Last Updated on September 8, 2022 by Bitfinsider

The bankrupt cryptocurrency lender Celsius Network allegedly made “false and misleading claims” about its “financial health and compliance with securities laws,” according to a court document from the Vermont Department of Financial Regulation.

Celsius was operated similarly to a Ponzi Scheme

In a statement supporting the Justice Department’s request to appoint an examiner in Celsius‘ bankruptcy case, the Vermont Department of Financial Regulation stated that the business may have been paying yields via a Ponzi-like method.

At the same time, holders of Celsius Series B shares filed a limited objection to the motion, noting that they did not take a stance on the appointment of an examiner and instead urged that the motion’s scope be narrowed and that the budget be changed to prevent squandering money.

Based on a preliminary review of financial records, the most recent statement claims that Celsius suffered “massive losses” during the first seven months of 2021 and “two material adverse events” in the months of June and July. Furthermore, despite being obligated by state and federal securities legislation to disclose its financial statements, the firm had kept its losses from investors.

The petition also alleged that Celsius may have manipulated the value of its CEL coin. The deed may have “artificially” raised the company’s CEL holdings on the balance sheet.

The document quotes Celsius CEO Alex Mashinsky’s blogs and tweets, including one in which he insisted that “all funds are safe” despite the document stating “the company was insolvent and depositor funds were not safe.”

The company “never earned enough revenue to support the yields being paid to investors,” according to the filing. It further added: “This shows a high level of financial mismanagement and also suggests that at least at some points in time, yields to existing investors were probably being paid with the assets of new investors.”

Did the firm “Deceived the public”?

The Texas State Securities Board (SSB) said in a related motion that Celsius had responded to requests for information and documentation insufficiently and poorly, and that its assertions of the Debtors’ financial situation in the bankruptcy case had “been inconsistent at best.”

The Texas complaint supported the Vermont’s allegations and listed other instances where it believed Celsius misled the public. It also cited a blog post from June 7 in which Celsius informed users that despite having just five days left before ceasing withdrawals, it had no trouble fulfilling their requests.

The Vermont suit also asserts that Mashinsky openly deceived investors in its regulatory engagements by claiming to have allayed worries from state securities regulators in December.

Vermont claims that Celsius had manipulated the price of its native token were accurate in its petition. More than 40 million CEL tokens were added to Celsius’s holdings between May 2 and July 1, when the business stopped permitting withdrawals, with more than half of the growth taking place after the site was shut down.

According to the authority, Celsius participated in this action at some point in 2021. Without the CEL position, liabilities would have surpassed assets “at least” since February 2019.

In a statement, the filing stated: “By increasing its Net Position in CEL by hundreds of millions of dollars, Celsius increased and propped up the market price of CEL, thereby artificially inflating the company’s CEL holdings on its balance sheet and financial statements. This shows a high level of financial mismanagement and also suggests that at least at some points in time, yields to existing investors were probably being paid with the assets of new investors.”

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