Bankrupt cryptocurrency lender Celsius Network may have misled its investors and used new customer funds to cover outstanding withdrawals, an independent examiner for the New York bankruptcy court alleged in a Tuesday filing.

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Fast facts

  • Shoba Pillay, a former federal prosecutor and partner at the law firm Jenner & Block, was appointed by the New York bankruptcy court to look into the New Jersey-based lender’s operations and determine if it amounted to a Ponzi scheme.
  • Celsius filed for Chapter 11 bankruptcy protection in July. A court filing by consulting firm Kirkland & Ellis revealed US$2.8 billion in liabilities on the lender’s balance sheet.
  • While Celsuis co-founder and former chief Alex Mashinsky repeatedly told customers that their Bitcoin was 100% collateralized and would be returned in the event of bankruptcy, Pillay alleged in her report that the company operated differently behind closed doors. 
  • According to Pillay’s findings, Celsius used customer funds to service other users’ withdrawal requests, fund operational expenses and rewards, and fill holes in its balance sheet on several occasions dating back to 2020. 
  • Dean Tappen, Celsius’ “coin deployment specialist,” once referred to the company’s practices as “very ponzi-like,” Pillay said. 
  • Pillay also claimed to have uncovered price manipulation patterns, with the company failing to disclose at least US$558 million it spent on buying its own token, CEL. 
  • Additionally, Celsius may have violated tax compliance, with its mining arm possibly owing over US$23.1 million in taxes in the U.S., and has reserved US$3.7 million in potential value-added tax liabilities in the U.K.

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