Highlights from @FT's new piece on @CelsiusNetwork, "Inside Celsius: how one of crypto’s biggest lenders ground to a halt" by @kadhim
"a reckless pursuit of high returns"
"sizeable hole in its balance sheet — as big as $2bn"
"risky bets on untested ventures" 1/41
"a reckless pursuit of high returns"
"sizeable hole in its balance sheet — as big as $2bn"
"risky bets on untested ventures" 1/41
More below... 2/41
"Former employees and internal documents suggest a reckless pursuit of high returns put the company in a poor position to ride out this year’s market turbulence" 3/41
"Celsius faces the threat of bankruptcy. In mid-June, facing mounting withdrawal requests, it froze its customers’ funds trapping the deposits of hundreds of thousands of investors who had entrusted their savings to the lender." 4/41
"At least a dozen hedge funds, exchanges and lenders such as Celsius have crumbled, blocking customer withdrawals, raising money at fire-sale prices, or collapsing into bankruptcy." 5/41
"Celsius relied on a stream of deposits from retail investors that it lent to large crypto companies and used for risky bets on untested ventures. It promised exceptionally high interest rates while also claiming the risks were small." 6/41
"In 2021, as demand for loans from institutional investors waned, Celsius began taking greater risks to generate yield. Today people with knowledge of the company say it has a sizeable hole in its balance sheet — as big as $2bn, according to one person." 7/41
"Interviews with a dozen former Celsius employees, as well as customers, investors and industry executives, reveal that the company was poorly positioned to ride out the market turbulence." 8/41
"Internal documents reviewed by the Financial Times back up these concerns. The company’s own compliance department warned of poor oversight, weak internal systems and the possible misrepresentation of financial information." 9/41
"Together, they suggest that a reckless pursuit of high returns, as well as losses from a string of bad bets, contributed to the downfall. Celsius did not respond to requests for comment." 10/41
"Customers now face losing their savings. Even as the market declined and Celsius’s native token, CEL, fell from its 2021 peak of $8 to under $1 today, the company urged customers to “hodl” — or keep hold of their investments rather than sell." 11/41
"Yet internal documents show that Leon and some of his colleagues had already sold millions of dollars’ worth of their own CEL holdings back to the company." 12/41
"Former employees say documents recording these sales have been requested by the US Securities and Exchange Commission." 13/41
"The risky practices at Celsius and other companies that blossomed during the crypto boom now present a challenge for legislators and regulators, who face questions over why they did not do more to protect ordinary investors." 14/41 
"There are signs that a regulatory crackdown is on the horizon. The day after Celsius froze funds, SEC chair Gary Gensler, who has said crypto tokens probably meet the definition of securities, warned investors of products that seem 'too good to be true'." 15/41
“Regulation was inevitable,” says Jeff Dorman @jdorman81, chief investment officer at crypto investment firm Arca. The turmoil at Celsius and other lenders, he adds, “definitely speeds up the inevitable”. 16/41
"While the company was buying, top executives were selling. On the same day Leon posted his video touting the future of crypto, Celsius trading records show that he sold $1.8mn of CEL back to the company — " 17/41
"one of 16 disposals of CEL by Leon to Celsius between October 2020 and August 2021 that generated $11.5mn in total. Leon did not respond to requests for comment." 18/41
"Based on public blockchain data, Arkham estimates he sold $44mn worth through exchanges. @Mashinsky did not respond to requests for comment. Last December he tweeted: 'All @CelsiusNetwork founders have made purchases of #CEL and are not sellers of the token.'” 19/41
"@Mashinsky promoted the business using the rhetoric of rigged systems and greedy bankers. In video addresses and online Q&As, he claimed to be delivering financial freedom to his community." 20/41
"'There is a continuing squeeze of the 99 per cent by the 1 per cent to extract more profit,” @Mashinsky told the FT last year. By contrast, he said, Celsius was funnelling interest back to its customers. 'We are actually safer than most banks.'" 21/41
"In fact, Celsius was making aggressive bets with client funds similar to the kind regulators sought to police in banking after the financial crisis. Rather than merely lending funds to institutional borrowers ... 22/41
... Celsius supported its yields by trading customer funds, according to company accounts and former employees, and putting money into esoteric, risky and novel ventures in the world of decentralised finance, or “DeFi”. 23/41
"Although many missteps were made in the nascent market, Celsius acquired a reputation for being especially accident prone as a series of projects it backed went awry, causing it more than $100mn of publicly known losses." 24/41
"'Every time there’s a blow up, it’s always Celsius money,' joked a trader at a major crypto brokerage." 25/41
"Inside Celsius, there were misgivings. The company had dived into DeFi in 2020 feet first, without doing full diligence on the projects it was backing and without proper systems for tracking assets, according to former employees and internal documents." 26/41
"The compliance team flagged concerns. In February last year they produced a document, seen by the FT, warning that it had been possible for certain employees to invest money into new funds without gaining explicit permission and in the absence of compliance checks." 27/41
"The document also warned that employees could move assets from one fund to another without it being apparent to bosses, which could allow them to disguise losses and to “obscure the true value” of assets under management." 28/41
“'The company may be inflating its representations of AUM and driving up stock price/token price using false financial information,' the document warned. 'Celsius may face increased scrutiny from regulators for lack of controls and lack of governance.'" 29/41
"While it claimed to have 1.7mn customers, former employees say the number was far lower — in the low hundreds of thousands — when unused and duplicate accounts were stripped out." 30/41
"The trading desk largely operated manually on the exchanges it used. 'We were clicking in with billions of dollars like any small trader would with $10,' one former trader says." 31/41
"Initially FTX executives believed the problems at Celsius were simply a liquidity mismatch. The company had promised its investors instant access to their funds... 32/41
... but had then locked up some of their cash to earn interest in a part of the Ethereum network where it could not be redeemed for several months. FTX was considering offering a loan to bridge the gap." 33/41
"But as talks progressed, the FTX team were shocked by the scale of the problems they discovered. On their fourth call to discuss a bailout, Celsius revealed a $2bn hole in their balance sheet, according to the person familiar with the talks." 34/41
"For FTX’s negotiators, it was never clear whether the Celsius representatives had a complete picture of the finances. The talks ended when Celsius publicly announced it was halting withdrawals." 35/41
"The company’s clashes with the UK’s Financial Conduct Authority led it to relocate its headquarters from London to Hoboken, New Jersey in June 2021. At the time, the FCA was rolling out a new registration regime for crypto companies." 36/41
"Celsius announced its departure by saying it had withdrawn its FCA application because of “regulatory uncertainty”. 37/41
"Two former employees say the company faced scepticism from UK authorities. One says the FCA viewed Celsius as a collective investment scheme and therefore should be subject to tougher rules. The FCA declined to comment." 38/41
"(Dixon) sees the story as a cautionary tale about how “innocent people” were drawn in by “incredibly misleading” marketing." 39/41
"The former Celsius trader puts it another way: Mashinsky had “wanted to look like a Robin Hood”, but the company he built was “just a bank in the wild west”. 40/41
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