Hundreds of investors in US cryptocurrency lending platform Celsius Network, which filed for Chapter 11 bankruptcy protection in a New York court last month, have written to the judge overseeing the case to beg for his help in getting their money back.
Many say they are facing financial ruin and have lost their life savings, such as retirement funds, and can’t afford to pay their rent or mortgages, according to the letters submitted to Judge Martin Glenn, who is overseeing the Celsius case in the Southern District Court of New York.
One letter from Katie Davis, an investor from Australia, describes the “devastating impact that Celsius is having on my life” and that she has contemplated suicide after having access cut off to her family’s life savings of $138,000.
“Since the halt of withdrawals, I have not been able to sleep or eat properly. I have been emotionally distressed, which is impacting my marriage and my life,” Ms Davis says in her letter to Judge Glenn.
“I feel like I just cannot get up each day and keep going. My mother, who passed away of cancer when I was 19, left me with some money that I put into Celsius.”
Launched in 2017, Celsius Network was considered a major player in the cryptocurrency lending sector with 1.7 million customers from around the world, including the US, the UK, France, South Korea and Australia.
It offers high interest-bearing products of up to 18 per cent to customers who deposit their cryptocurrency with the company. It also lends cryptocurrency to earn a return, according to Reuters.
However, on June 13, Celsius Network froze all withdrawals and transfers between accounts, citing “extreme market conditions” after a prolonged fall in cryptocurrency prices that was exacerbated by the collapse of so-called stablecoin TerraUSD and its sister token Luna.
In June, Bitcoin dropped below the key $20,000 level for the first time since December 2020, while about $2 trillion has been wiped from the market value of cryptocurrencies since late last year, according to data compiled by CoinGecko.
“This is the right decision for our community and company,” Alex Mashinsky, co-founder and chief executive of Celsius, said in the statement.
“I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company.”
At the time of writing, Mr Mashinsky had not responded to a request by The National to comment for this story.
In the bankruptcy filing, Celsius disclosed that it has a $1.19 billion deficit on its balance sheet, with $5.5bn of liabilities against $4.3bn of assets, according to Bloomberg.
Celsius Network’s total assets plummeted from $22.1bn to $4.3bn — a drop of $17.8bn — between March 30, 2022, and July 14, while it owes investors about $4.7bn, the company said in the filing.
“Celsius has $167 million in cash on hand, which will provide ample liquidity to support certain operations during the restructuring process,” the company said.
“To ensure a smooth transition into Chapter 11, Celsius has filed with the court a series of customary motions to allow the company to continue to operate in the normal course.
“These ‘first day’ motions include requests to pay employees and continue their benefits without disruption, for which the company expects to receive court approval. Celsius is not requesting authority to allow customer withdrawals at this time. Customer claims will be addressed through the Chapter 11 process.”
However, the “mom and pop” Celsius investors are urging Judge Glenn to allow them to withdraw their funds immediately rather than having their claims dealt with under the Chapter 11 process, which typically puts large institutional investors at the front of the line to receive their money.
“I have been retired for over a decade and my wife and I have invested approximately one half of our lifesavings in the Celsius Network Rewards Account,” Herbert Holroyd writes in his letter to Judge Glenn.
“My primary concern is Celsius, being represented by such prestigious legal counsel whose only concern is to do what is in the best interest of Celsius the company, will present a proposal that will postpone and diminish the final reimbursement to the creditors,” Mr Holroyd, from the US, adds.
“We feel as if we are in a David vs. Goliath battle and that Your Honor is the sling and stone.”
Other investors say they trusted Celsius and Mr Mashinsky — who has heavily marketed the company as “safer than a bank” and encouraged customers to “unbank yourself” during media interviews and on his hour-long Ask Mashinsky Anything (AMA) programme that he streamed live on the company's YouTube channel every Friday.
During Mr Mashinsky's last AMA session, which was streamed on June 10 — just three days before Celsius took investors by surprise by halting all withdrawals and transfers on the platform — he discussed the fall in cryptocurrency prices but assured investors that the company had billions of dollars in liquidity, which they would have immediate access to.
“When the markets are shrinking, when everybody's fear is on, that is just part of the process,” Mr Mashinsky said during the live stream.
“Some people will HODL [hold on for dear life] and earn yield and some people decide, 'You know what, I'm moving to the sidelines, I'm putting money back in my bank' or whatever it is and we've seen that before. Every drawdown is kind of the same thing and when the markets come down, everybody comes running back,” he added.
“Celsius has billions in liquidity, then we provide the immediate access to everybody; anyone who needs access to the liquidity, and that includes institutions and people who want to get their coins back and it includes people who are taking loans.”
However, another investor from the UK says he made his last deposit of $10,000 on June 8, which was accepted by Celsius “even though they clearly knew they were about to block withdrawals on the 13th of June, 2022".
“So why keep allowing deposits? This, in my opinion, is indeed an act of fraud,” Alexander Simmons writes in his letter.
“Mr Alex Mashinsky has always stated all over the press, in print and in radio and video, that our funds are safer than the banks, and they have always had enough liquidity including his own money in the system, should anything go wrong.”
In total, Celsius Network has 100,000 creditors, according to the Chapter 11 bankruptcy filing.
They include Canada's second-biggest pension fund manager Caisse de Depot et Placement du Quebec, which invested $150m last October as part of a $400m funding round co-led by WestCap Investment Partners, according to Bloomberg.
Celsius also has about 50 unsecured creditors, including cryptocurrency billionaire Sam Bankman-Fried’s trading company Alameda Research, which is owed $12.8m, the filing shows.
Jin Y Kim, who has been a secured creditor and VIP client at Celsius since September 2021, told Judge Glenn in his letter that he believed it was a local, trustworthy company — but went on to compare Mr Mashinsky to the late Bernie Madoff.
Madoff died in a US federal prison last year after being sentenced in 2009 to 150 years in jail for organising the largest known Ponzi scheme in history, worth an estimated $64.8bn.
“I trusted the company and decided to pour all of my life savings with the company, lending them $632,329.03,” Mr Kim says in his letter.
“This is Bernie Madoff all over again, and you cannot be a free man if you defraud $1.2bn of investor funds. Someone needs to be liable for that and it must be Celsius and Alex Mashinsky.
“I think everyone with the funds locked up in Celsius would agree with me on this point and I feel so sorry, depressed and empathetic for those who have their life savings wiped out … and I must beg you to advocate for the rights of victimised investors like myself.”
Notice of a Celsius creditors' meeting has been filed with the Southern District Court of New York and will be held by telephone on August 19 at 9am eastern standard time, according to the document, which was filed on July 27 by New York law company Kirkland & Ellis.