Celsius Network founder and former CEO Alex Mashinsky allegedly withdrew $10 million from the crypto lending platform just weeks before the company froze customer funds and declared bankruptcy.
Celsius was a popular crypto-lending platform with 1.7 million customers and $25 billion in assets under management but the prevailing poor crypto market conditions eventually led the company to a $2.85 billion gap in its balance sheet.
This led Celsius to pause customer withdraws in June before filing for Chapter 11 bankruptcy in July, with Mashinksy attempting to restructure and revive the company to be based around crypto custody services.
The withdrawal raises questions about whether Mashinsky knew ahead of time that the company would be freezing customer funds and withdrawals.
However, a spokesperson for Celsius told FT that the founder withdrew cryptocurrency at the time to pay state and federal taxes.
“In the nine months leading up to that withdrawal, he consistently deposited cryptocurrency in amounts that totaled what he withdrew in May,” the spokesperson said, adding Mashinsky and his family still had $44 million worth of crypto frozen on the platform.
Meanwhile, sources told the FT the withdrawal was pre-planned in line with Mashinsky’s estate planning.
Roughly $8 million worth of assets withdrawn were used to pay income taxes arising from the yield the assets produced, and the remaining $2 million was made up of the platform’s native token Celsius (CEL).
The questions will likely be answered when the transactions in question will be presented by Celsius in court in the next few days as part of disclosures by the crypto-lender regarding its finances.
There’s also a possibility Mashinsky could be forced to return the $10 million as in the 90 days leading up to a bankruptcy filing, payments by a company can be reversed to benefit creditors under United States laws.
Mashinsky resigned as CEO of Celsius on Sept. 27 saying his role “has become an increasing distraction” but said he would continue to focus on helping find a plan to return funds to creditors.
The domino effect of a prolonged bear market seeped into the Bitcoin (BTC) ATM ecosystem as September 2022 recorded negative growth in global net installations for the first time in history — primarily driven by a slowdown in the United States.
The total number of Bitcoin ATMs installed over time fell to 37,980 in Sept. from an all-time high of 38,776 ATMs in August, resulting in a drop of -2.05%, as evidenced by data from CoinATMRadar.
Data on net changes of crypto ATM installations confirm that in September, 796 crypto ATMs were pulled off from the global network. The United States alone recorded a reduction of 825 ATMs. However, Europe, Canada and a few other jurisdictions cushioned the downfall with new installations locally.
Despite the setback, data based on 60 days suggest that nearly 14 crypto ATMs are being installed globally per day, with Genesis Coin representing a 40.3% share of ATMs among other manufacturers. Other popular crypto ATM manufacturers include General Bytes and BitAccess.
The sudden reduction in the crypto ATM installations can be attributed to geopolitical tensions among factors, including lack of regulatory clarity and market uncertainties.
Although crypto ATM installations have taken a temporary hit due to external factors, countries continue to show interest in having functional crypto ATMs within their borders.
Most recently, Japan decided to reintroduce crypto ATMs after 2014, spearheaded by local crypto exchange Gaia Co. Initially, new ATMs will be installed across Tokyo and Osaka. The firm plans to set up 50 BTMs across the country by August 2023.
The Department of Justice (DOJ) has submitted an objection to Celsius’ motion to reopen withdrawals for select customers and sell its stablecoin holdings.
The DOJ is asserting that the state of Celsius’ financials is lacking transparency and that key decisions like this should not be considered until the independent examiner report has been filed.
The move by the DOJ adds to the objections filed last week by the Texas State Securities Board, the Texas Department of Banking, and the Vermont Department of Financial Regulation. All three are opposed to Celsius selling its stablecoin holdings, asserting there’s a risk the firm could use the capital to resume operating in violation of state laws.
In a Sept. 30 filing with the Bankruptcy Court for the Southern District of New York, a U.S. Trustee for the DOJ, William Harrington, outlined an objection to Celsius opening up withdrawals to its “custody” and “withhold” customers, citing a lack of transparency over the firm’s financials.
Harrington argues in the filing that such withdrawals should not be opened up until the independent examiner report on Celsius business operations has been completed:
“The Motions are premature and should be denied until after the Examiner Report is filed. First, the Withdrawal Motion seeks to impulsively distribute funds to one group of creditors in advance of a fulsome understanding of the Debtors’ cryptocurrency holdings.”
The DOJ has also opposed a potential stablecoin sell off, highlighting similar concerns held by Texas and Vermont regulators that Celsius’ motion doesn’t concretely outline “what impact such a distribution or sale would have” on the business moving forward.
“Second, the Stablecoin Motion seeks to liquidate stablecoins held by the Debtors without providing information regarding ownership, segregation, or the impact of such sale on later distributions to creditors who may have stablecoins on deposit with the Debtors,” the filing reads.
Independent examiner appointed
According to Harrington, the “United States Trustee appointed Shoba Pillay” the examiner on Sept. 29, with the New York Bankruptcy court approving the appointment on the same day.
Pillay will have roughly two months to prepare and file an examiner’s report on Celsius, hopefully providing a clear breakdown of its assets and liabilities.
Harrington essentially asserted that Celsius’ motions should not even be considered until well after the examiner report has been filed, noting that “any distribution or sale should be deferred until interested parties, the United States Trustee, and the Court are able to make a determination” on the value of Celsius liabilities, claims against it, its assets and what “the debtors intends to actually pay its creditors.”
Simon Dixon, the founder of crypto investment platform BnkToTheFuture — which was the lead investor in Celsius — predicted via Twitter on Oct. 1 that Celsius will look to repay its creditors in Celsius (CEL) tokens as part of a reorganization plan that ultimately “won’t get past regulators & regulators will file motions to reject” it.
If such occurs, Dixon sees it sparking a bidding war for Celsius assets, similar to that of Voyager Digital’s recent $1.3 billion asset auction that was won by FTX US.
This Daily Dose was brought to you by Cointelegraph.