Celsius may have run a Ponzi-like scheme, states allege

Quick Take

  • Evidence in state securities regulator filings show Celsius’ finances were in turmoil far before the 2022 cascade of crypto markets.
  • Regulators said in the filing that Celsius misled investors.
  • Some creditors are hesitant to appoint an outside examiner due to cost concerns.

Celsius may have been using a Ponzi-like scheme to pay yields, the Vermont Department of Financial regulation alleged in a filing supporting the Justice Department's motion to appoint an examiner in its bankruptcy case.

Meanwhile, holders of Celsius Series B shares filed a limited objection to the motion, saying it had no position on whether an examiner should be appointed, but asked that the scope be narrowed and the budget to be tailored to avoid unnecessary costs. 

The Vermont filing said Celsius made public statements saying all funds were safe and it was weathering market volatility when in fact internal financial records show it was actually insolvent, depositor funds were not safe and it lacked sufficient assets to repay its obligations. The state claims that Celsius obfuscated its insolvency at multiple points, using its CEL token to fill holes in its balance sheet, and the company may have used new investor funds to pay existing investors when its yield program failed to operate as planned, also known as a Ponzi scheme.

The Texas State Securities Board (SSB) filed a similar motion claiming that in addition to slow response time and incomplete submissions from Celsius on requested information and documentation, "the representations of the Debtors regarding their financial status in the bankruptcy case have been inconsistent at best." 

Together, some 40 sta