Investing In Celsius Has Left Investors Homeless, Suicidal, And Down To Their Last $1,000
In the midst of bankruptcy proceedings, Celsius Network, once one of the most prominent players in the world of crypto lending, is facing allegations that it was running a Ponzi scheme by paying early depositors with the money it obtained from new users.
The 1.7 million customers who have been ensnared by the alleged fraud are now directly pleading with the Southern District of New York in order to get their money back.
According to the letter included in the court exhibits, Christian Ostheimer, a 37-year-old living in Connecticut, said he trusted Celsius with his retirement savings, but as a result, he lost more than $30,000, resulting in “unsurmountable tax complications.”
Investing In Celsius Has Left Investors Homeless, Suicidal, And Down To Their Last $1,000
“It is in your hands, honorable judge, in my opinion, to make this a very different case where not the lawyers, the attorneys, the big corporations, or the corporate managers get paid out first but the little guy, the mom, and pop, the college graduate, the granny, and grandpa – all those many small unsecured creditors – so that they are not at the end of the chain where they lose everything,” wrote Ostheimer in his letter.
In the case of a bankruptcy proceeding, the question of who will get repaid first – if such a day ever comes – looms large over the proceedings.
The crypto lender had $25 billion in assets under management at the height of its operations in October 2021, according to CEO Alex Mashinsky.
As of today, Celsius has a cash balance of $167 million on hand, which it says will provide “ample liquidity” to be able to support operations during the restructuring process.
The bankruptcy filing of Celsius indicates that the company owes its users a total of $4.7 billion in debt.
Additionally, the filing shows Celsius has more than 100,000 creditors, some of whom lent the platform cash without any collateral in order to back up the arrangement.
Among its top 50 unsecured creditors is Sam Bankman-Fried’s trading firm Alameda Research, as well as an investment firm based in the Cayman Islands, which is also listed as one of the top 50 unsecured creditors.
There is a good chance that those creditors will be the first to get their money back, leaving smaller retail investors holding the bag when it comes to recovery.
In contrast to the traditional banking system, which often insures customer deposits, when things go wrong, there are no formal consumer protections in place to protect user funds when things go wrong.
According to the terms and conditions of Celsius, any digital asset that is transferred to the platform constitutes a loan from the user to Celsius.
It should be noted that due to the lack of collateral put up by Celsius, the customer funds were essentially just unsecured loans to the platform.
It is also worth mentioning that in the fine print of Celsius’ terms and conditions, there is a warning that says that, in the event of bankruptcy, “eligible digital assets used in the Earn Service or as collateral under the Borrow Service may not be recoverable” and that customers may not have any legal remedies or rights related to Celsius’ obligations. It reads like an effort to give Celsius blanket immunity from legal wrongdoing, in the unlikely event that something goes wrong.
In a document published by Celsius on July 19, the next steps for customers were outlined. It is unclear whether customers will ever see their money again as a result of the platform’s Chapter 11 bankruptcy plan, which says customers will have the option to either recover their money at a discount or remain ‘long’ crypto after their bankruptcy, but it is unclear whether customers will ever see their money.
Throughout the entire process, it becomes clear just how much regulation of crypto in the U.S. is driven by enforcement rather than legislation.
Securities and Exchange Commission has established itself as one of the top regulators of the financial industry in the country, not only by weeding out Ponzi and pyramid schemes, but it also seems that some precedents will be set in U.S. bankruptcy courts in the coming months as lawmakers debate formal legislation on Capitol Hill in the coming months.
Pleas from investors
As evidenced by the hundreds of letters that were officially submitted to the court, retail investors petitioned for priority treatment in order to be able to get their money back.
Flori Ohm, a single mom with two college-bound daughters, said that she has been “severely impacted both financially and mentally” by the bankruptcy, which has left her funds on the platform stranded and they haven’t been able to access them.
In addition to supporting her parents, Ohm said she has a hard time sleeping and she has difficulty concentrating at work.
In her email, she wrote, “I am struggling hard [to make a living],” as evidence of her hardships.
In the midst of record inflation levels, Jeanne Y Savelle, who described herself as a “little retired old lady” living on a fixed income, said she turned to Celsius as a way to supplement her monthly Social Security check in order to further stretch her dollar.
According to Savelle, “I purchased my small amount of crypto hoping to earn just enough to help me weather a few years, almost like a safety net,” he said. It is true that buyer beware should be followed, however, I also agree that there has been way too much deception going on.
There are others who have lost everything they had.
Stephen Bralver, a California resident, told NBC News that he has less than $1,000 left in his Wells Fargo checking account – he has no other source of funds to provide for his family now that Celsius has suspended all withdrawals from his account.
In his letter to Judge Martin Glenn, who is overseeing the Celsius bankruptcy proceedings in New York, he wrote that there is no way he can continue to provide without access to his assets at Celsius.
Braver explained in his letter that this is an emergency situation, simply so that he can keep his family’s roof over their heads and food on their tables.
There was a letter written by Sean Moran of Dublin stating that he has lost his family farm in Ireland and his family is homeless as a result.
“Can’t believe that they lied to us on the weekly AMA [ask-me-anything] session about not being able to trust banks, when all along they were wolves in sheep’s clothing making false promises and providing misleading information to us,” Moran wrote.
There is something wrong with me mentally. As a result of my trusting Celsius and promising them a better future, my family is distraught with my decisions.”
In addition to the financial devastation described in each of these letters, there is a recurring theme centered around a sense of betrayal between Celsius CEO Alex Mashinsky and his customers because of the breach of trust they experienced.
After Celsius halted all withdrawals due to “extreme market conditions” three weeks ago – and a few days before the crypto lender filed for bankruptcy protection a few days later – the platform was still advertising on its website in big bold on its website annual returns of nearly 19%, which were paid out weekly on top of that.
The Celsius website reads: “Transfer your crypto to Celsius and you could be earning up to 18.63% APY in minutes,” the announcement reads.
DiCicco said he was fooled by the marketing of Celsius when he disclosed holdings of approximately $15,557 in crypto assets on the platform.
As a result, I believed all of the commercials, social media posts, and advertising that showed Celsius as high-yielding, low-risk savings account that I should consider.
“We have been assured that our funds are safer at Celsius than they would be at a bank,” DiCicco wrote in his letter.
My life savings are pretty much all in this money… In my opinion, it would be in the best interest of all parties involved for you to find it to be in their best interest to pay back the smaller investors first before any restructuring takes place,” DiCicco explained.
As recently as two days before Celsius Network locked depositors’ accounts, Travis Rodgers of Phoenix told a reporter that, in numerous phone conversations with the company, he had been told there was no danger to client assets and that there was no possibility of bankruptcy. Rodgers said that several of those calls were recorded by him. Across 11 cryptocurrencies, he holds a total of $40,000 in Celsius holdings.
As a result of the weekly ask-me-anything events hosted by Mashinsky on YouTube, they have been mentioned in multiple letters, including one that was sent in by Stephen Richardson in which he outlined the numerous ways in which he believes Mashinsky deceived the public to lure new customers into his scheme.
According to Richardson, he has watched every single Friday AMA since he joined the site.
“Alex would talk about how Celsius is safer than banks because they supposedly do not rehypothecate as the banks do and that they do not use fractional reserve lending as the banks do,” wrote Richardson. There are currently six figures worth of crypto locked in my Celsius account that I am unable to withdraw, despite Alex’s claims mere hours before withdrawals were closed that nobody has any issues withdrawing funds from Celsius and that everything you hear to the contrary is simply ‘fud’ [fears, uncertainties, and doubts].”
In some cases, people have even been reported to have contemplated suicide if they were unable to retrieve their funds.
During a hearing before the judge, Katie Davis, a citizen of Australia, pleaded with the judge for the return of the $138,000 that she and her husband were stranded with on the Celsius platform.
There is no way that I would ever be able to bear the thought of losing that amount of money,” Davis wrote in her letter.
‘If I do not get that back, I will commit suicide as the loss will have a significant impact on my family and on me as well,’ she wrote in an email.