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Celsius Network founder withdrew $10 million before filing for bankruptcy

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

Crypto was withdrawn by Mashinsky in May of this year after customers were pulling their assets in large numbers from the company due to widespread turmoil in the crypto market and concerns about Celsius’ financial health.

Celsius withdrawals were frozen on June 12, leaving hundreds of thousands of retail investors unable to access their savings. The company filed for bankruptcy in July with a $1.2 billion hole in its balance sheet.

Last year the business peaked at $25bn-worth of crypto assets deposited by customers attracted by external interest rates Celsius, up to 18 per cent on certain cryptocurrencies.

The withdrawal will intensify scrutiny of Mashinsky, who resigned as chief executive on Tuesday, and raise questions about when he knew Celsius would be unable to return their assets to customers.

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

A spokesman for Mashinsky said the $44 million in crypto assets he and his family had remained frozen after his withdrawal with Celsius, which he disclosed to the government’s Unsecured Creditors Committee (UCC) in voluntary bankruptcy proceedings.

“In mid-to-late May 2022, Mr. Mashinsky withdrew a percentage of cryptocurrency from his account, most of which was used to pay state and federal taxes. In the nine months leading up to that withdrawal, he steadily accumulated cryptocurrency that he withdrew in May,” Spokesperson said.

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

Mashinsky, 56, co-founded Celsius in 2017 and has been the company’s public face, appearing in weekly video addresses on YouTube in which he pushes the message of financial liberation from banking institutions.

At the end of 2021, Celsius was valued at $3bn as it raised a $600mn equity investment from US investment firm WestCap and Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund.

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

Celsius suffered a series of investment losses in 2021 and 2022 that contributed to its decline but were not disclosed to customers. Last month, Vermont’s state financial regulator alleged that Celsius had been insolvent since May 13 of this year.

The company saw a huge outflow of assets in May as the crypto market was rocked by the collapse of two interconnected cryptocurrencies, TerraUSD and Luna. Their deaths set off a series of company failures across the crypto industry.

Just days before the Celsius withdrawal freeze, the crypto lender assured customers that it had sufficient reserves and declared “full speed ahead.”

Mashinsky, a former telecom entrepreneur, faces the prospect of being forced to pay back $10 million withdrawn from Celsius. Under US law, a company’s payments can be returned to all creditors within 90 days of bankruptcy.

About $8 million of Mashinsky’s withdrawn assets were used to cover taxes stemming from income generated by assets at Celsius, a person familiar with the matter said.

The remaining $2mn was units of Celsius’ native “CEL” token. The withdrawal was premeditated and linked to Mashinsky’s estate planning, the person added.

Mashinsky was the largest shareholder in Celsius and said he was one of the largest creditors in the bankruptcy. He apologized to customers in his resignation letter earlier this week, saying he was “extremely sorry for the difficult financial situation members of our community are facing”.

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