Celsius was insolvent since inception, court-appointed examiner reveals

According to the report by a court-appointed examiner for its bankruptcy proceedings, the collapsed cryptocurrency lending platform Celsius Network had cheated customers since its foundation as a public company in the United States, which it allegedly created to avoid regulation in the United Kingdom.

Indeed, Celsius U.S. “on a stand-alone basis has been insolvent since inception,” according to the solvency analysis by the U.S. examiner, shared in a Twitter thread by the speaker and writer on economics, finance, and monetary policy, Frances Coppola, on February 1.

Celsius U.S. solvency analysis. Source: Frances ‘Cassandra’ Coppola

Furthermore, the report found that the Celsius U.S. entity was founded in August 2021, after the U.K.’s financial watchdog Financial Conduct Authority (FCA) denied Celsius Network U.K. a license and ordered it to cease selling to retail customers in the country.

Complicated connections

The examiner also drew attention to the intercompany accounting between the two entities, which Coppola said was “convoluted to say the least, and includes bizarre ‘loans’ and equity transfers rather similar to those in the Celsius-AMV (Equities First) arrangement” that she discussed earlier.

What AMV and Celsius actually did was write off their claims on each other arising from the incomplete ICO. But for some reason that I do not understand, both sides recorded these write-offs as secured loans.
— Frances 'Cassandra' Coppola (@Frances_Coppola) February 1, 2023

As the economist explained, Celsius U.S. was created to circumvent U.K. regulation, as internal accounting never distinguished between the two entities, instead viewing them on a consolidated basis, adding that she didn’t think “they ever had the slightest intention of creating a standalone US entity.”

According to the above table from the examiner’s report that Coppola shared, “significant parts of Celsius’s business, including its Treasury (and all its retained CEL tokens), its mining business and GK8, remained with the U.K. entity,” she stressed.

No accounts filed in two years

On top of that, Celsius’s U.K. branch showed no accounts filed since December 2020 on the website of Companies House, the executive agency sponsored by the Department for Business, Energy & Industrial Strategy, which registers information about companies in the U.K. and makes it available to the public.

Information on Celsius U.K. Source: Companies House

As it happens, the Companies House webpage for Celsius Network U.K. indicates that its accounts were significantly overdue, considering that it was supposed to file its 2021 full-year accounts by December 31, 2022, as Coppola observed.

Meanwhile, Celsius faced scam allegations from the crypto community after it unveiled a plan to exit the bankruptcy by rebranding itself into a publicly traded recovery corporation, which also involves giving creditors with locked assets above a certain threshold a token called Asset Share Token (AST) reflecting the value of their assets.

Notably, in September 2022, Finbold reported on regulators accusing Celsius’s company executives of misleading investors before the high-profile collapse and making questionable transactions, such as by the wife of former Celsius CEO Alex Manshinsky, who had reportedly cashed out $2 million in crypto before the bankruptcy announcement.