Celsius Network founder Alex Mashinsky withdrew $10mn from the crypto lender just weeks before the company froze customer accounts as it spiralled towards bankruptcy, according to people familiar with the matter.
The withdrawals of crypto by Mashinsky in May this year came as customers were pulling their assets from the company in large numbers, spooked by the wider turbulence in crypto markets and concerns about Celsius’s financial health.
Celsius froze withdrawals on June 12, leaving hundreds of thousands of retail investors unable to access their savings. The company filed for bankruptcy in July with a $1.2bn hole in its balance sheet.
The business had a peak last year of $25bn-worth of crypto assets deposited by customers attracted by the outsized interest rates Celsius offered, as high as 18 per cent on certain cryptocurrencies.
The withdrawal revelations will intensify scrutiny of Mashinsky, who resigned as chief executive on Tuesday, and raise questions about when he knew Celsius would be unable to give customers their assets back.
Details of Mashinsky’s transactions are set to be submitted in court by Celsius in the coming days as part of a broader disclosure by the company of its financial affairs.
A spokesperson for Mashinsky said he and his family still had $44mn of crypto assets frozen with Celsius even after the withdrawals, which he had voluntarily disclosed to the official unsecured creditors committee (UCC) in the bankruptcy proceedings.
“In mid to late May 2022, Mr Mashinsky withdrew a percentage of cryptocurrency in his account, much of which was used to pay state and federal taxes. In the nine months leading up to that withdrawal, he consistently deposited cryptocurrency in amounts that totalled what he withdrew in May,” the spokesperson said.
“He continues to be committed to working with and uniting the community around a recovery plan that will maximise coin and liquidity for all,” they added.
Mashinsky, 56, co-founded Celsius in 2017 and was the public face of the company, appearing in weekly video addresses on YouTube where he pushed his message of financial liberation from the banking establishment.
In late 2021, Celsius was valued at $3bn as it raised $600mn in equity investment from US investment firm WestCap and Canada’s second-largest pension fund Caisse de dépôt et placement du Québec.
Despite Mashinsky’s public bullishness, the company struggled behind the scenes with weak internal systems for managing its assets and at times it paid out more to customers in interest than it was generating from lending.
Celsius also suffered a series of investment losses in 2021 and 2022 that contributed to its downfall but were not disclosed to customers. Last month, the Vermont state financial regulator alleged that Celsius was insolvent as early as May 13 this year.
The company saw huge outflows of assets in May as crypto markets were rocked by the collapse of two interlinked cryptocurrencies, TerraUSD and Luna. Their demise began a series of company failures across the crypto industry.
Just days before Celsius froze withdrawals, the crypto lender reassured customers it had adequate reserves and declared “full speed ahead”.
Mashinsky, a former telecoms entrepreneur, faces the prospect of being forced to return the $10mn he withdrew from Celsius. Under US law, payments by a company in the 90 days ahead of its bankruptcy can be clawed back for the benefit of all creditors.
Around $8mn of the assets Mashinsky withdrew was used to cover taxes that arose from income the assets had generated on Celsius, one of the people familiar with the matter said.
The remaining $2mn was units of Celsius’s native “CEL” token. The withdrawal had been pre-planned and was linked to Mashinsky’s estate planning, the person added.
Mashinsky was Celsius’s biggest shareholder and has said he is among its biggest creditors in bankruptcy. Earlier this week he apologised to customers in his resignation letter, saying he was “very sorry about the difficult financial circumstances members of our community are facing”.
Source: Financial Times