Celsius investors owe $4.7 billion and ask the court to return the savings

The Celsius Network, once a titan in the world of crypto lending, in bankruptcy proceedings and face down claims to have run a Ponzi scheme by paying early contributors the money they receive from new users. Some of the 1.7 million customers trapped in the alleged scam are now directly pleading with the Southern District of New York to help them get their money back.

Christian OostheimerThe 37-year-old Connecticut resident wrote in a letter attached to court documents that he trusted Celsius with his retirement savings and lost more than $30,000, leading him to “insurmountable tax complications.”

“It is in your hands, dear judge, to make it a different matter so that not lawyers, attorneys, large corporations and managers receive money first, but a small person, mom and dad, college graduate, grandparents. – all these many small unsecured creditors – so that they, as usual, do not end up at the end of the chain, where everyone loses, ”Ostheimer wrote.

The question of who will be reimbursed first – if that day ever comes – looms heavily over bankruptcy proceedings.

At its peak in October 2021, CEO Alex Mashinsky said that crypto lender had $25 billion in assets under management. Celsius has now dropped to $167 million “cash in hand” which he said would provide “sufficient liquidity” to support operations in the restructuring process. Celsius owes about $4.7 billion to its users. according to the bankruptcy filing.

This filing also reveals that Celsius has over 100,000 lenders, some of which lend the platform cash without any collateral to support the arrangement. The list of the top 50 unsecured creditors includes Sam Bankman-Fried trading firm Alameda Research, as well as an investment firm based in the Cayman Islands. These lenders are likely to be first in line to receive their money, leaving small retail investors to keep the bag.

Unlike the traditional banking system, which typically insures customer deposits, there is no formal consumer protection to protect users’ funds when something goes wrong.

Celsius specifies in its terms and conditions that any digital asset transferred to the platform constitutes a credit from the user to Celsius. Because Celsius had no collateral, customer funds were essentially just unsecured loans to the platform.

Also in fine print, the Celsius terms and conditions warn that in the event of bankruptcy, “any eligible digital assets used in the Earning Service or as collateral under the Loan Service may be non-refundable” and that customers “may not have any funds remedy or right in connection with the obligations of Celsius”. The disclosure reads like an attempt at complete immunity from wrongdoing if anything goes wrong.

July 19, Celsius published a document detailing the next steps for clients. In it, the platform said that its Chapter 11 bankruptcy plan “will give customers the choice of customers to return either cash at a discount or stay in a ‘long’ cryptocurrency,” but it’s unclear if customers will ever see their money again.

The whole process shows how much of the regulation of cryptocurrencies in the US is enforced.

The Securities and Exchange Commission has effectively become one of the leading industry regulators in the country. including by weeding out Ponzi schemes and pyramid schemesand it looks like a precedent will be set in US bankruptcy courts in the coming months. while legislators debate formal legislation on Capitol Hill.

Please from investors

AT hundreds of letters formally sued, retail investors are asking to be put in line to get their money back.

Flory Om, a single mother of two daughters who went to college, said her family was “severely hit both financially and mentally” by the bankruptcy that left her funds on the platform. Om, who is also supportive of her parents, said she couldn’t sleep or focus on work.

“I fight hard [to make a] live,” she wrote.

Jeanne and Savell, who described herself as “a little old lady in retirement”. living on a fixed income, said she turned to Celsius looking for a way to supplement her monthly Social Security check to stretch her dollar amid record inflation.

“I bought a small amount of cryptocurrencies hoping to earn enough to survive a few years, sort of like an insurance policy,” Savell said. “Yes, I know buyer beware, but I agree that there was too much deception.”

Others have lost everything.

California resident Steven Bralver said he had less than $1,000 left in his Wells Fargo checking account — now his only source of funds to provide for his family — as Celsius suspended all withdrawals.

“I absolutely cannot continue to provide without access to my holdings in Celsius,” he wrote to Judge Martin Glennwho oversees the Celsius bankruptcy proceedings in New York.

“This is an EMERGENCY just to keep a roof over my family and food on their table,” Bralver wrote.

Sean Moran from Dublin wrote that he had lost his family farm in Ireland and his family is homeless.

“I can’t believe they lied to us at the weekly AMA. [ask-me-anything events] about distrust of banks, while all this time they were wolves in sheep’s clothing, false promises and misleading information, Moran wrote. – I’m mentally unstable. The family was distraught at my decision to trust Celsius and promise them a better future.”

Aside from the financial devastation described in each of these emails, one recurring theme relates to feelings of betrayal due to a breach of trust between Celsius CEO Alex Mashinsky and his clients.

Three weeks after Celsius put all withdrawals on hold due to “extreme market conditions” — and days before the crypto lender eventually filed for bankruptcy protection — the platform was still advertising in large bold print on his website an annual return of almost 19%, which paid off. comes out weekly.

“Transfer your cryptocurrency to Celsius and you can earn up to 18.63% APR in minutes,” the website says on July 3rd.

Ralfael DiCicco, who disclosed about $15,557 of his crypto holdings on Celsius, said he was duped by marketing.

“I believed in all the commercials, social media and ads that showed Celsius to be a high-yield, low-risk savings account. We were confident that our funds in Celsius were safer than in a bank.” DiCicco wrote.

“This money is pretty much my life savings … I hope you feel it’s in the best interest of all parties involved to pay the small investors first … before any restructuring happens,” DiCicco continued.

Travis Rogers of Phoenix said that During numerous phone calls to the Celsius Network, he was told just two days before the depositor’s accounts were blocked that there was no danger to client assets and zero chance of bankruptcy. Rogers said he recorded several of these calls. He said that he holds $40,000 of Celsius in 11 cryptocurrencies.

Mashinsky’s weekly YouTube events have been mentioned in several emails, including one sent by Stephen Richardson. who listed the many ways in which he believes Mashinsky deceived the public in order to lure new clients into this scheme.

Richardson said he’s watched every Friday AMA since signing up.

“Alex talked about how Celsius is safer than banks because they supposedly don’t remortgage or use fractional reserve lending like banks do,” Richardson wrote. “Currently, my Celsius account has a six-figure amount of cryptocurrencies locked up that cannot be withdrawn, despite Alex’s statements just a few hours before the withdrawal closes that no one is having issues withdrawing funds from Celsius and that everything you hear on the contrary, just “fuf”. [fear, uncertainty and doubt].”

Some said they even considered suicide if they couldn’t get their funds back.

Kathy Davis from Australia pleaded with the judge to return the $138,000 she and her husband were stuck on the Celsius platform.

“The thought of losing so much money is terrifying,” Davis wrote.

“If I don’t get this back, I will kill myself as this loss will greatly affect my family and me,” she wrote.

Mashinsky did not immediately respond to a CNBC request for comment.