A new bankruptcy filing from the Vermont Department of Financial Regulation reveals that regulators were concerned that as early as 2020, Celsius was paying yields to some existing investors with the assets of new investors.
The revelation originally arose out of a meeting of Celsius’ creditors on August 19, 2022 and is now public by way of a court filing.
According to counsel for the Vermont Department of Financial Regulation, Celsius’ CFO admitted that the company has never earned enough revenue to support the yields advertised to customers.
Worse, the regulator estimates that Celsius might have been insolvent as early as 2019. In fact, the regulator noted that, excluding holdings of its own CEL token, the company’s liabilities exceed its assets since March 2019.
Of course, as has already been pointed out, this would put Celsius firmly in the realms of a Ponzi scheme.
Indeed, in an earlier filing from mid-August, the state securities regulator joined calls for the judge dealing with Celsius’s bankruptcy to appoint an independent examiner as a result of these concerns.
Celsius used CEL to bolster its balance sheet
The most recent filing also alleges that Celsius has been using its own native token to prop up its balance sheet.
According to the documents, the price of CEL was manipulated by the company and its management who used investor funds to buy more tokens and thereby inflate its net position.
“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,” read the allegations.
“Excluding the Company’s Net Position in CEL, liabilities would have exceeded its assets since at least February 28, 2019. These practices may also have enriched Celsius insiders, at the expense of retail investors.”
The allegations made in the filing stand in stark contrast to repeated claims from Celsius CEO Alex Mashinsky that everything was completely fine. Mashinsky tweeted on a number of occasions to reassure investors that “all funds are safe” and that “Celsius is profitable and always acts in its users’ best interest.”
However, even as he was posting these tweets, the filing states, “preliminary analysis of financial records provided to the multistate regulators group indicates that Celsius experienced massive losses in the first seven months of 2021.”