Court Examiner Lambastes Celsius and Mashinksy Over Business Practices

Celsius Network poorly mismanaged its assets and deliberately misled its users, according to a recent report from a court-appointed examiner.

Examiner Shoba Pillay detailed the operations of defunct crypto lender Celsius Network and its former chief executive Alex Mashinsky in her final report. Pillay was initially appointed in late Sept. last year, and filed a 302-page interim report in Nov. 

The examiner said the company lacked adequate risk management, which the company’s poor business practices also demonstrated. In addition to whitewashing Mashinsky’s errant public statements, Pillay said that Celsius also misled its customers about its business practices and financial health. 

Celsius Showed Poor Risk Mismanagement

According to the report, Celsius lacked risk management in both policy and personnel prior to 2021. However, the initial team of four were only able to implement “stop-gap” measures before a comprehensive overhaul scheduled for 2022. 

The report said the firm hired an additional individual to design internal audit procedures. However, as the executive team routinely delayed implementation, the report determined “Celsius never fully implemented a robust risk management policy before it filed for bankruptcy.” 

Celsius’ business operations were also deficient in terms of its accounting system, the report continued. The mix of spreadsheets utilized impaired the examiner’s ability to determine the business’s financial condition, the report said. 

However, upon deciphering the books, Pillay also uncovered “significant tax compliance deficiencies” within Celsius. She ascribed this to the company lacking anyone responsible for taxes until 2021, then failing to ensure consistent payment. The firm’s Bitcoin mining operations also owed $14 million in outstanding utility bills and $23 million in unpaid taxes. 

Misrepresentations Also Made

Pillay also underscored misrepresentations Celsius had made about its operations and on behalf of its chief executive. For instance, the crypto lender told customers it was offering high yields through investing their assets into “low-risk and fully-collateralized institutional and retail loans.” However, investments actually strayed risky, such as providing unsecured loans in order to secure a higher interest rate.

Once this led the company into dire straits, the report said Celsius continued to present its situation as rosy. Although internally employees described the company as a “sinking ship,” they were also found to have glowed up errant comments Mashinsky may have made during live weekly question-and-answer sessions with users.

Celsius Bankruptcy Proceedings

The report comes as Celsius proceeds with its bankruptcy hearings, while also being probed by state and federal regulators. While the report demonstrates that its operations were unsustainable, last year’s decline in crypto prices and the collapse of Terra stable coin precipitated the company’s bankruptcy. The lender, which has more than 100,000 creditors, has recently re-enabled withdrawals after ceasing weeks before filing for bankruptcy.