Sebastian Sinclair

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 <ul>
 <li>Vermont joins 40 other state regulators in their pursuit of Celsius&#8217; true financials</li>
 <li>Celsius’ liabilities may have exceeded its assets as far back as February 2019, Vermont’s regulator alleges</li>
 </ul>
 
</div>



Vermont is requesting the appointment of an examiner with “broad powers” to further investigate embattled crypto lender Celsius and its financials.



The Vermont Department of Financial Regulation alleged Wednesday the lender manipulated the price of its CEL token and used investor deposits to boost its net position in them, according to a <a href="https://cases.stretto.com/public/x191/11749/PLEADINGS/1174909072280000000015.pdf">court filing</a>, first <a href="https://twitter.com/davidzmorris/status/1567515126302998528">reported</a> by Coindesk.



Celsius filed for chapter 11 bankruptcy in July after a month-long battle to stay solvent following Terra’s collapse. The <a href="https://cms.blockworks.co/7-critical-events-in-the-celsius-bankruptcy-case/" target="_blank" rel="noreferrer noopener">court proceedings that followed</a> have exposed a $3 billion hole in its balance sheet.



The regulator alleges Celsius misled investors on the state of its financial health which “likely” baited retail investors into keeping their funds on its platform, irrespective of the crypto market’s wild price swings.



Roughly 100,000 creditors are also reportedly owed money by the lender after they lent the firm unsecured cash loans. Sam Bankman-Fried’s trading firm, Alameda Research, is one of the high-profile lenders caught in the cross hairs.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">&#8220;At a minimum, Celsius has been operating its business in violation of state securities laws, the regulator said in its filing. “That improper practice alone warrants investigation by a neutral party.”</blockquote>



The regulator also alleges Celsius’ liabilities may have exceeded its assets since at least February 2019, before taking into account its net position in CEL tokens. The practice of artificially inflating its token led to the potential enrichment of insiders at the expense of retail investors, Vermont’s regulator said.



That revelation has some commentators calling the operation a Ponzi scheme.



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<blockquote class="twitter-tweet" data-width="550" data-dnt="true">This should be jail for Celsius CEO Mashinsky. Total ponzi scheme. <a href="https://t.co/7jNA3NXRXa">pic.twitter.com/7jNA3NXRXa</a>&mdash; Nate Anderson (@ClarityToast) <a href="https://twitter.com/ClarityToast/status/1567531634592727049?ref_src=twsrc%5Etfw">September 7, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Vermont joins at least 40 other state securities regulators in a multistate investigation of potential securities fraud, mismanagement and market manipulation, the filing reads.



Losses suffered by retail investors and savers, which include middle class unaccredited investors, some of whom parked their life savings on the platform, are the focus of Vermont’s fight, the financial watchdog said.



“The appointment of an examiner is critical to ensure the interests of these investors are protected.”



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bankruptcy

40 State Regulators are Opening Celsius’ Books in Search of Fraud

Shalini Nagarajan

<div id="highlights-block_62ce7eb32f661" class="highlights">
 <ul>
 <li>Celsius is unlicensed in Vermont and provided unregistered securities offerings, the agency said</li>
 <li>The lender used customer funds in risky and illiquid investments, trading and lending, it added</li>
 </ul>
 
</div>



Troubled cryptocurrency lender <a href="https://cms.blockworks.co/tag/celsius/" target="_blank" rel="noreferrer noopener">Celsius</a> is in no position to fulfil withdrawal obligations or repay loans to creditors, according to financial regulators in Vermont.



The state’s Department of Financial Regulation “believes Celsius is deeply insolvent and lacks the assets and liquidity to honor its obligations to account holders and other creditors,” the state watchdog said in a <a href="https://dfr.vermont.gov/consumer-alert/dfr-encourages-celsius-network-investors-proceed-caution" target="_blank" rel="noreferrer noopener">statement</a> on Tuesday.



Celsius, which is unlicensed in Vermont, used customer assets in various risky and illiquid investments, trading and lending activities, the regulator said. It believes users in the state have been affected, and the company’s assets may be inadequate to cover outstanding liabilities.



The regulator said Celsius provided an unregistered securities offering to retail investors and did not have a money transmitter license. It also accused the company, CEO <a href="https://cms.blockworks.co/tag/alex-mashinsky/" target="_blank" rel="noreferrer noopener">Alex Mashinsky</a> and other Celsius representatives of making false statements about the safety of customer funds and its ability to meet obligations.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Due to its failure to register its interest accounts as securities, Celsius customers did not receive critical disclosures about its financial condition,” it added.</blockquote>



Vermont has entered a <a href="https://cms.blockworks.co/5th-regulator-investigates-beleaguered-crypto-lender-celsius/" target="_blank" rel="noreferrer noopener">multi-state investigation</a> into the lender’s dealings, joining Alabama, Kentucky, New Jersey, Texas and Washington.&nbsp;



Celsius didn’t return Blockworks’ request for comment by press time.



Simon Dixon, CEO of investment platform BnkToTheFuture, itself a Celsius shareholder, described a <a href="https://cms.blockworks.co/celsius-lost-potential-6b-bailout-after-refusing-to-show-financials-investor-says/" target="_blank" rel="noreferrer noopener">proposed recovery plan</a> for the lender on Tuesday, saying he secured up to $6 billion in liquidity to solve its troubles. He also urged Mashinsky to be transparent about the company’s finances. But the company declined the offer, and Mashinsky hasn’t made its finances public. 



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“The only reason you wouldn’t pursue [a lucrative round of investment] is there’s something else going on,” Dixon said.</blockquote>



Celsius is best known for offering high-yield returns on its crypto deposits, up to as much as 18%. That high interest was earned by lending to other institutional investors and through DeFi protocols. Its <a href="https://celsius.network/about-us" target="_blank" rel="noreferrer noopener">website</a> previously showed Celsius lent out more than $8 billion to clients and held nearly $12 billion in assets as of May, but this data appears to have now been deleted. 



The company recently <a href="https://cms.blockworks.co/celsius-hires-new-restructuring-lawyers-amid-debt-repayments/" target="_blank" rel="noreferrer noopener">replaced</a> its former lawyers Akin Gump Strauss Hauer &amp; Feld LLP, which it <a href="https://www.wsj.com/articles/crypto-lender-celsius-hires-restructuring-lawyers-after-account-freeze-11655250575" target="_blank" rel="noreferrer noopener">hired</a> in mid-June, with new ones from Kirkland &amp; Ellis — the same law firm helping <a href="https://cms.blockworks.co/tag/voyager/" target="_blank" rel="noreferrer noopener">Voyager Digital</a> in its <a href="https://cms.blockworks.co/voyager-files-for-bankruptcy-days-after-freezing-withdrawals/" target="_blank" rel="noreferrer noopener">bankruptcy</a> proceedings. A source familiar with the matter told Blockworks in an interview it’s “entirely possible” that Celsius could go into bankruptcy as well.



The cryptocurrency lender <a href="https://cms.blockworks.co/celsius-lending-platform-suspends-withdrawals-and-transfers/" target="_blank" rel="noreferrer noopener">froze withdrawals</a> on its platform on June 12 “to stabilize liquidity and operations” and reportedly <a href="https://cms.blockworks.co/celsius-lays-off-150-employees-as-withdrawal-freeze-drags-report/" target="_blank" rel="noreferrer noopener">laid off</a> about 23% of its workforce soon after. Celsius is also said to have <a href="https://cms.blockworks.co/celsius-clashes-with-lawyers-over-chapter-11-bankruptcy-report/" target="_blank" rel="noreferrer noopener">resisted advice</a> from its own lawyers to file for bankruptcy, claiming user support would help it avoid the laborious process. More recently, it has begun to <a href="https://cms.blockworks.co/newsletter/daily/?id=28342824" target="_blank" rel="noreferrer noopener">pay down</a> its debts to Aave and Compound to free up collateral parked in the decentralized finance protocols.



Celsius’ concentrated positions on less liquid assets such as <a href="https://cms.blockworks.co/tag/stETH/" target="_blank" rel="noreferrer noopener">stETH</a> (staked Ether) led to its liquidity crisis. This delicate situation, coupled with the <a href="https://cms.blockworks.co/tag/terra/" target="_blank" rel="noreferrer noopener">TerraUSD stablecoin meltdown</a> and an uncertain macro environment has been wreaking havoc in financial markets.



Celsius’ CEL token is down 66% from the start of May, around the time of <a href="https://cms.blockworks.co/cryptocurrency-luna-lurches-as-terra-usd-volatility-continues-erasing-billions/" target="_blank" rel="noreferrer noopener">TerraUSD’s depegging</a>. It last traded at $0.72 as of 4:00 am ET on Wednesday, data from <a href="https://www.blockworksresearch.com/assets/cel/" target="_blank" rel="noreferrer noopener">Blockworks Research</a> shows.



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