Just weeks before Celsius Network went bankrupt, Alex Mashinsky, ex-CEO, withdrew $10M from the service. The founder withdrew cryptocurrency tokens in May as customers started pulling their assets. This was mainly due to the unstable crypto markets. The turbulent conditions prompted concerns about the company’s financial health.
On June 12, Celsius froze customer withdrawals, which left thousands of investors locked out of their savings. In July, the company declared bankruptcy.
Celsius Crashes After Hitting Peak Last Year
In 2021, Celsius hit a peak when it was holding cryptocurrencies worth about $25B. Much of this was deposited by investors who found the high-interest rates appealing. Celsius went as far as offering an 18 percent interest rate on specific cryptocurrencies.
Mashinsky is likely to face scrutiny after resigning from his chief executive position on Tuesday. Many users are already questioning how long he’d known that the company would be unable to return investors’ assets.
Mashinsky’s Transactions To Be Submitted In Court
Celsius will be submitting further information about Mashinsky’s transactions to the court. This is part of the company’s strategy to disclose its financial affairs. A spokesperson for the Celsius Network founder explained that despite the withdrawals, Mashinsky and his family still have about $44M worth of digital securities frozen with the lender. In the bankruptcy proceedings, he voluntarily disclosed information about these withdrawals to the UCC.
The spokesperson stated that Mashinsky withdrew a percentage of cryptocurrency holdings. He then used them to pay federal and state taxes. In the months before the withdrawal in May, he deposited cryptocurrency in his accounts.
Celsius Struggled To Operate Despite Bullish Attitude
Celsius was founded in 2017 by Mashinsky, who was also the face of the company. He would post YouTube videos on a weekly basis, where he encouraged viewers to seek liberation from the banking sector.
After raising $600M in equity investment from WestCap, a US investment firm, and a major Canadian pension fund, the company was valued at $3B last year. But despite holding bullish sentiments publicly, Mashinsky’s company was struggling financially. Celsius had inadequate internal systems to manage assets and at times, it ended up paying more in interest than what it generated from lending.
Celsius Gave Customers False Reassurance About Reserves
This year as well as the last, the company went through significant investment losses that contributed to its eventual failure. However, these losses weren’t disclosed to customers at the time of their occurrence. In fact, when the crypto market showed signs of instability, Celsius reassured customers that the company had plentiful reserves. This was just days before customers were unable to access their savings.
Under the current circumstances, it’s likely that Mashinsky will have to return the $10M he withdrew from his Celsius account. According to the current law, payments from a company in the 90 days before its bankruptcy can be taken back to benefit creditors.