Celsius Network founder Alex Mashinsky withdrew $10 million from the crypto lender just weeks before the company froze customer accounts as it headed for bankruptcy, according to people familiar with the matter.
The crypto withdrawals by Mashinsky in May came as clients withdrew their assets from the company in large numbers, spooked by turmoil in the crypto markets and worries about Celsius’ financial health.
Celsius froze withdrawals on June 12, leaving hundreds of thousands of retail investors unable to access their savings. The company filed for bankruptcy in July with a $1.2 billion hole in its balance sheet.
The company peaked last year with $25 billion in crypto assets deposited by clients lured by the outrageous interest rates offered by Celsius, some as high as 18%, on certain cryptocurrencies.
The withdrawal revelations will intensify scrutiny of Mashinsky, who resigned as chief executive on Tuesday, and raise questions about when he knew Celsius would not be able to return client assets.
Details of Mashinsky’s transactions are expected to be submitted to court by Celsius in the coming days as part of the company’s broader disclosure of its financial affairs.
A spokesperson for Mashinsky said he and his family still had $44 million in crypto assets frozen with Celsius even after the withdrawals, which he voluntarily disclosed to the official Unsecured Creditors’ Committee (UCC) as part of of the bankruptcy procedure.
“In mid to late May 2022, Mr. Mashinsky withdrew a percentage of cryptocurrency from his account, much of which was used to pay state and federal taxes. In the nine months leading up to this withdrawal, he consistently deposited cryptocurrency in amounts that totaled what he had withdrawn in May,” the spokesperson said.
“He remains committed to working with and uniting the community around a recovery plan that will maximize coins and liquidity for everyone,” they added.
Mashinsky, 56, co-founded Celsius in 2017 and was the public face of the company, appearing in weekly YouTube video addresses in which he pushed his message of financial freedom from the banking establishment.
At the end of 2021, Celsius was valued at $3 billion as it raised $600 million in equity investment from U.S. investment firm WestCap and Canada’s second-largest pension fund, Caisse de Québec deposit and placement.
Despite Mashinsky’s public optimism, the company struggled behind the scenes with weak internal systems to manage its assets and sometimes paid out more to interested customers than it generated loans.
Celsius also suffered a series of investment losses in 2021 and 2022 which contributed to its downfall but were not disclosed to clients. Last month, the Vermont state financial regulator alleged that Celsius was insolvent as early as May 13 of this year.
The company saw huge asset outflows in May as the crypto markets were rocked by the collapse of two interconnected cryptocurrencies, terraUSD and Luna. Their disappearance sparked a series of failures throughout the sector.
Just days before Celsius was to freeze withdrawals, the crypto lender reassured customers that it had sufficient reserves and said “full speed”.
Mashinsky, a former telecommunications entrepreneur, faces being forced to return the $10 million he withdrew from Celsius. Under US law, payments made by a company within 90 days of bankruptcy — or one year for transfers to insiders — can be recovered for the benefit of all creditors.
About $8 million of the assets Mashinsky withdrew were used to cover taxes resulting from income generated by the assets on Celsius, one of the people familiar with the matter said.
The remaining $2 million were units of Celsius’ native CEL token. The withdrawal had been pre-planned and was tied to Mashinsky’s estate planning, the person added.
Mashinsky was Celsius’ largest shareholder and said he was among its main creditors in the event of bankruptcy. He apologized to customers in his resignation letter last week, saying he was “very sorry for the difficult financial circumstances that members of our community are facing.”
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