The crypto-lending platform Celsius Network misled investors about its financial condition. The company used the CEL token to bolster its balance sheet, and funds from new clients — to settle obligations to existing ones, заявили in the Vermont Department of Financial Regulation (DFR).
“This indicates a high level of violations, and that, at least at times, existing investors were being paid yields at the expense of new client assets,” the DFR motion in the bankruptcy case states.
According to the regulator, Celsius “through its chief executive Alex Mashinsky and in other ways” made false and misleading statements about the company’s financial condition, profitability, compliance with securities laws, and the ability to meet obligations to investors.
In particular, the DFR noted Mashinsky’s July 31, 2021 tweet, in which he asserted that Celsius “is profitable and always acts in the best interests of its users”.
The other guys need to raise money every few months because they subsidize their already low rates and make al their income from fees.
So Celsius is profitable and always act in its users best interest while Blockfi has hidden fees and charges you comissions on every move.
— Alex Mashinsky (@Mashinsky) July 31, 2021
“In fact, an initial analysis of financial documents provided by regulators in several states showed that Celsius incurred huge losses in the first seven months of 2021. In addition, in June and July the company suffered two material adverse events,” the document states.
According to the regulator, Celsius manipulated the price of CEL, while accumulating tokens to bolster the balance sheet.
“By increasing the net CEL position by hundreds of millions of dollars, the company overstated and sustained the token’s market price, thereby increasing the balance in its financial statements. Excluding this position, Celsius’s liabilities would have exceeded its assets, at least since February 28, 2019. This practice could have enriched platform insiders,” the DFR said.
The regulator also cited the Celsius boss’s May 2022 tweet, in which he said the company had not suffered significant losses and its funds were safe.
Notwithstanding the extreme market volatility, Celsius has not experienced any significant losses and all funds are safe.
— Alex Mashinsky (@Mashinsky) May 11, 2022
According to the DFR, in just ten days in May 2022 Celsius incurred losses of more than $450 million. The department stressed that, in light of these facts, an independent expert should investigate the platform’s activities.
On July 13, Celsius filed for bankruptcy in New York under Chapter 11 of the U.S. Bankruptcy Code. The company said its liabilities exceeded its assets on the balance sheet by almost $1.2 billion.
According to the updated assessment, the platform’s balance-sheet gap stood at $2.85 billion.
In August 2022, the Office of the United States Trustee said there were “numerous questions” for Celsius management.
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