WestCap, a Private-Equity Firm, Marks Down Celsius as Near-Total Loss

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Less than a year ago, private-equity investors and a pension fund touted Celsius Network as a “world-class business.” Now they are marking down their investments in the bankrupt crypto lender as a near-total loss.

In this month’s letter to investors outlining the firm’s second-quarter performance, which Barron’s has seen, the private-equity firm WestCap Group marked down the value of its fund’s $150 million investment in Celsius by 85%. “WestCap is actively working with an assembled team of best-in-class experts to ensure representation of our interests” in Celsius’s bankruptcy proceedings, the firm wrote.

WestCap and Celsius didn’t respond to requests for comment.

WestCap, which has offices in San Francisco and New York, was founded by Laurence Tosi, who had previously served as chief financial officer for both

Airbnb

and

Blackstone Group
.
As of late last year, the firm had close to $9 billion under management, according to Bloomberg.

In October, eight months before it halted withdrawals, Celsius Network raised $400 million from WestCap and Caisse de dépôt et placement du Québec (CDPQ), the second-largest Canadian pension fund.

On Wednesday, CDPQ said it would likely write off its investment completely. “Clearly, things didn’t unfold as anticipated,” the pension fund’s CEO Charles Emond said at a press conference, while noting that the Celsius investment was a small one for the fund.

The funding valued Celsius at $3.25 billion. Celsius CEO Alex Mashinsky told his customers that the investment was a vindication of his firm’s business model. Tosi was equally enthusiastic.

“WestCap and CDPQ believe Celsius is a world-class business in size and scope, and will continue to be the leader at the forefront of the industry in regard to innovation and regulatory acceptance,” he said in a press release at the time of the deal.

The investment came at a critical time for Celsius, which was already being circled by state securities regulators who said the company’s yield product was an unregistered security that wasn’t sufficiently disclosing its risks, a charge that the company disputed. In September, states including New Jersey, Texas, and Alabama took enforcement actions against Celsius, though most of the states allowed Celsius to continue operating in their jurisdictions as they negotiated with executives to bring the company into compliance.

The October investment was relatively small for WestCap and CDPQ. WestCap in its letter valued the 2021 fund that invested in Celsius at about $1.16 billion, slightly higher than its invested capital. But it gave a big boost in credibility to Celsius just as regulators began to question its business model.

“No one would be investing this amount of money in Celsius if there was any serious concerns that what we’re doing is not legit and is not following all the regulations,” Mashinsky told customers during a video live stream a few days after the funding announcement.

Celsius filed for bankruptcy protection on July 13, blaming the general crypto downturn and market volatility surrounding the May crash of a so-called stablecoin for its struggles.

The U.S. Trustee for Celsius’s bankruptcy proceeding on Thursday asked a judge to appoint an independent examiner to investigate how Celsius went bankrupt and whether customers were harmed by any fraud or malfeasance, among other issues. The firm’s latest statement of its assets this month said it had approximately $2.85 billion more in crypto-related liabilities than it had in crypto assets.

Write to Joe Light at [email protected]