US agency report |  Celsius network associated with a Ponzi scheme

US agency report | Celsius network associated with a Ponzi scheme

By injecting 200 million into the Celsius Network, the Caisse de Depot et Placement du Québec (CDPQ) opted for a model that resembled a Ponzi scam, a US government agency suggests in a damning report on this still-tormented crypto bank.

Posted yesterday at 2:48 pm

Julien Arsenault

Julien Arsenault

Written by Vermont’s financial regulatory agency, the document, filed Wednesday in New York bankruptcy court, also notes that Celsius Network was nearing insolvency as early as 2019. It raises new questions about the due diligence carried out by Caisse. before making your investment. , in the fall of 2021.

Attorney Ethan McLaughlin writes in particular that the company admitted to Vermont investigators that the crypto bank “never generated enough revenue to support the returns paid to investors.”

“This demonstrates a high level of mismanagement and also suggests that, at least on occasion, the returns were likely paid out of the assets of new depositors,” the report read.

The expression “Ponzi scheme” is not used by the lawyer, but his observations correspond exactly to his definition, emphasizes Saidatou Dicko, professor at the department of accounting sciences at ESG UQAM and a specialist in governance.

The revenue was not enough to generate enough profit to pay the yields, he says. It is a trap for investors.

Saidatou Dicko, professor in the department of accounting sciences at ESG UQAM

A Ponzi scheme involves using the inflows of new investors to pay false returns to other investors or reimburse those who want their money back.

Celsius Network, like other crypto banks, pooled cryptocurrency deposits. It offered loans and interest, which could sometimes reach 17%, to depositors. This is much higher than what traditional banks offer.

asked by PressOn Wednesday, Quebec’s manager of public and parapublic insurance and pension plans declined to comment on the contents of the report. The document does not specify whether the CDPQ 200 million was used to pay returns to Celsius Network depositors.

This is not the first time the crypto bank has been linked to a Ponzi scheme. A former partner had made an accusation to this effect last July in a lawsuit filed against the company. The allegation, however, was not as well documented as the Vermont financial regulatory agency’s finding.

several criticisms

The government agency is not kind to Celsius Network, which turned to US bankruptcy law on July 13, a month after it froze withdrawals from 1.7 million depositors due to a liquidity crisis.

“Through its CEO Alex Mashinsky, Celsius has made misleading statements to investors about the company’s financial health and its compliance with securities law. This probably led people to invest in Celsius. »

The document notes that if one excludes the value of Celsius Network’s cryptocurrency, the CEL token, its liabilities would have exceeded its assets as of February 28, 2019. According to CFO Chris Ferraro, the crypto bank was on track to become insolvent at the earliest. as 2020. Vermont alleges that the company also manipulated the price of its virtual currency.

This contrasts with the public version of the Celsius Network, which attributed its collapse to the cryptocurrency crash that started from the beginning of the year.

“Celsius and his management concealed from investors their massive losses, shortfall in assets and deteriorating financial condition,” said McLaughlin.

On more than one occasion since the beginning of the year, Vermont had warned its citizens about the risks surrounding the Celsius Network. The US state is asking the bankruptcy court to appoint an auditor with “broad powers” to investigate the company.

Questions without answer

Making his mea culpa during CDPQ’s semi-annual results presentation on August 17, President and CEO Charles Emond had defended the verifications made with Celsius Network.

The manager had stated that the services of “first class” companies had been contracted.


Charles Emond, President and CEO of the Caisse de Depot et Placement du Québec

“There were no shortcuts, on the contrary,” Mr. Emond said. The team acted cautiously. The verifications were exhaustive with the participation of various experts and consultants. »

Hard to believe there were no red lights says Mme Dicko.

“A company that does not generate enough income and profits, but that pays returns, it seems to me that we should have seen that in finance,” explains the expert. The question is whether the CDPQ consulted all the documents before investing. »

The Vermont report also reveals that 40 states are currently investigating Celsius’s business practices.

More information

  • 3 billion
    Value attributed to Celsius Network when CDPQ invested in it.

    Source: Québec deposit and placement fund

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