Celsius cashed out millions, investors used to prop up own token

The U.S. court-ordered examiner report shows that two of the founders of the company have cashed out millions, as well as the use of investor money to prop up its own token, inflating its balance sheet.

During the COVID-19 epidemic, Celsius drew depositors with high interest rates and easy access to loans. In July of last year, Celsius filed for U.S. bankruptcy after freezing customer withdrawals from its platform.

U.S. Bankruptcy Judge Martin Glenn, who oversees the Chapter 11 case, appointed former prosecutor Shoba Pillay as an independent examiner in September.

She was charged with investigating accusations by Celsius customers that the company operated as a Ponzi scheme and reporting on its handling of cryptocurrencies deposits.

Reuters was unable to independently verify the contents of Pillay's report.

A public relations firm representing Celsius at the time of its bankruptcy, a lawyer for CEO Alex Mashinsky, and Celsius did not respond immediately to Reuters' requests for comment, which were sent to multiple addresses, including an email listed on Celsius's website. After the report was released, requests were sent in the United States at nighttime.

Celsius gathered deposits from retail customers and invested them in the equivalent of the wholesale market. The report said it raised some of the initial capital to fund its business by creating and selling its own token called CEL. It told customers it would buy CEL in the secondary market and give it to customers as rewards. The report said this would generate users for the business while boosting CEL's price, in what it called a self-sustaining flywheel.

The price of CEL went up from 2020, but Celsius went on a buying spree to push it higher and higher, the report said.

The report said that Celsius spent $558 million on buying its token, but it did not tell customers the extent that it was making the market for CEL, telling them it was gaining on its own The token's skyrocketing price was due to Celsius's purchases.

The report said that the business model Celsius advertised and sold to its customers was not the business that Celsius actually operated.

In a starkly different way, Celsius marketed itself to its customers in every respect, while it operated its business behind the scenes. The report said that Celsius paid more money to customers as rewards than it was able to generate in revenues. Between 2018 and June, the report said that it had obligations to customers of $1.36 billion more than the net revenue it generated from customer deposits.

The CEL token's price gains benefited insiders who held most of it, according to the report. The report said that at least $6.7 million from selling CEL tokens between 2018 and the bankruptcy filing was sold by Celsius founder Alex Mashinsky, who is currently facing fraud allegations in the United States.

Reuters was unable to reach Mashinsky or Leon for comment. A lawyer for Mashinsky said earlier that his client denies the allegations and looks forward to vigorously defending himself in court.

In the year 2022, Celsius employees routinely acknowledged that the token was worthless and that the company's holdings of it could not be liquidated, according to the report.

The counsel for the Examiner interviewed 34 people as part of the report, including Mashinsky, current and former Celsius employees, its customers and vendors.