The recently ousted chief executive officer of the Celsius Network withdrew $10 million shortly before its bankruptcy filing, adding yet another layer of scandal to the failed “crypto” platform’s tattered legacy.
The Financial Times has revealed that Alex Mashinsky withdrew $10 million from the Celsius lending platform in May, just weeks before the company froze the accounts of its hundreds of thousands of customers. Celsius filed for Chapter 11 bankruptcy protection in July, citing billions in unfunded obligations.
The FT reported that Celsius will confirm Mashinsky’s withdrawals in bankruptcy court documents to be filed this week. A Mashinsky spokesperson told the FT that 80% of his $10 million withdrawal “was used to pay state and federal taxes.” The spokesperson further claimed that Mashinsky and his family had an additional $44 million worth of digital assets frozen with Celsius, although the actual current value of the platform’s native CEL token is considered negligible.
Assuming Mashinsky’s spokesperson isn’t lying—a not unwarranted concern, given that it was only weeks prior to the bankruptcy filing that the company was still assuring customers that their assets were safe—Uncle Sam likely won’t get to keep Mashinsky’s tax payments. Bankruptcy law allows any disbursements within 90 days of a company filing for Chapter 11 protection to be clawed back on behalf of creditors.
Celsius is considered a casualty of this spring’s collapse of Terraform Labs’ UST and Luna tokens, which contributed to the implosion of the Three Arrows Capital (3AC) hedge fund. Numerous other entities were impacted by these collapses, which exposed a raft of dubious accounting practices and managerial malfeasance in the “crypto” space.
In reality, Celsius appears to have been a scam from the start, using new customers’ deposits to pay the impossibly high rates of interest—sometimes topping 17% per year—promised to customers who’d gotten in earlier.
Celsius is the target of a number of civil actions that have exposed the platform’s Ponzi-like practices. Mashinsky was forced to resign as Celsius CEO last week, publicly claiming that his presence at the company’s helm “has become an increasing distraction.” An external examiner has since been appointed to investigate and report on the “extreme financial irregularities” at Celsius.
Absolute zero confidence
In early September, Mashinsky was promoting a fiscal rescue plan he dubbed Kelvin—the reference point of “absolute zero,” apparently to emphasize the “absolute zero trust involved” in their cockamamie plan—that would see the platform adopt a new custody-based model.
The idea was that customers would regain access to their frozen assets for the purposes of staking, swapping, and such, activities on which Celsius would impose new transaction fees. Needless to say, this plan was met with absolute zero enthusiasm from anyone outside the delusional Celsius managerial circle.
Celsius also wants to sell off its $23 million worth of stablecoin holdings and ratchet up its fledgling digital asset mining operations. But its mining operations have never been profitable and likely never will be, while the U.S. state and federal authorities have objected to any stablecoin selloff.
In a new motion filed with the bankruptcy court, the U.S. Department of Justice says the Celsius proposal is “premature,” in part because it lacks transparency on the impact a stablecoin sale would have. Similar objections were raised last week by state officials in Texas and Vermont, who want the independent examiner to conclude its investigation into the actual state of Celsius’ tangled financial picture before any further actions are taken.
Celsius has also proposed transforming its debt into a new “wrapped token” to be called—we kid you not—IOU, and would be based on the difference between the assets Celsius has on hand and the debt it owes its customers. The working theory (aka flight of fancy) is that the IOU token’s value will increase over time, so customers who wait longer to redeem their IOUs will be able to reclaim more of their frozen value than those who seek to immediately cash in these worthless chips.
Further complicating the process of untangling Celsius is the argument put forth by its equity investors that they should be given priority over creditors when divvying up the platform’s remaining assets. The request alleges that the Unsecured Creditors Committee is overly biased towards Celsius customers at the expense of investors.
White knights matter?
Meanwhile, Sam Bankman-Fried (SBF), founder of the FTX Bahamas-based cryptocurrency exchange, continues to make noise about acquiring Celsius. Last week, FTX’s U.S.-based offshoot won the auction for the assets of bankrupt lending platform Voyager Digital, the latest in a series of bottom-feeding deals that have led the media to view SBF as the white knight of crypto.
On October 2, in response to a tweet by a Celsius creditor criticizing SBF’s move to raise $1 billion to help finance acquisitions of distressed crypto assets, SBF tweeted that his “goal isn’t to make money buying assets at cents on the dollar, it’s to pay $1 on the $1 and get the $1 back to customers. If we were to get involved in Celsius, it would be the same.”
The fine print of the Voyager acquisition was that customers would see their account balances transferred to the FTX exchange, which, given that SBF himself has said the exchange’s volume is dominated by “fairly sophisticated” traders, means many of these new FTX customers will lose their lunch money to the crypto quant bullies.
In June, SBF withdrew a bid to acquire Celsius, allegedly after discovering a $2 billion “hole” in the platform’s balance sheet. It’s unclear what has transpired since then to smooth over these concerns, but with a bid hearing scheduled for later this month, we’ll soon learn whether SBF’s intentions are truly honorable or whether it’s just another PR ploy.
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