- A report by an independent examiner has revealed that the Celsius Network misled its investors and its financial problems date back to 2022.
- According to Shoba Pillay, an external examiner appointed by the Bankruptcy Court, noted that the company’s serious problems date back to at least 2020, after Celsius began using client assets to finance operating expenses and rewards.
- Celsius would have been using Bitcoin (BTC) and Ethereum (ETH) that customers deposited to borrow stablecoins.
An independent examiner has revealed that Celsius Network misled its investors given that its problems date back to at least 2020, cContrary to what the crypto community believed, but what happened to Celsius?
It is worth remembering that, in May 2022, the collapse of the algorithmic stablecoin terraUST occurs and, with it, the cryptocurrency called LUNA. Panic gripped the market, causing losses estimated at $300 billion US dollars.
Since it was a hard blow in terms of confidence, investors began to sell and withdraw their cryptocurrencies from the platforms; that is, something similar to what is known as a “bank run” happened. As a consequence, cryptocurrency platforms that were not in good financial health began to fall one after another.
On June 12, 2022, Celsius Network suspended withdrawals and operations as a response to “extreme market conditions”. However, since the market was in a state of alert, the decision of this company fueled the rumors of its insolvency and almost a month later, Celsius requests protection by bankruptcy Chapter 11 in the United States Bankruptcy Court for the Southern District of New York.
In September 2022, the Court requested that an external examiner offer an independent view of the events in which the Celsius Network was involved. was appointed to Shoba Pillay as the examiner in charge. This is precisely the report that has been published today, January 31, 2023.
Celsius problems started at least in 2020
The recently published report alleges that the crypto lending company experienced massive holes in its balance sheet since 2020. That is, according to the report, Celsius was never a profitable venture.
“Celsius’ problems didn’t start in 2022. Rather, the serious problems date back to at least 2020, after Celsius began using customer assets to fund operating expenses and rewards.”, the document noted.
Basically the report alleges that Celsius would have been using Bitcoin (BTC) and Ethereum (ETH) that customers deposited to borrow stablecoins at a time when cryptocurrency prices were raised to finance its own operations, investments and rewards given to clients.
In fact, Shoba Pillay assured that, “In some cases, between June 9 and 12, Celsius directly used new customer deposits to fund customer withdrawal requests.”. This can be considered as the textual definition of a Ponzi scheme.
“Celsius sought to attract additional stablecoins from its clients through the use of promo codes and rate rewards.” explains the report.
According to Pillay, Celsius “jusIt classified its use of customer deposits to fill this hole in its balance sheet on the basis that it was not selling customer deposits, but was posting them as collateral to borrow the necessary coins.”
According to the examiner, heThe company offered an interest rate significantly above the market in order to beat the competition.EThese interest rates offered by Celsius were not correlated to the return on investing those assets in the market; generating deficit and precisely for this reason, it is essential that investors carry out an investigation of the investment products available in the market.
A product that offers interest rates excessively higher than the rest of the market is highly risky.
You might be interested in:
