The court had appointed Examiner Shoba Pillay to undertake a detailed investigation into the operations and business practices of Celsius.

A 300+ page interim report had been produced in November 2022, with the final examiner’s report available on 30th January 2023, consisting of over 600 pages.

The report can be downloaded here.

Incompetent Business Practices

A number of unacceptable business practices were consistently occurring.

A lack of risk management practices and inability to track assets and liabilities were some of the highlighted problems.

The company did not have a risk management function or documented risk policies prior to 2021. After subsequently employing a team of four, Celsius delayed an internal audit and at the time of bankruptcy they had not fully implemented a robust risk management policy.

The examiner stated that Celsius used a combination of spreadsheets and accounting systems QuickBooks and NetSuite to record its data.

There were also significant tax deficiencies within the company. A tax specialist was not employed until 2021 even though they had basically been operating multiple businesses in multiple countries.

Celsius’s mining company had $14m in unpaid utility bills and $23m in owed taxes.

Unsecured loans were provided, and by June 2021, approximately one third of the institutional loan portfolio was unsecured.

Consistent Lies and Deceit

After Celsius had published videos to YouTube where Alex Mashinsky would make claims that were not true, some of these videos would subsequently be edited even though people would have viewed them and potentially invested based upon what Mashinsky said. The fact they were edited was also never communicated.

In May 2022 when the company faced worsening liquidity issues, Mashinsky continued to present an optimistic financial outlook to customers.

Furthermore, Mashinsky sold a large number of the company’s CEL token for him to personally profit whilst he knew about the financial situation. The sales were not disclosed and in fact the opposite was communicated. Mashinsky communicated that he was in fact buying and not selling.

Mashinsky consistently stated that customers assets were their own and would be returned to users in the event of bankruptcy. This was even though the terms of service from March 2020 stated that all rights of ownership are transferred to the company upon deposit.

“Celsius’s co-founder and majority owner, Alex Mashinsky, repeatedly told customers in his weekly livestream conversations (referred to as “Ask Mashinsky Anything” or “AMAs”) that customer-deposited coins “are your coins, not our coins . . . [i]t’s always your Bitcoin.” When asked what would happen in the event of a bankruptcy, Mr. Mashinsky told customers “coins are returned to their owners even in the case of bankruptcy.”

Celsius communicated to its customers that it was offering high yields by investing their assets in low-risk and fully collateralized institutional and retail loans, which was not true.

CEL Token Worthless

Mashinsky repeatedly informed customers that the company’s CEL token reflected the value of the business, despite internal conversations throughout 2022 in which some employees stated that the true value was $0.

Using customer funds and money raised from outside investors, Celsius spent $558m buying its own CEL token, basically artificially inflating the price.

As Mashinsky was selling large amounts of CEL, allowing him to realise $68.7m, the company would buy more CEL to protect against price drops due to Mashinsky selling.

Co-founder Daniel Leon also sold CEL tokens worth $9.74m.

These activities were pure manipulation of the CEL token by Celsius.

Conclusion

There were multiple internal statements of Ponzi like activities so it was evident that people within the company were aware of exactly how they were operating.

Based on the findings in the examiner’s report, Mashinsky was clearly aware of how the business was operating and was in fact the main instigator of it.

Celsius are still trying to continue with their own re-org moving forward, which is continuing to cost significant amounts of money in lawyers fees, whilst it recently came to light that there had actually been multiple bids for the company that could of at least allowed customers and investors to get some of their money back.

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