Crypto lender Celsius files for bankruptcy
Crypto lender Celsius files for bankruptcy
One month after pausing all transfers and withdrawals from its platform, the former unicorn says it now has only $167 million in cash on hand
Israeli-founded crypto lender Celsius Network said on Wednesday it has filed for bankruptcy, becoming the latest victim in the cryptocurrency sector to wilt under a dramatic plunge in prices.
New Jersey-based Celsius listed estimated assets and liabilities on a consolidated basis in the range of $1 billion to $10 billion, according to a court filing in the U.S. Bankruptcy Court for Southern District of New York.
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Celsius co-founders Alex Mashinsky (right) and Daniel Leon.
(Photo: Bloomberg and Tal Shahar)
Crypto lenders boomed during the Covid-19 pandemic, drawing depositors with high interest rates and easy access to loans rarely offered by traditional banks. They, however, tumbled in the recent months following a crash in cryptocurrency prices and the collapse of major token TerraUSD in May.
Another crypto lender Voyager Digital had filed for bankruptcy on July 6 after suspending withdrawals and deposits.
Celsius is not requesting authority to allow customer withdrawals at this time, the company said in a press release on Wednesday, adding that it has filed a series of customary motions with the court to allow it to continue operations in the normal course.
The company has $167 million in cash on hand, which will provide liquidity to support certain operations during the restructuring process.
Celsius froze withdrawals and transfers last month, citing "extreme" market conditions, leaving its 1.7 million customers unable to redeem their assets. This prompted state securities regulators in New Jersey, Texas and Washington to investigate the decision.
Vermont's Department of Financial Regulation (DFR) on Tuesday said it believes Celsius is "deeply insolvent" and does not have the assets and liquidity to honor its obligations to customers and other creditors.
The crypto lender has been involved in an unregistered securities offering, selling cryptocurrency interest accounts to retail investors including investors in Vermont, it said in a statement.
Celsius also lacks a money transmitter license and until recently was operating largely without regulatory oversight, it said.
"Due to its failure to register its interest accounts as securities, Celsius customers did not receive critical disclosures about its financial condition, investing activities, risk factors, and ability to repay its obligations to depositors and other creditors," the regulator said.
Celsius did not immediately respond to Reuters' request for comment.
The state agency said it has now joined a multistate investigation of Celsius.
State securities regulators in Alabama, Kentucky, New Jersey, Texas and Washington are investigating Celsius's decision to suspend customer redemptions.
A former investment manager at Celsius sued the crypto lender last Thursday, saying it used customer deposits to rig the price of its own crypto token and failed to properly hedge risk, causing it to freeze customer assets.
The complaint said Celsius ran a Ponzi scheme to benefit itself through "gross mismanagement of customer deposits," and defrauded the plaintiff KeyFi Inc, run by the former manager Jason Stone, into providing services worth millions of dollars and refusing to pay for them.
Celsius was co-founded in 2017 by Israeli Daniel Leon, President and COO of Celsius, CEO Alex Mashinsky, and CTO Nuke Goldstein. The company, which raised $750 million in funding late last year, reaching a valuation of $3 billion, offered interest-bearing products to customers who deposit their cryptocurrencies with the company, and lends out cryptocurrencies to earn a return. As of May 17, the company had processed $8.2 billion worth of loans and had $11.8 billion in assets, according to its website.
