Celsius Network, once a titan of the crypto-lending world, is in bankruptcy and has refuted claims that it ran a Ponzi scheme by paying early depositors with the money it received from new users. Some of the 1.7 million customers involved in the alleged scam are now directly asking the Southern District of New York to help them get their money back.
Christian Ostheimer, a 37-year-old resident of Connecticut, wrote in a letter attached to court filings that he entrusted his retirement savings to Celsius and lost more than $30,000, leaving him with “insurmountable tax complications.”
“It is in your hands, Honorable Judge, to make this another case where it is not the lawyers, the attorneys, the big corporations and managers who get paid first, but the little man, the mother and father, the college Graduate, grandma and grandpa – all the many small unsecured creditors – so that they don’t end up at the end of the chain and lose everything as usual,” Ostheimer wrote.
The question of who will be repaid first – should that day ever come – looms large over the bankruptcy proceedings.
At its peak in October 2021, CEO Alex Mashinsky said the crypto lender had $25 billion in assets under management. Now Celsius is down to $167 million “in treasury,” which it says will provide “ample liquidity” to support operations through the restructuring process. Celsius owes its users around $4.7 billion, according to the bankruptcy filing.
This filing also reveals that Celsius has more than 100,000 creditors, some of whom have lent the platform cash with no collateral to back the agreement. The list of the top 50 unsecured creditors includes Sam Bankman-Fried’s trading firm Alameda Research and a Cayman Islands-based investment firm. Those creditors will likely be first in line to get their money back, leaving smaller retail investors in the bag.
Unlike the traditional banking system, which typically insures customer deposits, there is no formal consumer protection to protect users’ funds if something goes wrong.
Celsius states in its Terms of Service that any digital asset transferred to the platform constitutes a loan from the user to Celsius. With no collateral provided by Celsius, client funds were essentially just unsecured loans to the platform.
Also, in the fine print of Celsius’ Terms of Service, there is a warning that in the event of bankruptcy, “any eligible digital assets used in the Earn service or as collateral under the Borrow service may be non-refundable” and that customers “may not have”. any remedy or right in connection with Celsius’ obligations.” The disclosure reads like an attempt at blanket immunity from legal wrongdoing should things ever go wrong.
On July 19, Celsius released a document outlining the next steps for customers. In it, the platform said that its Chapter 11 bankruptcy plan “will offer customers the option of either receiving cash back at a discount or staying “long” crypto, at the customer’s option,” but it’s unclear if customers will ever see theirs money again.
The whole process lays bare how much of crypto regulation in the US happens through enforcement.
The Securities and Exchange Commission has effectively emerged as one of the top regulators of the industry in the country, in part by stamping out pyramid schemes and Ponzi schemes, and it appears that a precedent will be set in US bankruptcy courts in the coming months if the legislature ponders the formal legislation Capitol.
Requests from Investors
In hundreds of letters officially presented to the court, retail investors are asking to be put on the front lines to get their money back.
Flori Ohm, a single mother of two college daughters, said her family was “severely impacted both financially and psychologically” by the bankruptcy, leaving her money stranded on the platform. Ohm, who is also supportive of her parents, said she couldn’t sleep or concentrate on work.
“I fight hard [to make a] live,” she wrote.
Jeanne Y Savelle, who describes herself as a “retired little old lady” living on a steady income, said she reached out to Celsius looking for a way to top up her monthly Social Security check to get her dollar amid to stretch the record inflation.
“I bought my small amount of crypto hoping to make enough to help me get through a few years, sort of a safety net,” Savelle said. “Yes, I know, buyers beware, but I agree there has been far too much deception.”
Others have lost everything.
California resident Stephen Bralver said he has less than $1,000 left in his Wells Fargo checking account — now his only source of money to support his family since Celsius suspended all withdrawals.
“There is absolutely no way I can continue to be available at Celsius without access to my assets,” he wrote to Judge Martin Glenn, who is overseeing the Celsius bankruptcy proceedings in New York.
“This is an EMERGENCY situation simply to keep a roof over my family and food on their table,” Bralver wrote.
Sean Moran from Dublin wrote that he has lost the family farm in Ireland and his family is homeless.
“I can’t believe they lied to us in the weekly AMA [ask-me-anything events] about not trusting banks while they are wolves in sheep’s clothing all the time, false promises and misleading information,” Moran wrote. “I’m mentally unstable. My family is dismayed by my decision to trust Celsius and promise them a better future.”
Aside from the financial devastation described in each of these letters, a recurring theme revolves around a sense of betrayal over the breach of trust between Celsius CEO Alex Mashinsky and its customers.
Three weeks after Celsius halted all withdrawals due to “extreme market conditions” — and days before the crypto lender finally filed for bankruptcy protection — the platform was still touting large, bold text on its website with annual returns of nearly 19%, which was paying off weekly off.
“Transfer your crypto to Celsius and you could earn up to 18.63% APY in minutes,” the site said on July 3.
Ralphael DiCicco, who disclosed around $15,557 in crypto assets on Celsius, said he was duped by marketing.
“I believed in all the commercials, social media and advertising that showed Celsius was a high-return, low-risk savings account. We have been reassured that our funds are safer with Celsius than with a bank,” DiCicco wrote.
“That money is pretty much my life savings… I hope you find it in everyone’s best interest to pay off the smaller investors first… before there’s a restructuring,” DiCicco continued.
Phoenix’s Travis Rodgers said that during numerous phone calls to Celsius Network two days before depositor accounts were suspended, he was told there was no risk to customer assets and that there was zero chance of bankruptcy. Rodgers said he recorded several of those calls. He said his Celsius holdings total $40,000 across 11 cryptocurrencies.
The weekly Ask Me Anything events that Mashinsky hosts on YouTube have been referenced in several letters, including one from Stephen Richardson, who listed the many ways in which he believes Mashinsky misled the public in order to attract new customers into to lure the program.
Richardson said he has watched AMA every Friday since signing up.
“Alex would talk about how Celsius is safer than banks because they supposedly don’t take on new mortgages and use fractional-reserve loans like the banks do,” Richardson wrote. “I currently have six figures locked in crypto in my Celsius account that cannot be withdrawn, although just hours before withdrawals were shut down, Alex claims that nobody has a problem withdrawing from Celsius and that everything you do hearing the opposite, just ‘shit’ is. [fear, uncertainty and doubt].”
Some said they even contemplated suicide if they don’t get their money back.
Australia’s Katie Davis asked the judge to return the $138,000 she and her husband stranded on the Celsius platform.
“The thought of losing so much money is terrifying,” Davis wrote.
“If I don’t get this back I will end my life as the loss will greatly affect my family and I,” she wrote.
Mashinsky did not immediately respond to CNBC’s request for comment.
If you or someone you know is in crisis, call the National Suicide Prevention Lifeline at 800-273-8255.