The Vermont Department of Financial Regulation, or DFR, alleged crypto lending platform Celsius Network and CEO Alex Mashinsky misled state regulators about the firm’s financial health and its compliance with securities laws.
In a Wednesday filing with the U.S. Bankruptcy Court in the Southern District of New York, Vermont’s financial regulator said Celsius and Mashinsky “made false and misleading claims to investors” which allegedly downplayed concerns about volatility in the crypto market, encouraging retail investors to leave their funds on the platform or make new investments. According to the state regulator, Celsius and its CEO “lacked sufficient assets to repay its obligations” despite claiming the firm had enough funds in its reserves to mitigate the risk of insolvency.
The DFR cited company blog posts and tweets from Mashinsky starting in 2021, suggesting that the platform was “profitable or financially healthy” at a time when it was experiencing “catastrophic losses” and “failed to earn sufficient revenue to support returns.” In addition, the regulator said it had learned of credible claims that Celsius and its management team “engaged in the improper manipulation of the price of the CEL token,” using investor funds to purchase additional tokens and pay out many to depositors as interest.
“By increasing its Net Position in CEL by hundreds of millions of dollars, Celsius increased and propped up the market price of CEL, thereby artificially inflating the company’s CEL holdings on its balance sheet and financial statements,” said DFR assistant general counsel Ethan McLaughlin. “Excluding the Company’s Net Position in CEL, liabilities would have exceeded its assets since at least February 28, 2019. These practices may also have enriched Celsius insiders, at the expense of retail investors.”
The financial regulator called for an investigation into Celsius’ alleged manipulation of the CEL tokens’ price, which “artificially inflat[ed] the value of the company’s net position in CEL on its balance sheet and financial statements.” Though Celsius officially filed for Chapter 11 bankruptcy in July, a balance sheet analysis conducted by the DFR suggested the platform may have been insolvent on May 13, if not earlier.
Cointelegraph reported on Aug. 16 that Celsius may have been on track to run out of funds by October, with a report suggesting the company’s debt was closer to $2.8 billion against its bankruptcy filing claims of a $1.2 billion deficit. During the bankruptcy court proceedings, Celsius co-founder Daniel Leon claimed his stake in the platform, 32,600 common shares, was effectively “worthless.” On Sept. 1, former Celsius users petitioned the bankruptcy court to allow them a legal remedy to recover $22.5 million in the platform’s custody.
Cointelegraph reached out to Celsius and Alex Mashinsky, but did not receive a response at the time of publication.