Celsius investors owed $4.7 billion to a judge to recoup life savings

Celsius Network, once a titan of the crypto lending world, is in bankruptcy proceedings and facing accusations that it was running a Ponzi scheme by paying early depositors with the money it got from new users. Some of the 1.7 million customers caught up in the suspected fraud are now directly pleading with the Southern District of New York to help them get their money back.

Christian OstheimerA 37-year-old man living in Connecticut wrote in a letter included in court evidence that he entrusted Celsius with his retirement savings and has lost more than $30,000, leading to “insurmountable tax complications.”

“It is in your hands, honorable judge, to make this a different case where not the lawyers, the lawyers, the big corporations and the managers are paid first, but the little man, the mom and dad, the college graduate, grandma and grandpa.” — all those many small unsecured creditors — so they are not as usual at the bottom of the chain where they lose everything,” writes Ostheimer.

The question of who gets paid first, should that day ever come, looms over the bankruptcy process.

At its peak in October 2021, CEO Alex Mashinsky said the the crypto lender had $25 billion in assets under management. Now, Celsius has dropped to $167 million “in available cash”, which it says will provide “ample liquidity” to support operations during the restructuring process. Celsius owes its users about $4.7 billion, according to your bankruptcy filing.

That filing also shows that Celsius has more than 100,000 creditors, some of whom lent cash to the platform without any collateral to back the deal. His top 50 unsecured creditor list includes Sam Bankman-Fried’s trading company Alameda Research, as well as a Cayman Islands-based investment firm. Those creditors are likely to be first in line to get their money back, leaving small retail investors with the stock.

Unlike the traditional banking system, which generally insures customer deposits, there are no formal consumer protections to safeguard user funds when things go wrong.

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Celsius explains in detail in its terms and conditions that any digital asset transferred to the platform constitutes a loan from the user to Celsius. Because Celsius did not post any collateral, the client funds were essentially unsecured loans to the platform.

Also in the fine print of Celsius’s terms and conditions is a warning that, in the event of bankruptcy, “any Eligible Digital Assets used in the Earn Service or as collateral under the Loan Service may not be recoverable” and that customers ” may not have any recourse or legal right in relation to Celsius’s obligations.” The disclosure reads like an attempt at blanket immunity from legal wrongdoing, should things ever go wrong.

On July 19, Celsius published a document detailing the next steps for customers. In it, they say that their chapter 11 bankruptcy plan will “provide clients with the option, at the clients choice, to recover cash at a discount or stay crypto ‘long,’” but it is unclear if clients will ever see your money. again.

The entire process lays bare the amount of crypto regulation in the US that occurs through the app.

The Securities and Exchange Commission has effectively become one of the top regulators of the industry in the country, including cracking down on Ponzi and pyramid schemes, and it looks like a precedent will be set in US bankruptcy court. in the coming months, as lawmakers deliberate formal legislation on Capitol Hill.

Investor Pleas

In the hundreds of letters Officially filed with the court, retail investors beg to be put in front of the queue to get their money back.

ohm flowers, a single mother of two college-bound daughters, says her family has been “severely affected both financially and mentally” by the bankruptcy that has left her funds stranded on the platform. Ohm, who is also supportive of her parents, says she can’t sleep or focus at work.

“I’m struggling a lot [to make a] live,” he writes.

jeanne and savelle, who describes herself as a “retired little old lady” Living on a fixed income, he says he turned to Celsius for a way to supplement his monthly Social Security check to stretch his dollar amid record levels of inflation.

“I bought my small amount of crypto hoping to earn enough to get me through a few years, kind of a safety net,” Savelle said. “Yeah I know, buyer beware, but I agree there has been too much deception.”

Others have lost everything.

California resident Stephen Bralver says he has less than $1,000 left in his Wells Fargo checking account, now his only source of funds to support his family since Celsius suspended all withdrawals.

“There is absolutely no way I can continue to provide without access to my assets at Celsius.” writes to Judge Martin Glennwhich is overseeing bankruptcy proceedings for Celsius in New York.

“This is an EMERGENCY situation, simply to keep a roof over my family and food on their table,” Bralver’s letter continues.

Sean Moran from Dublin writes that he lost the family farm in Ireland and his family is homeless.

“I can’t believe we were lied to in the weekly AMA about not trusting the banks, while all the time we are wolves in sheep’s clothing, false promises and misleading information.” He continues, “I am mentally unstable. The family is distraught over my decisions to trust Celsius and promise them a better future.”

Beyond the financial devastation described in each of these letters, a recurring theme centers on a sense of betrayal over the breach of trust between Celsius CEO Alex Mashinsky and his clients.

Three weeks after Celsius halted all withdrawals due to “extreme market conditions,” and a few days before the crypto lender finally filed for bankruptcy, the platform was still advertising annual returns of nearly 19% in bold on its website. %, which they paid comes out weekly.

“Transfer your crypto to Celsius and you could earn up to 18.63% APY in minutes,” the website said on July 3.

Ralphael DiCicco, who disclosed holdings of approximately $15,557 in crypto assets on Celsius, said he was misled by the marketing.

“I believed all the commercials, social media, and advertising that showed Celsius as a low-risk, high-yield savings account. They assured us that our funds are safer at Celsius than at a bank.” writes DiCicco.

“This money is more or less my life savings… I hope I can find that it is in the best interests of all parties involved to repay smaller investors first… before any restructuring occurs,” DiCicco continued.

Phoenix’s Travis Rodgers say what in numerous phone calls to Celsius Network, as recently as two days before it blocked depositors’ accounts, it was told that there was no danger to customers’ assets and that the probability of bankruptcy was zero. Rodgers says that he recorded several of those calls. He claims that his Celsius holdings total $40,000 in eleven cryptocurrencies, including Cardano’s ADA token.

Mashinsky’s weekly ask me anything events on YouTube are mentioned in several letters, including one sent by Stephen Richardson, who details the many ways he feels Mashinsky misled the public to lure new customers into the plan.

Richardson says he has watched every Friday AMA since signing up.

“Alex would talk about how Celsius is safer than banks because they supposedly don’t remortgage or use fractional reserve loans like banks do,” Richardson writes. “I currently have six figures worth of crypto locked in my Celsius account that cannot be withdrawn, despite Alex’s claims just hours before withdrawals were closed that no one has any problem withdrawing from Celsius and that everything you hear is just ‘fud’.”

Some have even contemplated suicide if they can’t get their funds back.

Katie Davis appeals to Judge Glenn about the $138,000 she and her husband have left stranded on the Celsius platform.

“The thought of losing that kind of money is horrible,” Davis writes.

“If I don’t get that back, I will end my life, as the loss will significantly affect me and my family,” he shares.

Mashinsky did not immediately respond to CNBC’s request for comment.