Celsius Network Founder Withdrew $10M Before Filing Bankruptcy

Celsius Network founder Alex Mashinsky withdrew $10 million from the crypto lender just weeks before the company froze customer accounts when it filed for bankruptcy, according to people familiar with the matter.

Mashinsky’s crypto withdrawals in May of this year came as customers withdrew their assets from the company in large numbers, spooked by the wider turmoil in crypto markets and concerns about Celsius’ financial health.

Celsius froze withdrawals on June 12, leaving hundreds of thousands of retail investors without access to their savings. The company filed for bankruptcy in July with a $1.2 billion hole in its balance sheet.

The company had a peak of $25 billion worth of crypto assets deposited last year by clients drawn by inflated Celsius interest rates, which could be as high as 18 percent on certain cryptocurrencies.

The revelations of the withdrawal will intensify scrutiny of Mashinsky, who resigned as chief executive Tuesday, and raise questions about when he knew Celsius couldn’t give customers back their wealth.

Details of Mashinsky’s transactions will be presented in court by Celsius in the coming days as part of a broader disclosure of its financial affairs.

A spokesman for Mashinsky said that even after the withdrawals, he and his family still froze $44 million in crypto assets at Celsius, which he voluntarily disclosed to the official Unsecured Creditors Committee (UCC) during the bankruptcy proceedings.

“In mid to late May 2022, Mr. Mashinsky withdrew a percentage of cryptocurrency from his account, much of which was used to pay state and federal taxes. In the nine months leading up to this withdrawal, he has consistently deposited cryptocurrency in amounts equal to what he withdrew in May,” the spokesman said.

“He remains committed to working with the community and uniting them around a recovery plan that will maximize coins and liquidity for all,” they added.

Mashinsky, 56, co-founded Celsius in 2017 and was the public face of the company, appearing in weekly video addresses on YouTube, where he shared his message of financial freedom from banking.

At the end of 2021, Celsius was valued at $3 billion, having raised $600 million in equity investments from US investment firm WestCap and Canada’s second-largest pension fund, Caisse de dépôt et Placement du Québec.

Despite Mashinsky’s public bullishness, the company struggled behind the scenes with weak internal systems for managing its assets and at times paid out more interest to customers than it generated from lending.

Celsius also suffered a series of investment losses in 2021 and 2022, which contributed to its demise but were not disclosed to customers. Last month, the Vermont State Financial Services Authority claimed that Celsius was insolvent as early as May 13 of this year.

The company saw huge outflows of assets in May as crypto markets were rocked by the collapse of two related cryptocurrencies, TerraUSD and Luna. Their demise led to a series of corporate failures across the crypto industry.

Just days before Celsius froze withdrawals, the crypto lender reassured customers it had sufficient reserves and declared “full steam ahead.”

Mashinsky, a former telecom entrepreneur, faces the prospect of being forced to return the $10 million he siphoned from Celsius. Under US law, payments made by a company in the 90 days prior to its bankruptcy can be recovered in favor of all creditors.

About $8 million of the assets Mashinsky siphoned were used to cover taxes derived from the revenue generated by the assets on Celsius, said one of the people familiar with the matter.

The remaining $2 million were units of Celsius’ native “CEL” token. The withdrawal was pre-planned and linked to Mashinsky’s estate planning, the person added.

Mashinsky was Celsius’s largest shareholder and said he was one of its largest creditors in the bankruptcy. Earlier this week, he apologized to customers in his resignation letter, saying he “deeply regrets the difficult financial circumstances faced by members of our community.”

https://www.ft.com/content/5f7c9eab-ca5f-4425-91be-5781313c9723 Celsius Network Founder Withdrew $10M Before Filing Bankruptcy

Adam Bradshaw

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