Bankrupt cryptocurrency lender Celsius Network is facing allegations of misleading its investors and using new customer funds to cover outstanding withdrawals.
This comes from an independent examiner appointed by the New York bankruptcy court, Shoba Pillay, a former federal prosecutor and partner at Jenner & Block law firm.
Pillay was tasked with investigating the New Jersey-based lender’s operations to determine if it was operating as a Ponzi scheme.
Celsius filed for Chapter 11 bankruptcy protection in July, with a court filing revealing $2.8 billion in liabilities on its balance sheet.
Despite co-founder Alex Mashinsky’s claims that customers’ Bitcoin was 100% collateralized and would be returned in the event of bankruptcy, Pillay’s report found that the company used customer funds to service other users’ withdrawal requests, fund operational expenses and rewards, and fill gaps in its balance sheet dating back to 2020.
Pillay also claims to have uncovered price manipulation patterns and failed to disclose at least $558 million spent on buying its own token, CEL.
The company’s mining arm may also have violated tax compliance, with a possible debt of over $23.1 million in taxes in the US and $3.7 million in potential VAT liabilities in the UK.
Dean Tappen, Celsius’ “coin deployment specialist,” referred to the company’s practices as “very ponzi-like,” according to Pillay.
