Celsius Crypto Lending Platform Exposed as a Fraud: New York Attorney General Takes Legal Action

Investigation Uncovers Deception and Misleading Business Practices Resulting in $5.5 Billion in Customer and Creditor Debt

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Celsius, the cryptocurrency lending platform that was a major player in the crypto market and went bankrupt shortly after Terra’s collapse, did nothing more than apply the same tactics as FTX. This of course raises a question of who is copying whom, as Celsius preceded them in time.

As far as can be seen, the actions on the part of the executives prior to the bankruptcy still surprise the liquidators. For, as expected, an independent investigator was also appointed in this case to unravel the case, as there were reasonable suspicions that Celsius’ founder and CEO, Ukrainian-American Alex Mashinshky, was involved in fraud.

One of the common practices between Celsius and FTX was that they used the same accounting program, Quickbooks.

However, Quickbooks may be a great tool for small and medium-sized businesses, but not for complex corporate operations, tens of thousands of customers and billions in turnover.

Specifically for Celsius, New York Attorney General Shoba Pillay’s report states that they tracked the different divisions of the company in 15 separate files, with no ability to automatically create consolidated financial statements.

The consolidation of the financial statements was first done in the second quarter of last year, manually! In fact, many of these files were created retroactively to meet auditors’ requests!

Celsius Crypto Lending Platform Exposed as a Fraud: New York Attorney General Takes Legal Action
Ex Celsius CEO, Alex Mashinsky

As revealed by the investigation, Celsius had promised their customers rewards in their own currency, the CEL token.

So far, nothing wrong with that, since the platform users were accepting to be paid in that currency. Why were they willing to risk getting paid in CEL and not Bitcoin or dollars? Because the nominal return was higher. Celsius offered a higher interest rate in CEL and that’s why they felt it was worth the risk.

The problem started when the Celsius people used dollars, lots of dollars, to manipulate and inflate the value of CEL. Reportedly, in one instance alone, about half a billion dollars was spent to inflate the price of CEL. The total liability created over 4 years was in the order of $1.36 billion.

The manipulation benefited those who had access to confidential information, which they exploited to their advantage, including, of course, Alex Mashinsky. According to Pillay’s report, Mashinsky managed to make a profit of $68.7 million from this illegal activity.

Celsius was one of the beneficiaries of the Covid-19 pandemic. Within 24 months, the company had an explosive rise. Customers on the platform increased, as did deposits.

Everything indicated that they had secured a solid customer base. In this favorable climate, it seemed logical for the price of CEL to boom.

However, as the investigation showed, the increase in its price was largely the result of manipulation. A piece of information that they naturally avoided discussing with their customers. Worse still, the money spent to inflate the price of CEL was from Celsius customers’ deposits.

According to the report of the independent liquidator that was made public, the business model of Celsius that was presented and advertised to its customers was not the real one. Behind the scenes, the company’s activities were conducted in a completely different way. Mashinsky allegedly deceived and misled his customers by concealing the true financial condition of the company, which currently owes customers and creditors $5.5 billion.

Another new piece of evidence that has emerged is that while Celsius suffered a loss of only $30 million of the $990 million it held in UST, Terra’s stablecoin. However there was a loss of confidence in Celsius’ ability to cover customer deposits.

It was this that forced the company to freeze withdrawals, as there were massive withdrawal requests for $428 million worth of money. An amount it could not afford, as it far exceeded available liquidity, according to excel (!) records reviewed by the examiner. Then the liquidity crisis was compounded by the sharp drop in the CEL token.

Perhaps the most striking thing that came out of the report was the finding that Celsius’ problems date back to at least 2020. The company has had to take out loans to keep itself afloat, “managing” to lose money even in the great rise of the cryptocurrency market. Despite all this, Mashinsky was touted on financial channels and media networks as the crypto guru. Just like Sam Bankman-Fried.

Following the revelations, New York Attorney General Shoba Pillay sued Celsius founder and former CEO Alex Mashinshky.

Perhaps the most striking thing that came out of the report was the finding that Celsius’ problems date back to at least 2020. The company has had to take out loans to keep itself afloat, “managing” to lose money even in the great rise of the cryptocurrency market. Despite all this, Mashinsky was touted on financial channels and media networks as the crypto guru.

Just like Sam Bankman-Fried.

Following the revelations, New York Attorney General Shoba Pillay sued Celsius founder and former CEO Alex Mashinshky.

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