Celsius on Thursday was sued by former investment manager Jason Stone as pressure on the firm continues to mount amid a collapse in cryptocurrency prices. Stone claims, among other things, that Celsius CEO Alex Mashinsky (above) has “managed to enrich himself significantly.”
Piaras Ó Mídheach | Web Summit Sports File | Getty Images
Crypto company Celsius is in the process of filing for Chapter 11 bankruptcy, according to a source familiar with the discussions.
The company’s lawyers have been notifying separate US government regulators since Wednesday night, according to the source, who spoke on condition of anonymity because the proceedings are private. Celsius plans to file the documents “immediately,” the person said.
The Hoboken, New Jersey-based company made headlines a month ago after it froze customer accounts, blaming “extreme market conditions.”
The news marks the latest high-profile crypto bankruptcy as prices plummet.
Voyager filed for Chapter 11 bankruptcy protection last week after suffering losses due to exposure to now-defunct hedge fund Three Arrows Capital. A New York bankruptcy court judge froze Three Arrows Capital’s remaining assets this week. Three Arrows is already in liquidation procedure.
“Unfortunately, that was to be expected. It was expected. However, this does not stop our investigations. We will continue to investigate the company and work to protect its customers, even through its insolvency,” Joseph Rotunda, director of enforcement at the Texas Securities and Exchange Commission, said of Celcius’ bankruptcy filing.
Celsius did not immediately respond to CNBC’s request for comment.
The company was one of the biggest players in the crypto lending space with over $8 billion in customer loans and almost $12 billion in assets under management as of May. Celsius said it had 1.7 million customers as of June and competes with its interest-bearing accounts and yields of up to 17%.
The firm would lend crypto to customers of counterparties willing to pay an extremely high interest rate to borrow it. Celsius will then split a portion of that revenue with users. But the structure collapsed amid a liquidity crisis in the industry.
The company was sued last week by a former investment manager who alleged that Celsius failed to hedge risk, artificially inflated the price of its own digital coin and engaged in activities that amounted to fraud.
Six state regulators have already launched investigations into Celsius. Vermont became the latest to do so earlier Wednesday. The state Department of Financial Regulation said Celsius had “deployed client assets in a variety of risky and illiquid investments, trading and lending activities.”
“Celsius’ customers did not receive critical disclosures about its financial condition, investment activities, risk factors and ability to repay its obligations to depositors and other creditors,” the Vermont regulator said in a statement. “The company’s assets and investments are likely to be insufficient to cover its outstanding liabilities.
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