Celsius Network: Vermont Regulator Suggests That The Crypto Firm Is A Ponzi Scheme In New Filing

A filing made this morning in the United States Bankruptcy Court of the Southern District of New York in the case of Celsius Network is already making the rounds on social media. The filing, made by the Vermont Department of Financial Regulation, effectively outlines a number of state concerns related to unregistered securities offerings and fraud conducted by the crypto firm.

The filing starts off strong by outlining a number of statements made by Celsius CEO Alex Mashinsky that the regulator simples states are “false and misleading claims to investors about .. the company’s financial health and its compliance with securities law.” The regulator then comments that these claims “likely induced retail investors to invest in Celsius or to leave their investments in Celsius despite concerns about the volatility of the cryptocurrency market.”

Here, the regulator outlines multiple comments made by Celsius as well as Mashinsky that it has proven were materially false when they were made. For instance, on June 7, the firm stated within a blog post that the company had “the reserves (and more than enough ETH) to meet obligations, as dictated by our comprehensive liquidity risk management framework.” However financial records from Celsius instead outline that they had a “deeply negative net worth” at the time of the statements, and did not have the assets needed to repay deposits.

This however was one of the most recent false statements made. A month earlier, Mashinsky on Twitter indicated that the firm had not experienced “any significant losses,” adding that “all funds are safe.” Despite the statement being made on May 11, between May and May 12 the company had seen unrealized losses of over $454.0 million. What’s more, the Vermont regulator alleges that the company was insolvent and that funds in fact were not safe.

Other false statements made include the claim Celsius was profitable in 2021 when in fact massive losses had been recorded, that no regulators had not found anything of concern with the firm when in fact several pending actions and investigations against the company were underway related to securities laws, and that trouble for the firm started in Spring 2022, when in fact the company had been experiencing financial losses since 2020.

Perhaps the most interesting anecdote from the filing pertains to a meeting held on August 19, 2022. At the meeting, referred to as the 341 meeting, Celsius admitted that “the company had never earned enough revenue to support the yields being paid to investors.” As per the regulator, this “suggests that at least at some points in time, yields to existing investors were probably being paid with the assets of new investors.”

In other words, the Vermont Department of Financial Regulation just referred to Celsius Network as a Ponzi scheme.

Outside of Ponzi claims, the report also takes numerous issues with the CEL token, with the regulator also stating in plain english that “Celsius and its management engaged in the improper manipulation of the price of the CEL token, including by using the proceeds of investor deposits to acquire CEL tokens and increase its Net Position in CEL.”

It’s also suggested within the filing that the token itself may have been used as a means of enriching Celsius insiders. The regulator also notes that CFO Chris Ferraro suggested that the decline in price of the token contributed to the insolvency of the company.

After making the above statements, the state requested that an examiner be appointed to investigate Celsius and their financial affairs, “with broad powers.”

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Information for this briefing was found via the Southern District of New York and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.