- Investigation into Celsius operation found that customer and investor funds were used to prop up CEL price
- The report also found that the crypto lending platform was insolvent since its inception
A new report published by a court-appointed examiner has shed light on the operations of crypto lender – Celsius – before it declared bankruptcy. The investigation carried out by Shoba Pillay states that the business model advertised to customers was different from the actual operations of Celsius.
It also stated that the crypto lender “abandoned its promise of transparency from its start.” The report further claimed that “Celsius Network (US) on a stand-alone basis has been insolvent since inception.” The crypto lending platform filed for bankruptcy in July 2022, a month after it halted customer withdrawal.
Celsius was involved in price manipulation
The report stated that the platform has been deceiving its customer since the very beginning. In its inception period, it had claimed to have raised $50 million from its ICO sales, while in reality, it had raised only $32 million. Moreover, the crypto lending platform also purchased CEL tokens with the intent of increasing its price. And, its continued buying spree inflated CEL’s price by 14,751% by June 2021. The report claimed,
Instead of buying CEL when it needed to pay rewards, Celsius began timing its purchases so that they would prop up CEL’s price by creating activity in the market. Celsius also began placing “resting” orders to buy CEL, which were triggered if the price of CEL dipped below a set amount.”
Furthermore, the report claimed that the market manipulation increased the value of the firm’s balance sheet to $1.5 billion in December 2021. The inflated price also played in favor of Celsius insiders who held the token, including Alex Mashinsky – former CEO, and Daniel Leon – co-founder. Both executives sold CEL worth at least $68.7 million and $9.74 million between 2018 and 2022
“Celsius often sought to protect CEL from price drops that it attributed to Mr. Mashinsky’s sales of large amounts of his personal CEL holdings. As a result of Mr. Mashinsky’s sales, Celsius often increased the size of its resting orders to buy all of the CEL that Mr. Mashinsky and his other companies were selling”
Additionally, the crypto lender used customers’ Bitcoin (BTC) and Ethereum (ETH) to buyback CEL tokens. And, because of the improper reporting system, it failed to keep a tab on the shortfall of funds. Celsius had to shell out nearly $300 million to make up for the shortfall in BTC and ETH. Thereby creating a hole in its balance sheet of stablecoin, which continued to grow over time because of the buybacks and other losses.
The report said,
“why Celsius bought CEL to pay rewards rather than using the CEL it held in Treasury, he acknowledged that the answer lies in who holds the most CEL. Another manager put it more bluntly: “we spent all our cash paying execs and trying to prop up alexs [sic] net worth in CEL token.””
