counter” transactions.
This month, the New York Attorney General sued Mashinsky for allegedly “defrauding hundreds of thousands of investors with billions of dollars in cryptocurrencies.” The Celsius founder has denied allegations of misconduct. However, according to the report, Celsius started using a strategy it calls the “OTC flywheel” in 2020. According to this strategy, it would buy CEL on the open market and then sell it in special “over-the-counter” transactions at appropriate times to artificially inflate its price.
The CEL plan planted the seeds for the end of the company in 2022 when prices crashed and customers pulled their money, so Celsius could no longer support CEL.
The hole in the balance sheet appeared in 2021
However, the report revealed that the hole in the company’s balance sheet appeared in early 2021. It was stated that he did not earn enough money from lending and business lines to finance the interest rates he promised to customers and CEL purchases. The law firm said Mashinsky was fighting against attempts by some insiders to make the company more stable by cutting payments to customers.
Celsius filled this gap, which it found in early 2021, by using $300 million of stablecoins to buy and borrow Bitcoin and Ether to match the amount of tokens owed to customers. Over time, the “net gap” between the number of coins customers have deposited in Celsius and the number of coins they actually hold has grown to over $1 billion.
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