Celsius publishes customers who can recover 94% of funds as Tether denies $2 billion in exposure

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(Kitco News) –
Celsius has published a massive list of customers who will soon be allowed to withdraw assets that have been frozen on the platform since June 2022.

The bankrupt crypto lender filed a 1,419-page document in New York on Tuesday listing the account holders to whom the court has granted permission to recover 94% of their locked assets. The requirements for eligibility are that transfers were under $7,575 at the time they were made, users must have enough assets on the platform to cover withdrawal fees, and some users will have to update “specific customer information related to Anti-Money Laundering (AML) and Know Your Customer (KYC) information” before their withdrawals are approved.

“Whether and when Eligible Users are entitled to a distribution of the remaining 6% will be determined at a later date by the Court,” the filing said. Eligible users can expect that “on or around February 15, 2023” they will receive an email informing them of their “eligibility to withdraw and the steps each user must take before a withdrawal can be processed.”

Tuesday also saw the publication of the long-awaited report from Shoba Pillay, an independent examiner and former prosecutor appointed by the bankruptcy court, which explained in detail how Celsius used the deposits of its customers to engage in “buying sprees” of their CEL token in order to prop up its value and entice new customers, all while timing sales of the token to enrich insiders.

“The business model Celsius advertised and sold to its customers was not the business that Celsius actually operated,” she wrote.

“Celsius boasted that its primary financial product—its “Earn” program— was the “safest place for your crypto.” She wrote that they claimed to know how to generate high returns with low risk by “carefully vetting its financial counterparties” and promised customers “at least 5% annual interest.”

Celsius also built their marketing around the promotion of its native CEL token. “Celsius explained that it intended to raise the initial capital to fund its business by selling 325 million CEL through private pre-sales and an initial coin offering (“ICO”) and that these sales would raise $50 million,” she wrote. “Celsius told customers that they would receive rewards in CEL that Celsius would obtain from its internal treasury (which would hold an additional 325 million CEL) or by buying CEL in the secondary market.”

Celsius claimed this process would create a self-sustaining “flywheel,” where their marketing would generate more users, creating more assets to invest, resulting in more profits, to buy more CEL, boosting the token’s price and the value of customers’ holdings.

“From its inception, however, Celsius and the driving force behind its operations, Mr. Mashinsky, did not deliver on these promises,” Pillay wrote. “Behind the scenes, Celsius conducted its business in a starkly different manner than how it marketed itself to its customers in every key respect.”

The report also claimed that Three Arrows Capital, Alameda Research, and Tether were permitted to exceed their credit limits on the Celsius platform.

“Celsius’s loans to Alameda Research were twice its credit limit; Celsius’s loans to Tether were twice its credit limit; Celsius’s loans to 3AC were three times its credit limit.” Pillay wrote that senior Celsius representatives “were unable to explain why Celsius did not enforce the credit limits” when she inquired about these exceptions.

“The Tether exposure eventually grew to over $2 billion – a number so large that in late September 2021, that exposure was described to the Risk Committee as present[ing] an ‘existential threat’ to Celsius,” the report noted.

Tether, issuer of the USDT stablecoin which underpins much of the cryptosphere, is the only one of the three which is not currently in bankruptcy. Late Tuesday, Tether’s chief technology officer Paolo Ardoino took to twitter to issue a denial that the company ever took a loan from Celsius:

Tether never borrowed from Celsius.
The doc mixes “from” and “to”.
Either is a typo or a mis-characterization.

— Paolo Ardoino 🍐 (@paoloardoino) January 31, 2023

Tether published a statement on July 8, 2022 addressing its dealings with Celsius after the lender froze user assets.

“While Tether’s portfolio does include an investment in Celsius, representing a minimal part of its shareholder’s equity, there is no correlation between this investment and Tether’s own reserves or stability,” they wrote. “The Tether loan that was taken out by Celsius was an overcollateralized loan denominated in BTC (130%+), and the decision to liquidate the collateral to cover the loan was a part of the original terms of the agreement between the two entities […] Celsius position has been liquidated with no losses to Tether.”

Celsius filed for bankruptcy on July 14, 2022, listing between $1 billion and $10 billion in assets and more than 100,000 creditors, after pausing all withdrawals from the network and essentially freezing its customers’ assets one month earlier citing “extreme market conditions.”