Vermont Department of Financial Regulation (or DFR) alleged that Celsius Network’s CEO Alex Mashinsky and crypto lending platform Celsius Network misled state regulators regarding the firm’s financial health, compliance with securities laws, and compliance.
According to a Wednesday filing to the U.S. Bankruptcy Court, the Southern District of New York, Vermont’s financial regulator stated that Celsius and Mashinsky made “false and misleading claims to investors”. They allegedly downplayed volatility concerns in crypto markets, encouraging retail investors leave their money on the platform and make new investments. The state regulator said Celsius and Mashinsky “lacked sufficient assets” to repay their obligations, despite the fact that the company had enough funds in its reserves for the mitigation of the possibility of insolvency.
DFR mentioned company tweets and blog posts from Mashinsky that started in 2021. This suggested that the platform was “profitable” or financially sound at a time when it was suffering “catastrophic loss” and “failed in to earn sufficient revenue.
Despite extreme volatility in the market, Celsius has not suffered any losses and all funds remain safe.
— Alex Mashinsky (@Mashinsky) May 11, 2022
Ethan McLaughlin, DFR assistant general counsel, stated that Celsius increased its Net Position in CEL to hundreds of millions of Dollars, artificially inflating its CEL holdings on its financial statements. “Excluding CEL’s Net Position, the Company’s liabilities would have outpaced its assets since February 28, 2019, at most.” These practices could also have enriched Celsius insiders at the expense retail investors.
According to the financial regulator, an investigation was ordered into Celsius’ manipulation of CEL tokens’ prices. This “artificiallyinflated” the company’s net position of CEL on its balance sheets and financial statements. Although Celsius filed for Chapter 11 bankruptcy in July. However, the DFR balance sheet analysis suggested that the platform could have been insolvent as early as May 13.
Related: Celsius bankruptcy proceedings reveal complexities amid declining hopes of recovery
Cointelegraph reported Aug. 16 that Celsius could be on the verge of running out of money by October. A report suggested that Celsius’s debt was closer than $2.8 billion, despite bankruptcy filings of a $1.2billion deficit. Celsius co-founder Daniel Leon claimed that his 32,600 common shares in the platform were effectively “worthless” during bankruptcy court proceedings. On Sept. 1, former Celsius users petitioned bankruptcy court for a legal remedy to obtain $22.5 million in the platform’s custody.
Cointelegraph reached out at Alex Mashinsky and Celsius, but they did not respond to our request at the time we published this article.