Vermont state officials have sought wider powers to investigate Celsius, alleging that the troubled cryptocurrency exchange artificially inflated the price of its CEL tokens for more than three years at the expense of retail investors.
Vermont Assistant General Counsel Ethan McLaughlin announced, “By increasing its net position in CEL by hundreds of millions of dollars, Celsius has amplified and increased the market value of CEL, thereby making the company’s CEL holdings artificial in its balance sheet and financial statements.” substantially increased.” Wednesday’s filing.
“Liabilities, excluding the company’s net position in CEL, must have exceeded its assets since at least February 28, 2019,” he continued. “These practices may also have enriched Celsius insiders at the expense of retail investors.”
The document was filed in the United States Bankruptcy Court, Southern District of New York, where Celsius filed for Chapter 11 protection in July. According to Vermont officials, Celsius, through its CEO Alex Mashinsky, made false and misleading claims to investors about the company’s financial health, profitability, ability to meet its obligations, and compliance with securities laws.
,[This] Concerns about the volatility of the cryptocurrency market have prompted retail investors to either invest in Celsius or abandon their investments in Celsius,” the filing said.
The regulator pointed to a May 2022 tweet by Mashinsky claiming that the exchange had suffered no significant losses and that all funds were safe.
At the time of Mashinsky’s tweet, McLaughlin says, Celsius lacked sufficient assets to meet its obligations and experienced unrealized losses of approximately $454 million between May 2 and May 22, 2022.
Regulators say Celsius’ CFO Chris Ferrano acknowledged that the company’s bankruptcy began with financial losses in 2020 and argues that financial troubles went even further.
According to the filing, Celsius reportedly admitted that the company never generated enough revenue to support the yield being paid to investors, effectively qualifying it as a Ponzi scheme.
“This reflects a high degree of financial mismanagement and also suggests that at least at some point, returns to existing investors were being paid with assets from new investors,” the regulators said.
After weeks of speculation, and a moratorium on customer withdrawals, Celsius filed for bankruptcy in June. According to CoinMarketCap, the price of CEL fell by 70% from $0.49 to $0.15 at the time of the withdrawal freeze.
According to court documents, more than forty state regulators, including Vermont, have launched investigations into Celsius, including claims of operating in violation of state securities laws.
“Vermont and other state regulators are particularly concerned about losses suffered by retail investors—for example, middle-class, unaccredited investors who have invested entire college funds or retirement accounts with Celsius,” the filing said. invested.” “The appointment of an examiner is important to ensure the interests of these investors are protected.”
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