Vermont Regulator Labels Celsius in ‘Extreme Insolvency’

The crypto-lending platform Celsius Network is ‘extremely insolvent’—it lacks liquidity to meet its obligations. This was stated by the Vermont Department of Financial Regulation (DFR).

“Celsius used customers’ funds for various risky and illiquid investments, trading and lending. … Moreover, some assets owned by Celsius are illiquid …” the department said.

According to the DFR, user funds were used as collateral for additional loans ‘to pursue investment strategies’. In the regulator’s view, the company’s assets are insufficient to cover its outstanding obligations.

The department added that the platform operates in many jurisdictions, including Vermont.

“The Department believes Celsius engaged in unregistered securities offerings […]. This means that until recently Celsius largely operated without regulatory oversight,” officials noted.

According to them, platform clients did not receive important information about its financial condition, risk factors, and ability to satisfy withdrawal obligations. The DFR said it has joined an investigation related to the aforementioned issues.

The department stressed that statements by the company and its top management about the safety of user funds and ability to meet withdrawal obligations ‘do not reflect the reality’.

On June 13 Celsius paused withdrawals, exchanges and transfers between accounts.

Lawyer Adam Levitin called the company’s bankruptcy virtually inevitable. In his view, the platform’s leadership decided to bet on a ‘resurrection gambit’.

On July 7 Celsius fully repaid a loan in the DeFi protocol MakerDAO and withdrew a total of 23,962 WBTC of collateral worth about $490 million. A few hours later the platform transferred 24,463 WBTC to the address of the crypto exchange FTX.

Arkham analysts put Celsius’s losses from DeFi and NFT investments at $390 million.

For more on what happened to Celsius and how the incident affected the market, see ForkLog cards.

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