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Bankrupt cryptocurrency lender Celsius Network may have misled its investors and used new customer funds to cover unpaid withdrawals, independent examiners for a New York bankruptcy court alleged in Tuesday filings.
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Fast facts
Shoba Pillay, a former federal prosecutor and partner at the law firm Jenner & Block, was appointed by a New York bankruptcy court to investigate the operations of the New Jersey-based lender and determine whether it was a Ponzi scheme.
Celsius filed for Chapter 11 bankruptcy protection in July. Court filings by consulting firm Kirkland & Ellis revealed a liability of US$2.8 billion on the lender’s balance sheet.
While Celsuis co-founder and former head Alex Mashinsky has repeatedly told customers that their Bitcoins are 100% guaranteed and will be returned in the event of bankruptcy, Pillay alleges in his report that the company operates differently behind closed doors.
According to Pillay’s findings, Celsius used customer funds to service other users’ withdrawal requests, fund operational costs and rewards, and fill holes in the balance sheet on several occasions since 2020.
Dean Tappen, Celsius’ “coin spread specialist” once referred to the company’s practice as “a lot like ponzi,” says Pillay.
Pillay also claims to have uncovered a pattern of price manipulation, with the company failing to disclose at least the US$558 million it spent buying its own token, CEL.
In addition, Celsius may have violated tax compliance, with its mining arm possibly owing more than US$23.1 million in taxes in the US, and has reserved a potential value-added tax liability of US$3.7 million in the UK.
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