Report: Just Weeks Before Bankruptcy, Celsius Founder Withdrew $10 Million

Former Celsius CEO and its founder Alex Mashinsky reportedly withdrew $10 million from the company just weeks prior to its decision to freeze customer assets. The large withdrawal came as users were also striving to withdraw their funds in the wake of sharp turbulence throughout the crypto market in the aftermath of Terra’s implosion. 

Mashinsky Removed $10M in Funds From Celsius Before Freezing Withdrawals

Mashinsky pulled out $10 million from the now bankrupt crypto lender Celsius in May of 2022, according to a report by the Financial Times. The withdrawal came as more and more users were removing their funds from the crypto lending platform amid the collapse of Terra and growing fears around Celsius’ exposure to the Terra ecosystem. 

On June 12, Celsius revealed that it has halted withdrawals, swaps, and transfers between accounts due to “extreme” market conditions. “We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations,” the company said at the time. 

Scrutiny of Mashinsky is expected to increase following the withdrawal revelations. It would also raise doubts about his sincerity towards the company and whether he knew beforehand that the crypto lender will not be able to honor user withdrawals in the coming days. 

According to the FT report, Celsius will soon share details of Mashinsky’s transactions with the court as part of a wider disclosure by the company of its financial affairs. 

Meanwhile, a spokesperson for Mashinsky has reportedly claimed that he voluntarily informed the official unsecured creditors committee (UCC) about the withdrawals during the bankruptcy proceedings. The spokesperson said he and his family currently have $44 million of crypto assets frozen with Celsius. They added:

“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.”

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Celsius is Short $2.8B in Crypto Assets

More than a month after freezing user funds, the crypto lender filed for bankruptcy on July 14. In its bankruptcy filing, Celsius said it had $167 million cash on hand that could be used to fund certain operations during the restructuring process.

Earlier court filings had indicated that Celsius has a $1.2 billion gap in its balance sheet. Mashinsky further disclosed that one-third of the company’s loans, worth around $310 million, are bad debt. 

While this was already bad enough, a mid-August filing by Kirkland & Ellis, the law firm tasked with the crypto lender’s restructuring efforts, revealed that the crypto lender is in an even worse financial condition. The filing revealed the company has $2.8 billion in crypto liabilities and is also on its way to running out of cash by October.

More specifically, Celsius has a huge hole in its bitcoin holdings. The company owes users 104,962 BTC, worth around $2.5 billion, but holds only 14,578 BTC and 23,348 WBTC, a type of bitcoin derivative. This means the crypto lender is short over 67,000 BTC alone. 

Celsius Struggles to Make a Comeback

Despite its extremely bad financials, Celsius has been considering numerous options in a bid to make a comeback. In mid-September, Mashinsky proposed that the company reorganize its operations to focus on crypto custody, according to audio of an internal meeting shared by a customer of the company.

Another option has been a plan to turn the crypto lender’s debt into crypto “IOU” (“I Owe You”) tokens. In a leaked call, the company’s executives said they had shared this plan with the UCC and received “positive feedback.”

“This is really how we resolve this, how we get out. What we do in this pivotal moment can be through unprecedented, really innovative solutions and this [plan] is one of them,” Oren Blonstein, Celsius’ chief compliance officer said. 

Do you think Celsius will be able to make a comeback? Let us know in the comments below.