Celsius used customer funds to buy tokens, benefitting insiders
Bankrupt crypto lender Celsius used customer funds to prop up the price of its CEL tokens, a Tuesday report from a court-appointed independent examiner found.
Why it matters: The report could presage a criminal case.
Background: Already, Celsius ex-CEO Alex Mashinsky is facing civil charges, alleging he defrauded hundreds of investors out of billions of dollars.
- Former federal prosecutor Shoba Pillay was asked in September to offer a third-party view into allegations that Celsius had run a Ponzi scheme.
Details: From 2018 to 2022, Celsius allegedly spent at least $558 million to buy back its own tokens that heavily benefited insiders, according to the report.
- Per the report, Mashinsky gained some $68.7 million by selling his CEL tokens. Co-founder S. Daniel Leon made a windfall of at least $9.74 million.
- But in 2021, the company discovered it had a shortfall in bitcoin and ethereum — both of which were being used to fund the buybacks.
- It decided to correct the shortfall by spending $300 million in stablecoins — using customer deposits to acquire those stablecoins.
- The company bought CEL "often" to counterbalance price drops due to Mashinsky's selling his own holdings.
Zooming in: Pillay compiled messages from former Celsius employees that appear to put the company on the wrong side of the law.
- Celsius' former CFO wrote of the buybacks: “We are talking about becoming a regulated entity, and we are doing something possibly illegal and definitely not compliant.”
- Celsius’ coin deployment specialist described the practice of “using customer stablecoins” to buy CEL as “very Ponzi like.”