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Celsius Too Hot – Pain for Depositors. Was it a Ponzi Scheme? Celsius Whistleblowers?

July 26, 2022
gavel & bitcoin

Crypto Lender Celsius overheated and declared bankruptcy July 13, 2022 at the expense of all its depositors. Celsius had offered interest rates as high as roughly 20%, inducing investors to deposit their cryptocurrency to gain interest, but obviously not the interest of the depositors. While many enjoyed the gains on paper, those gains and the principle deposited are likely to resolve for pennies on the dollar in bankruptcy. It is reported that Celsius paid back close to a billion dollars to its lenders.

Celsius CEO Alex Mashinsky incredulously stated the bankruptcy would strengthen the company. The bankruptcy trustee and state attorneys general investigating this must look into the fact that Celsius allegedly paid off its lenders dollar for dollar, but left the ordinary depositor scrambling without access to its funds for presumably a very very long time, if ever.

Follow the money? A full forensic accounting needs to be performed on the company and all its principals. If the company is going through a bankruptcy, all the funds paid to lenders over depositors needs to be clawed back for the bankruptcy and any lofty bonuses and pay to its executives should surely be disgorged.

What to expect with Celsius’s bankruptcy scheme? For depositors, expect a multi-year battle for access to any funds. As a Celsius depositor, you will need to fill out a bankruptcy creditor form.

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Some unanswered questions with the Celsius scheme:

  • 1) Where did the money go? Celsius reportedly over-collateralized loans, so where’s all the depositor money then?
  • 2) Was Celsius to some extent a Ponzi Scheme? This question will hopefully be answered through the numerous investigations to come and the bankruptcy process.
  • Why did Celsius pay back its lenders ahead of declaring bankruptcy? If Celsius wants the benefit of a reorganization, it should not be able to self-determine who it pays back dollar for dollar weeks before the bankruptcy but leave the depositors scrambling.
  • 3) Will anyone go to jail for the Celsius scheme? At this point, there is no indication there is criminal activity. Once the financials are scrutinized, it is within the realm of possibility that if someone took funds for themselves or in a manner contrary to how they indicated, they would face criminal liability.
  • 4) Where are the Celsius whistleblowers? Surely, there are Celsius insiders who know the real scoop of how this transpired. They need to come forward, if they haven’t already. Some whistleblower programs, like the SEC whistleblower program, allows anonymous whistleblowing through SEC whistleblower counsel like Brown, LLC.
  • 5) Did Celsius gamble with the money? It is rumored that Celsius took highly leveraged risky positions with the money and did not think there would be a crypto downturn.
  • 6) Is this another Mt. Gox? Possibly – if there’s any shiny side of Mt. Gox, after a long battle and due to the significant increase in cryptocurrency, when the funds were recovered, it wasn’t as bad as predicted, albeit it took a long time.
  • 7) What can I do as a Celsius depositor? You can fill out a bankruptcy claim as a depositor, which you should receive notice of during the bankruptcy process. Brown, LLC is weighing whether to represent individuals in filling out their bankruptcy claims and if so, may do so on a hybrid fee basis. We are also looking at commencing actions against lenders who received funds ahead of the bankruptcy at the expense of the depositors.
  • 8) Will this strengthen Celsius like Alex Mashinsky claims? Time will tell, but unless the depositors receive their principal returned in a timely manner, it’s hard to imagine anyone having confidence to deposit anything with it in the future. And, of course, deposits are the basis of Celsius’s financial scheme.


    Another thing of note is that Celsius hid behind an arbitration clause and class-killing language in its agreements, which under the law, made it extremely challenging to commence a lawsuit against it and to keep it in Court. While arbitration has its merits, arbitrators and courts should allow class actions to proceed or else companies can discretely and discreetly pay off confidential complainants in arbitration and leave the rest of the class to continue to suffer harm. 

Time and time again, if something seems too good to be true it generally is. Interest rates as high as 20% with very little risk was obviously just a sham – there was high risk and the result presently speaks for itself. This is why whistleblowers are so important. Insiders who know the true landscape and conduct of business like this need to step forward and blow the whistle the right way to safeguard investors using tools like the SEC Whistleblower program through an SEC whistleblower attorneyCFTC whistleblower program, and other potential qui tam vehicles to protect the investors and potentially receive a whistleblower award along the way, before other companies like Celsius overheat and burn the depositors.