By Amy Castor and David Gerard
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“Fraudsters don’t play on moral weaknesses, greed, or fear; they play on weaknesses in the system of checks and balances, the audit processes that are meant to supplement an overall environment of trust.” — Dan Davies, Lying for Money
Krissy and Alex Mashinsky
How are the crypto markets?
Crypto is a cooling market. The desperation is still there — but the cash from other retail suckers to fuel the desperation is gone.
(No, we have no idea why bitcoin is stuck around $19,000 either. Our guess is margin call levels such that manipulating the price up is cheaper than taking the hit … but that’s just a guess.)
The real-world economy’s ongoing cash squeeze will lead to more crypto Ponzi schemes being exposed. Crypto executives are already jumping ship as fast as possible.
As more Ponzi schemes get exposed, expect more crypto operators to disappear. We’re slightly surprised Alex Mashinsky of Celsius hasn’t disappeared already.
The future of crypto reporting will be bankruptcies, indictments, criminal trials, and regulations. We’ll just be over here going “YES! Ha ha ha … YES!”
Celsius Network: whoops, doxxed me bro
Celsius needs to be liquidated, and the sooner, the better. There’s no viable business here, the money is gone, and dribbling away what remains to company insiders and bankruptcy professionals is doing nothing to find any more money for the creditors.
The newly-appointed examiner, Shoba Pillay, should pull back the veil. We expect any serious third-party report on Celsius to be excoriating.
A 7 October hearing concerned Celsius custody accounts. (We explained the four types of Celsius customers in a previous update.) The court will hold a two-part trial on the custody accounts on 7 and 8 December.
Judge Martin Glenn ordered Pillay to produce an interim report on Celsius’ financial management and handling of customer accounts. This should be out next month. [CoinDesk]
The report will influence the court’s decisions on custodial accounts and preference claims. A preference claim, otherwise known as a “clawback,” is brought by the bankruptcy trustee against creditors paid within a certain period prior to the bankruptcy filing. The period is 90 days for creditors and 1 year for insiders.
If you received money as a customer from Celsius in the 90 days prior to the Chapter 11 filing, then this means you — bankruptcy law says that the court and the public need to know who you are. We talked about this in our last update.
So Celsius published its schedules of assets and liabilities and statements of financial affairs (SOFA) for each of its eight companies. The schedules contain the names and transactions of every Celsius user on the platform, going back 90 days. One of the docs is 14,000 pages long. [List of schedules]
The crypto world was outraged! Celsius was “doxxing” its customers, and several on Twitter called it a “leak” of information. Namcios at Bitcoin Magazine suggested that “laws should prohibit the court from requesting this in the first place.” [Twitter, archive; Twitter, archive; Twitter, archive]
Crypto wants the benefits of laws, but not the responsibilities.
Both Celsius and the UCC wanted to publish this data anonymously, but Judge Glenn made it clear that he wasn’t going to rewrite bankruptcy law for crypto. He agreed to redact customer home addresses and email addresses — but the names needed to remain a matter of public record. [Claims process FAQ]
The public data is already being combed through, for things like crypto influencers telling Celsius users to just trust the company and hold, while withdrawing their own funds. [Twitter]
Taking care of the team
Celsius’s schedule of assets and liabilities reveals that company executives removed at least $17 million in crypto from the platform ahead of its bankruptcy filing in July.
Mashinsky withdrew about $10 million in crypto in May. Celsius co-founder Daniel Leon withdrew about $7 million (and an additional $4 million worth of CEL denoted as “collateral”) between 17 and 31 May. [Coindesk; FT]
At this same time, Mashinsky was profusely assuring customers that their funds were safe. The state of Vermont estimates the company had been insolvent since 2019. [Twitter, archive; Decrypt]
We noted last time that Mashinsky stepped down as CEO. Leon has also resigned. [Coindesk]
Celsius also reported paying former CFO Yaron Shalem over $200,000 from December 2021 to March 2022. Shalem was let go from Celsius in November 2021, when he was one of 10 individuals detained by Israeli authorities in connection with alleged fraud at other crypto firms. [Twitter]
Coffeezilla shows how Mashinsky’s wife Krissy pulled $2.7 million in crypto off the platform in May. [Twitter]
Mashinsky: Trust me
The Celsius UCC held a meeting on Twitter spaces right after the 7 October hearing, where White & Case attorney Greg Pesche answered creditor questions. [YouTube]
Mashinsky joined an unofficial Twitter Spaces meeting on 5 October to explain how easy it should be to get Celsius out of Chapter 11. Mashinsky’s stock in trade has always been new implausible schemes to make money. “Returning coins plus mining is plenty to be profitable and return all of the assets to all of the users, and for that, you don’t need any licenses. Nothing.” [YouTube]
Why are creditors even giving this guy their time? Only because they really, really, really want to believe they’ll get their money back.
(They won’t.)
The next Celsius “341” creditors’ meeting is on 13 October at 9:30am ET, with the next hearing on 20 October. [Instructions, PDF; schedule]
Dirty Bubble notes that Celsius also screwed itself out of tens of millions of dollars in restitution from Badger DAO after the DAO was exploited in December 2021. [Twitter; Medium post]
Three Arrows Capital
Teneo, the business advisory firm running the liquidation of Three Arrow Capital (3AC), now has its hands on the extensive NFT collection owned by Starry Night Capital, a fund set up by 3AC and the pseudonymous Vincent Van Dough. [Twitter] Teneo somehow got Van Dough to cooperate fully with them. [Teneo letter, PDF; Decrypt]
Here’s Van Dough proudly announcing his partnership with the 3AC founders in August 2021. [Twitter, archive]
Most of the collection — 464 NFTs so far! — has already been moved to a new wallet on OpenSea. There are plenty of jewels to behold here, including a huge assortment of Rare Pepes. Though we’re a bit disappointed not to spot our friend CryptoDickButt #1462 in there. [OpenSea wallet]
Starry Night spent at least $35 million in crypto on NFTs, because NFTs are clearly a brilliant investment for a leading crypto hedge fund! Teneo plans to sell the assets to recoup money for 3AC creditors. It’s too bad the NFT market has completely crashed and died, as Amy recently noted in Artnet. [Dune Analytics]
Teneo has set up a website with updates on the liquidation. There’s still no news on where 3AC founders Su Zhu and Kyle Davies got to. [3acliquidation.com]
Terra-Luna
South Korea is clipping Do Kwon’s wings. His passport’s been revoked, which should put a damper on his ability to travel, even as he insists he isn’t on the run. This is with South Korea already having issued an Interpol red notice for Kwon. [Notice, Korean; Techcrunch]
Kwon claims South Korea didn’t freeze his cryptos. [Twitter]
Prosecutors also requested an arrest warrant for Yoo Mo, Terraform Labs’ general head of affairs, who allegedly used bots to wash trade and manipulate crypto prices, in violation of the Capital Market Act. The warrant was refused, but the prosecutor’s office is considering reapplying. [JTBC, in Korean; Yonhap News, in Korean; The Block]
Voyager Digital
Wave Financial is one of the companies that bid on Voyager’s assets but lost to FTX US, who we had pegged to win the auction all along. We’re not even sure what the point of the two-week-long blind auction was. Customer lists?
Voyager Digital is pissed off with Wave Financial’s interview with CoinTelegraph. In the 28 September article, Wave said better bids were on the table, but they “were passed over for strictly cash offers.” [CoinTelegraph]
Voyager filed a lengthy response with the court, saying Wave never made a qualified bid: [Filing, PDF]
If better bids were available, Voyager would have accepted them. Wave’s false statements appear to be a publicity stunt in an attempt to regain credibility lost in the marketplace as a result of its weak performance at the Auction.
We think Voyager doth protest too much.
Voyager’s next omnibus meeting is on 19 October.
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