Centennial investors owe $4.7 billion from begging judge to get back life savings

Celsius Network, once a giant in the crypto-lending world, is in the process of bankruptcy and is facing allegations that it operated a Ponzi scheme by paying early depositors with money it obtained from new users. Some of the 1.7 million customers caught up in the alleged fraud are now begging directly to the Southern District of New York for help in getting their money back.

Christian Ostheimer, 37, of Connecticut, wrote in a letter included in court documents that he trusted Celsius with his retirement savings and lost more than $30,000, leaving him facing “insurmountable tax complications.”

“It is in your hands, Honorable Judge to make this case different, that it was not the solicitors, solicitors, big corporations, and directors who got paid first, but the little guy, mom and pop, college graduate, grandmother and grandfather—all those little unsecured creditors—so they wouldn’t be As usual at the end of the series where they lose everything,” Ostheimer wrote.

The question of who gets paid first – should that day come – looms large over bankruptcy proceedings.

At its peak in October 2021, CEO Alex Mashinsky said that the crypto lender had $25 billion in assets under management. Now, C has fallen to $167 million in “cash on hand,” which it says will provide “ample cash” to support operations during the restructuring process. Celsius owes its users about $4.7 billion, according to its bankruptcy filing.

This filing also shows that Celsius has more than 100,000 creditors, some of whom lent the platform in cash without any collateral to support the arrangement. The top 50 unsecured creditors include Alameda Research, a subsidiary of Sam Bankman-Fried trading firm, as well as an investment firm based in the Cayman Islands. Those creditors are likely to be in first place to get their money back, leaving small individual investors holding the bag.

Unlike the traditional banking system, which usually guarantees customer deposits, there are no formal consumer safeguards to protect users’ money when things go wrong.

Celsius makes it clear in its terms and conditions that any digital asset transferred to the platform constitutes a loan from the user to Celsius. Since there was no collateral provided by Celsius, the clients’ funds were basically just unsecured loans to the platform.

Also in the fine print of Celsius’s terms and conditions is a warning that in the event of bankruptcy, “any Eligible Digital Assets used in the Earn Service or as security under the Borrowing Service may not be recoverable” and that customers “may not have any compensation or statutory rights in connection with Celsius’ obligations “. The disclosure reads as an attempt to obtain blanket immunity from legal wrongdoing, should things go south.

On July 19, Celsius published a document detailing the next steps for customers. In it, the platform said that the Chapter 11 bankruptcy plan “would provide customers with a choice, depending on customers’ choice, to redeem their cash at a discount or hold their “long” cryptocurrency, but it is unclear whether customers will ever see money again.

The whole process illustrates how much crypto regulation in the US is happening through enforcement.

The Securities and Exchange Commission has effectively become one of the largest industry regulators in the country, including by getting rid of Ponzi and pyramid schemes, and it looks like some precedent will be set in US bankruptcy courts in the coming months as lawmakers debate formal legislation on Capitol Hill.

Investors Appeals

In hundreds of letters officially filed in court, retail investors are pleading to be at the front of the line to get their money back.

Flory Ohm, a single mother of two college daughters, said her family was “severely affected by the financial and mental health” of the bankruptcy, leaving her money stuck on the platform. Om, who also supports her parents, said she can’t sleep or focus on work.

“I am struggling so hard [to make a] Live,” she wrote.

Jane Y. Savile, who described herself as a “little retired old lady” living on a steady income, said she turned to the percentage point in search of a way to supplement her monthly Social Security check to expand the dollar amid record levels of inflation.

“I bought a small amount of cryptocurrency in the hope that I would only earn enough to help me get through a few years, which is a kind of safety net,” Savile said. “Yes, I know, buyer beware but I agree there was a lot of deception.”

Others have lost everything.

Stephen Pralliver, a California resident, said he has less than $1,000 left in his Wells Fargo checking account — now the only source of money he gives his family since Celsius suspended all withdrawals.

“There is absolutely no way I can continue to provide access to my assets in Celsius,” he wrote to Judge Martin Glenn, who is overseeing Celsius’ bankruptcy proceedings in New York.

“This is an emergency situation, just to keep a roof over my family and food on their table,” Bralver wrote.

Dublin’s Sean Moran writes that he has lost the family farm in Ireland and that his family is homeless.

“I can’t believe they lied to us at the weekly AMA [ask-me-anything events] Moran wrote of mistrusting banks while we are wolves all the time in sheep’s clothing, false promises and misinformation. “I am mentally unstable. The family is dazed by my decisions about trusting Celsius and promising them a better future.”

Besides the financial devastation described in each of these letters, a recurring theme centers on feeling betrayed by a breach of trust between Celsius CEO Alex Mashinsky and his clients.

Three weeks after Celsius halted all withdrawals due to “extreme market conditions” — and just days before the crypto lender finally filed for bankruptcy protection — the platform was still advertising in large bold text on its website with annual returns of close to 19%. , which paid off weekly.

“Convert your cryptocurrency to C and you could earn up to 18.63% APY in minutes,” the website wrote on July 3rd.

Ralphael DiCicco, who disclosed holdings of approximately $1,557 worth of crypto assets on Celsius, said he had been scammed by the marketing.

DiCicco wrote: “I believed in all the commercials, social media, and ads that showed Celsius was a high-yield, low-risk savings account. We made sure our money was a degree safer than the banks.”

“This money is very much my life savings…I hope you will find it in the interest of all parties involved to pay off the small investors first…before any restructuring takes place,” Deseko continued.

Travis Rodgers of Phoenix said he was told in several Celsius network calls, two days before depositors’ accounts were closed, that there was no risk to clients’ assets and zero probability of bankruptcy. Rodgers said he recorded many of those calls. He said his total holdings in percentage terms are $40,000 across 11 cryptocurrencies.

The weekly Ask Me Anything events hosted by Mashinsky on YouTube were mentioned in multiple messages, including one sent by Stephen Richardson, who described the many ways Mashinsky feels to deceive the public in order to attract new clients to the scheme.

Richardson said he has watched the AMA every Friday since recording.

“Alex was going to talk about how percentiles are safer than banks because they supposedly don’t rearrange and use micro-lending as banks do,” Richardson wrote. “I currently have six cryptocurrency numbers locked into my percentile that cannot be withdrawn, despite Alex’s claims just hours before the withdrawals closed that no one has had any issues with withdrawing from the percentile and all you hear to the contrary is just” Fudd. ” [fear, uncertainty and doubt]. “

Some said they contemplated suicide if they could not get their money back.

Australian Katie Davis has appealed to a judge to return the $138,000 that she and her husband were stranded on the Celsius platform.

“The thought of losing that amount of money is terrifying,” Davis wrote.

“If I don’t get it back, I’ll end my life because the loss will affect my family and me greatly,” she wrote.

Mashinsky did not immediately respond to CNBC’s request for comment.

If you or someone you know is going through a crisis, call the National Suicide Prevention Lifeline at 800-273-8255.

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