Celsius Creditors’ Lawyer ‘Looking Into’ Whether Firm Was a Ponzi Scheme: Report

A New York bankruptcy judge expanded the scope of the probe in the Celsius Network bankruptcy as the company’s customers demanded investigations into the crypto lender’s business operations, according to a Wall Street Journal report.

At Tuesday’s hearing, Judge Martin Glenn of the U.S. Bankruptcy Court ordered the court-appointed examiner and the official committee of Celsius creditors to settle on who will lead a probe into the firm’s use of customer money.

“We don’t know if Celsius was a Ponzi scheme, but there are flags that came up,“ Greg Pesce, the creditors committee’s lawyer, told WSJ. ”Let me make it clear we’re looking into whether it is. We don’t have an answer to that.”

The examiner, Shoba Pillay, was appointed in September following the U.S. Trustee’s allegations of “significant transparency issues” and “gross mismanagement” regarding Celsius’ handling of the bankruptcy case.

Celsius initiated bankruptcy proceedings in July this year, suspending withdrawals of funds and revealing that it owed $5.5 billion to clients and creditors.

Initially, Pillay was tasked with looking into Celsius’ crypto holdings and its Bitcoin mining business, recent changes to its account offerings, as well as the firm’s compliance with tax and bankruptcy proceedings.

The broadened scope of the probe will include the company’s marketing practices and representations it made to onboard new customers, as well as its handling of CEL, the native token of the Celsius platform.

In her court filings, Pillay stressed that she could examine the possibility of Celsius running a Ponzi scheme if instructed, but would stick to finding facts that could inform such an inquiry, rather than presenting her own legal conclusion.

Celsius faces more accusations

This is not the first time Celsius is accused of operating a Ponzi scheme.

Back in July, CEO of KeyFi Jason Stone sued the crypto lender for allegedly refusing to honor its contract and using customer funds to manipulate crypto markets.

According to Stone’s lawsuit, the revelation that Celsius is not capable of meeting the firm’s withdrawal obligations “shows that Defendants were, in fact, operating a Ponzi scheme.”

In September, Vermont state regulators asked for broader powers to investigate the Celsius bankruptcy, alleging that the firm has been insolvent since 2019.

According to Vermont assistant general counsel Ethan McLaughlin, Celsius inflated the price of its CEL token at the expense of retail investors, while the crypto lender also allegedly admitted it never earned enough revenue to support the investors’ payouts.

“This shows a high level of financial mismanagement and also suggests that at least at some points in time, yields to existing investors were probably being paid with the assets of new investors,” the Vermont state officials said at the time.