Independent Examiner Finds Celsius Used New Customer Funds to Pay for Withdrawals

  • A 700-page report from an independent examiner claims that Celsius concealed the extent to which it was market-making its own CEL token.
  • The examiner also found instances where Celsius used new customer funds to cover the liabilities of other customers, a behavior described as “very Ponzi like”.


Bankrupt crypto lender Celsius misled investors about the risks of its business, and on occasion used new deposits to pay for other customers’ withdrawals, a court-ordered report into the company revealed on 31 January.

The 700-page report was published by independent examiner Shoba Pillay, who was ordered by the bankruptcy court in September to look into the operations of Celsius in the run up to its bankruptcy. The report claimed that how the crypto lender ran its business “differed significantly” from what was told to customers, with Pillay noting that “Celsius abandoned its promise of transparency from the start”.

According to the report, Celsius’ problems did not start in 2022, but rather in 2020 after it started using customer assets to fund operational expenses and rewards. The company had concealed the extent to which it was market-making for its own native token CEL, and that it would sell tokens in private over-the-counter transactions, and then make offsetting purchases on the public market. A Celsius employee noted in an internal Slack communication:

“If anyone ever found out our position and how much our founders took in USD could be a very very bad look . . . We are using users USDC to pay for employees worthless CEL . . . All because the company is the one inflating the price to get the valuations to be able to sell back to the company.”

Pillay also looked into the dealings of Celsius’ founder and CEO Alex Mashinsky during his investigation, and accused him of selling CEL tokens while he was assuring customers he was either buying more or holding. Pillay has estimated that Mashinsky sold aproximately 25 million CEL tokens for at least $88.7 million between 2018 and the firm’s bankruptcy, while at the same time making “repeated assertions that he was not a seller”.

Another concern of Pillay was that Celsius had used customer funds to purchase tokens needed to cover the liabilities of other customers, which was described as “very Ponzi like” by the company’s coind deployment specialist Dean Tappen in April. The independent examiner wrote in his report:

“Celsius recognized that it should not use customer assets to purchase the coins necessary to cover liabilities to other customers. It justified its use of customer deposits to fill this hole in its balance sheet on the basis that it was not selling customer deposits but instead posting them as collateral to borrow the necessary coins.”

Related Coverage
FTX, Alameda Wallets Move $13M to Exchanges
  • A little over $13 million in altcoins were sent to crypto exchanges Binance and Coinbase in the past 24 hours, which is in accordance with a September court order.
  • The court ordered a phased liquidation process, which allows the bankruptcy estate to sell $3.4 billion worth of digital assets over a certain period of time.
November 1, 2023, 2:27 PM


Celsius Seeks Court Approval on Restructuring Plan
  • The bankrupt crypto lender said that if its reorganization plan is approved, it is ready to start repaying its customers using $2 billion in BTC and ETH by the end of the year.
  • If given the green light, Celsius will restart its business under the “NewCo” brand without any funded debt, and with seed funding of up to $450 million.
DoJ Requests SBF’s Expert Witnesses be Barred From Testifying
  • The U.S. Department of Justice has expressed its concerns over Sam Bankman-Fried’s seven expert witnesses, and requested they be barred from testifying on the case.
  • The DoJ claimed most of the proposed experts lacked the necessary foundation for their opinions, making them unqualified to be an expert witness.