Celsius Used Customers’ Deposits to Fund CEL Purchases: Independent Examiner
Shoba Pillay, an independent examiner appointed by the New York Bankruptcy Court, has revealed that bankrupt crypto lender Celsius Network used customers’ assets to fund the purchase of its native tokens and generally operated as a Ponzi scheme before its demise.
Pillay: Celsius Used Customers’ Funds to Buy CEL
According to a recent filing at the bankruptcy court, Pillay found numerous loopholes in Celsius’ managerial structure. The court appointed an independent examiner in September 2022 to evaluate the firm’s operations in the months leading up to its insolvency.
Recall that Celsius filed for Chapter 11 bankruptcy protection in July 2022, a month after halting withdrawals and transfers between accounts due to liquidity issues. Pillay’s scrutiny of the firm’s operations showed that Celsius had liquidity issues for a long time before it went underwater.
The examiner disclosed that the beleaguered lender used customers’ assets to fund purchases of its native token — CEL. Pillay’s discovery confirmed allegations of Celsius using customers’ funds to manipulate the price of CEL.
“Celsius recognised that it should not use customer assets to purchase the coins necessary to cover liabilities to other customers. But it justified its use of customer deposits to fill this hole in its balance sheet on the basis that it was not selling customer deposits but instead posting them as collateral to borrow the necessary coins,” Pillay said.
A Ponzi Scheme
According to Pillay, the bankrupt crypto lender also used new customer deposits to fund existing customer withdrawal requests in a Ponzi-like manner.
Due to the billion-dollar hole in Celsius’ balance sheet, the lender had inadequate liquidity to handle anticipated future withdrawals, and its liquid assets were steadily diminishing. The examiner argued that if the lender had not suspended transactions as when it did, then new deposits would have been its only source of coins to fund withdrawal requests.
Pillay further insisted that Celsius misled its customers by marketing one thing and documenting something else in its Terms of Use (ToU). Recall that the lender claimed 80% ownership of customers’ assets during its first bankruptcy hearing.
The examiner disclosed that in Celsius’ marketing materials and AMA sessions, the firm told customers that deposited crypto assets belonged to the customers and that they would get their assets back in the event of bankruptcy. However, the ToU, starting in March 2020, stated otherwise.
~ By William A. Frederick ~
