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Celsius Network founder withdrew $10 million before bankruptcy

Celsius Network founder withdrew $10 million before bankruptcy
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Celsius Network founder Alex Mashinsky withdrew $10 million from the cryptocurrency lender just weeks before the company froze customer accounts as it headed for bankruptcy, according to people familiar with the matter.

Mashinsky’s cryptocurrency withdrawals in May this year came as clients were withdrawing their assets from the company in large numbers, spooked by the broader turbulence in the crypto markets and concerns about Celsius’s financial health.

Celsius froze withdrawals on June 12, leaving hundreds of thousands of retail investors unable to access their savings. The company filed for bankruptcy in July with a $1.2 billion hole in its balance sheet.

The business peaked last year at $25 billion in crypto assets deposited by customers lured by the outsized interest rates Celsius offered, as high as 18 percent on certain cryptocurrencies.

The withdrawal revelations will intensify scrutiny of Mashinsky, who resigned as chief executive on Tuesday, and raise questions about when he learned Celsius would not be able to return clients their assets.

Details of Mashinsky’s transactions will be presented in court by Celsius in the coming days as part of a broader disclosure by the company of its financial affairs.

A spokesperson for Mashinsky said that he and his family still held $44 million in crypto assets frozen with Celsius even after the withdrawals, which he had voluntarily disclosed to the official unsecured creditors committee (UCC) in the bankruptcy proceedings.

“In mid to late May 2022, Mr. Mashinsky withdrew a percentage of cryptocurrency from his account, much of which was used to pay state and federal taxes. In the nine months leading up to that withdrawal, he consistently deposited cryptocurrencies in amounts totaling what he withdrew in May,” the spokesperson said.

“He remains committed to working with and uniting the community around a recovery plan that will maximize coins and liquidity for all,” they added.

Mashinsky, 56, co-founded Celsius in 2017 and was the public face of the company, appearing in weekly video addresses on YouTube where he delivered his message of financial liberation from the banking establishment.

By the end of 2021, Celsius was valued at $3 billion, having raised $600 million in equity investments from US investment firm WestCap and Canada’s second-largest pension fund, Caisse de dépôt etplacement du Québec.

Despite Mashinsky’s public optimism, the company struggled behind the scenes with weak internal systems for managing its assets, and at times paid more to customers in interest than it generated on loans.

Celsius also suffered a series of investment losses in 2021 and 2022 that contributed to its decline but were not disclosed to clients. Last month, the Vermont state financial regulator alleged that Celsius had been insolvent as of May 13 of this year.

The company saw large asset outflows in May as crypto markets were rocked by the collapse of two interrelated cryptocurrencies, TerraUSD and Luna. His demise started a series of company bankruptcies in the cryptocurrency industry.

Just days before Celsius froze withdrawals, the crypto lender assured clients that it had adequate reserves and declared “full speed.”

Mashinsky, a former telecommunications businessman, faces the prospect of being forced to repay the $10 million he withdrew from Celsius. Under US law, a company’s payments in the 90 days prior to its bankruptcy can be recovered to the benefit of all creditors.

About $8 million of the assets Mashinsky withdrew was used to cover taxes that arose from income the assets had generated at Celsius, one of the people familiar with the matter said.

The remaining $2 million was units of Celsius’s native “CEL” token. The retirement had been pre-planned and linked to Mashinsky’s estate planning, the person added.

Mashinsky was Celsius’s largest shareholder and has said he is among its biggest creditors in bankruptcy. Earlier this week, he apologized to clients in his resignation letter, saying he was “very sorry for the difficult financial circumstances facing members of our community.”

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