Just weeks before freezing customer accounts and going out of business, Celsius founder Alex Mashinsky pocketed $10 million from the now-defunct bitcoin lender, according to sources quoted by The Financial Times.
Following the demise of stablecoin issuer Terra in May, Mashinsky is believed to have made the withdrawals, prompting panicky withdrawals from Celsius’ own customers out of fear of market contagion. After about a month, on June 12, Celsius suspended customer withdrawals and, with a hole in its finances of about $1.2 billion, filed for chapter 11 bankruptcy in July.
The charges that Mashinsky withdrew money came days after he resigned as CEO of Celsius due to an unresolved bankruptcy. They will probably make his actions previous to the collapse even more scrutinised and prompt inquiries about what he and other top members of the lender knew or understood about Celsius’ poor financial state.
Mashinsky, the CEO of Celsius, withdrew $10 million.
Although a representative for the former CEO claims that Mashinsky had previously made contributions equal to that sum, it appears that he isn’t disputing taking the $10 million out.
The majority of the bitcoin Mr. Mashinsky withdrew from his account in mid- to late-May 2022 was used to pay state and federal taxes. He constantly deposited cryptocurrencies in amounts equal to what he withdrew in May in the nine months prior, according to the spokeswoman.
The representative for Mashinsky further states that the former CEO is “dedicated to working with and rallying the community around a recovery plan” that will provide compensation to as many Celsius customers as possible. These clients are due almost $4.7 billion as of this writing, and several of them claim to have placed large sums with Celsius before its collapse.
One couple stated in a letter they had deposited savings totaling $150,000 with Celsius to the US Bankruptcy Court for the Southern District of New York.
Our life savings were in that, they stated.
The assertion that Mashinsky withdrew $10 million from Celsius — and evidently for his own personal use — will not be viewed favourably in light of such accounts and testimonials. The lender was insolvent as early as May 13, according to a document made earlier this month by the Vermont state financial authority. This was around the same time that Mashinsky was tweeting that the business “had not sustained any big losses” and that “all money are safe.”
This paints a picture of a business that may have intentionally mislead its clients, against the backdrop of irresponsible speculation with those customers’ savings, when combined with the recent claims against Mashinsky.
Insolvency Proceedings
While the demise of Celsius is frequently linked to those of Terra and Three Arrows Capital (not to mention Voyager Digital), it appears that its bankruptcy was primarily brought on by risky investments.
It had promised its consumers profits of up to 17%, but it now appears that these promises were backed by dangerous wagers on the DeFi market. For instance, between August 2020 and April 2021, it deposited over $534 million with KeyFi; nevertheless, whereas these deposits increased to a total of $1.14 billion by the conclusion of this time period, they would have been worth almost $1.49 billion if Celsius had simply kept the assets itself.
It also experienced technical failures and hacks at the same time, with the lender being vulnerable to the $120 million BadgerDAO hack in December 2021.
As a result, by the time a bear market hit this year, its financial situation had become untenable due to a mix of apparent incompetence and bad luck. Following a string of withdrawals from customers in May, it frozen accounts the following month before filing for bankruptcy the following.
According to reports, the majority of Celsius customers may be considered unsecured creditors as of the time of this writing, even if bankruptcy processes are still ongoing. As a result, they will be last in line to get compensation, which means that the clients of the lender may never recover the lost funds.
