tokenist.com
Now-defunct crypto lender Celsius used customer funds to purchase and prop up the value of its native token CEL, a new report reveals. Furthermore, the company’s executives, including CEO Alex Mashinksy, were cashing out and dumping large volumes of their CEL holdings while placing “resting” orders to offset any price drops.
Celsius Has Been Insolvent Since the Start
A new report by Jenner & Block attorney Shoba Pillay, the bankruptcy court-appointed Examiner of Celsius, claims that Celsius “on a stand-alone basis has been insolvent since inception.” The report, which centers around Celsius’s native token, argues that the crypto lender used CEL as the centerpiece of a scheme to enrich executives at customers’ cost.
The report claims that Celsius abandoned its promise of transparency from the very start. The crypto lender initially aimed to raise $50 million through the ICO of its CEL tokens. However, the company only sold 203 million of the 325 million CEL offered for sale, raising $32 million, but did not disclose this to its community.
Moreover, Celsius conducted several malpractices to inflate the price of its CEL tokens. Per the report, the crypto lender started purchasing CEL in 2018 and 2019 when the crypto markets declined to pay rewards. However, the company substantially expanded its purchases starting in 2020 to increase CEL’s price. The report added:
“Instead of buying CEL when it needed to pay rewards, Celsius began timing its purchases so that they would prop up CEL’s price by creating activity in the market. Celsius also began placing “resting” orders to buy CEL, which were triggered if the price of CEL dipped below a set amount.”
Celsius also started selling CEL tokens in private over-the-counter (OTC) transactions while buying CEL in public markets to offset any price drops. The company allegedly referred to this new strategy as its “OTC Flywheel” internally.
And when the crypto lender did not earn enough yield on its crypto asset deployments to fund its CEL buybacks fully, it began using customer funds. The company eventually lost track of customer assets and thus failed to honor withdrawals in June 2022 and eventually filed for bankruptcy by mid-July.
Notably, CEL traded on a limited number of exchanges and had only 25 active spot markets. The token was not listed on major regulated exchanges like Binance or Coinbase. Instead, now-bankrupt FTX and OKX accounted for most of its trade volume, which likely made it easier for Celsius executives to control its price.
CEL Token Used to Enrich CEO
In total, Celsius spent at least $558 million to purchase CEL tokens on open markets, which led to the token price soaring more than 14,000% starting mid-2020.
Per the report, the inflated price favored top company executives, including CEO Alex Mashinsky and co-founder Daniel Leon. Both executives sold CEL worth at least $68.7 million and $9.74 million between 2018 and 2022. The report said:
“Celsius often sought to protect CEL from price drops that it attributed to Mr. Mashinsky’s sales of large amounts of his personal CEL holdings. As a result of Mr. Mashinsky’s sales, Celsius often increased the size of its resting orders to buy all of the CEL that Mr. Mashinsky and his other companies were selling.”
When asked why the crypto lender used all funds to buy more CEL, a Celsius manager said the answer lies in who holds the most CEL. “We spent all our cash paying execs and trying to prop up Alex’s net worth in CEL token,” another manager reportedly said.
It is worth noting that there are a lot of similarities in terms of criminality around CEL and FTT, the native token of FTX. As reported, the SEC has classified FTT as a security, claiming that FTX used proceeds from the FTT sale to fund the development, marketing, business operations, and growth of FTX.