03 Oct 2022 · 3 min read

Celsius CEO Withdrew $10 Million Before Company Entered Bankruptcy

Celsius founder Alex Mashinsky withdrew $10 million from the now-bankrupt cryptocurrency lender just weeks before the company froze customer accounts and collapsed, according to sources cited by The Financial Times.

Mashinsky is alleged to have made the withdrawals in May, following the collapse of stablecoin issuer Terra, with fears of contagion in the cryptocurrency market causing panicked withdrawals among Celsius' own customers. Around a month later, on June 12, Celsius then froze customer withdrawals, before filing for chapter 11 bankruptcy in July with a hole in its finances worth around $1.2 billion.

The allegations of Mashinsky withdrawing funds comes days after he stepped down as Celsius CEO, amid ongoing bankruptcy proceedings. They will likely heighten scrutiny of his actions prior to the collapse, and raise questions as to what he and other senior figures at the lender knew or understood regarding Celsius' precarious financial situation.

Celsius CEO Mashinsky Withdrew $10 Million

It appears that Mashinsky isn't denying withdrawing the $10 million, although a spokesperson for the former CEO is stating that he had previously made deposits equalling that amount.

"In mid to late May 2022, Mr Mashinsky withdrew a percentage of cryptocurrency in his account, much of which was used to pay state and federal taxes. In the nine months leading up to that withdrawal, he consistently deposited cryptocurrency in amounts that totalled what he withdrew in May," said the spokesperson.

Mashinsky's spokesperson also affirms that the former CEO is "committed to working with and uniting the community around a recovery plan" that will offer compensation to the maximum number of Celsius customers. As of writing, these customers are owed some $4.7 billion, with many of them reporting that they deposited substantial sums with Celsius prior to its bankruptcy.

According to one couple who submitted a letter to the US Bankruptcy Court for the Southern District of New York, they had deposited savings worth $150,000 with Celsius.

"That was our life savings. It was our chance of having a baby,” they wrote.

Given such stories and testimonies, the claim that Mashinsky withdrew $10 million from Celsius -- and apparently for his own personal use -- will not be viewed positively. Earlier this month, the Vermont state financial regulator submitted a filing in which it alleged that Celsius's own balance sheet revealed it was insolvent as early as May 13, around the time Mashinsky was posting on Twitter to the effect that the lender "had not experienced any significant losses" and that "all funds are safe."

Combined with the new allegations against Mashinsky, this creates a picture of a company that may have knowingly misled its customers, against a backdrop of having speculated recklessly with said customers' savings.

Bankruptcy Proceedings

While Celsius' failure is often associated with the collapse of Terra and Three Arrows Capital (not to mention Voyager Digital), its bankruptcy appears to have largely been the result of dangerous investments.

It had offered yields of up to 17% to its customers, but it appears that it funded such promises via risky bets in the DeFi market. It deposited around $534 million with KeyFi between August 2020 and April 2021, for instance, yet whereas its deposits with KeyFi grew to a value $1.14 billion by the end of this period, they would have been worth around $1.49 billion if Celsius had simply held the assets itself.

At the same time, it also suffered from hacks and technical mishaps, with the lender being exposed to the $120 million BadgerDAO hack in December 2021. 

As such, a combination of apparent mismanagement and bad luck resulted in its financial position becoming untenable by the time a bear market kicked in this year. Following a run of customer withdrawals in May, it froze accounts the next month, before declaring bankruptcy the next.

As of writing, bankruptcy proceedings are still underway, with reports suggesting that most Celsius customers may be deemed unsecured creditors. This will put them last in line to receive compensation, meaning that the money lost by the lender's customers may be lost for good.