Vermont regulators alleged that bankrupt crypto platform Celsius Network, through its chief executive, Alex Mashinsky, made false and misleading claims to investors about the firm’s financial health even as it suffered huge losses.
The court papers filed last week cited an analysis by securities regulators from multiple states into Celsius’ preliminary internal financial records.
The Vermont Department of Financial Regulation’s filing also noted testimony by Celsius chief financial officer Chris Ferraro in a recent meeting of creditors that the company’s insolvency started with financial losses in 2020, running through 2021. That contradicted Mashinsky’s claims in his sworn declaration in bankruptcy court that blamed the summer crypto crash and a sudden surge in customer withdrawals as causes behind the company’s collapse, according to Vermont’s filing.
A spokesperson for Celsius didn’t immediately respond to a request for comment. Celsius filed for chapter 11 in July and disclosed a roughly $1.2bn hole in its balance sheet.
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Vermont’s filing also cited testimony by Ferraro that the company never generated enough revenue to support the interest it promised depositors. The state’s filing said his testimony shows “at least at some points in time, yields to existing investors were probably being paid with assets of new investors.”
Forty states have engaged in a multi-state investigation into Celsius selling products that might be unregistered securities and potential securities fraud and market manipulation, according to the court filing.
Among the states’ findings: Celsius suffered “catastrophic losses” as far back as 2021. At the time, Mashinsky tweeted how the firm, unlike some of its competitors, didn’t need to raise money because it was profitable.
Mashinsky continued to make similar statements about the firm’s financial strength leading up to its bankruptcy filing, Vermont said.
He tweeted on 11 May that, despite extreme market volatility, Celsius had not experienced “significant losses”. The regulators’ review of company financial records show Celsius racked up over $454m in unrealised losses between 2 May and 12 May.
“State and federal securities laws required Celsius to publicly disclose financial statements and a range of material information about its financial condition, business, and risk factors,” the court filing said. “Instead, Celsius and its management kept its massive losses, asset deficit, and deteriorating financial condition secret from investors.”
In the filing, Vermont also noted that it supports calls by government lawyers and Celsius customers for the appointment of an examiner — a neutral third party — to investigate the firm’s financial affairs.
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This article was published by The Wall Street Journal, part of Dow Jones