Celsius Network: Final report from the examiner — lies, incompetence and Ponzi schemes

By Amy Castor and David Gerard

Shoba Pillay, the court-appointed examiner in the bankruptcy of Celsius Network, filed her final report in the early hours of January 31 — with 476 pages of the report itself and over 200 pages of appendices. [Examiner Report, PDF]

Pillay’s interim report in November 2022, on who owned cryptos in Custody or Earn accounts and under what conditions, was wild enough. And that was before Pillay looked into whether Celsius was operating as a Ponzi scheme.

We recommend you read at least the 30-page executive summary of this report. It reads like a criminal indictment. It isn’t one, but Pillay, a former federal prosecutor, knew exactly what sort of document was needed.

Pillay got access to Celsius’ documents, accounts — such as they were — and internal email and Slack archives. But Celsius employees also spilled their guts to her. Even Celsius CEO Alex Mashinsky was sure he could talk his way through this one.

So many blatant crimes were confessed. It leaves Sam Bankman-Fried’s recent “my crimes” press tour in the shade.

Celsius was not just fraudulent. It was an utterly incompetent investment business. The collapse of Terra-Luna was the death blow, but the company had never been healthy, profitable, functional, or even solvent at any point.

We were 100% correct when we predicted that Celsius would be worse than anyone imagined. Though to be fair, this was like predicting 4 from 2+2, or  “Ponzi” from “Alex Mashinsky.”

Mashinksy ignored everything his well-meaning employees told him, overruled all warnings, and blatantly lied to customers. This guy belongs in a cell.



History of a scam

Celsius was founded in 2017 by  Alex Mashinsky, Daniel Leon, and Nuke Goldstein. The original idea was to start a peer-to-peer crypto lender, but they pivoted to an investment scheme. Customers would deposit crypto and Celsius would invest it and pay the customers interest — up to 18%.

Mashinsky told Pillay how he came up with his crypto business:

Mr. Mashinsky was a technology sector entrepreneur without experience or formal training in the financial industry and to whom crypto was a “totally new field.” Mr. Mashinsky said that, as he formed Celsius, he relied on his self-described “unique skill” to “project into the future and imagine what the world is going to be like.”

In 2018, Celsius told customers that they had raised $50 million by selling their CEL token in an initial coin offering. They didn’t — they only raised $32 million. But they didn’t want to shake investor confidence. That was Celsius’ first lie, and possibly its smallest.

Including its ICO, Celsius raised $741 million from investors  — and it spent a good deal of those equity funds buying CEL tokens.

Mashinsky talked up Celsius’ profits and benefits to customers — helped by crypto “journalists” who did their bit to pump an incredibly obvious fraud. Interest rates of 18% can’t possibly be real, and Mashinsky’s refusal to tell anyone how he invested their money was a huge red flag. But the crypto press didn’t care. [CoinDesk, 2018; CoinDesk, 2019]

In fact, Celsius was never profitable at any point — and if you don’t count the value they claimed for their own CEL tokens, the company was insolvent for its entire existence.

In the two days before Celsius froze withdrawals on June 12, 2022, it had $428 million in withdrawal requests and its liquidity had run dry — due in part to a crash in its CEL token.

Celsius filed for bankruptcy on July 13, 2022, with a $1.2 billion hole in its books. They currently owe clients and creditors $5.5 billion.

CEL and the flywheel

CEL was Celsius’ own made-up token — even Mashinsky described CEL to Pillay as “airline miles.” It was how Mashinsky and other insiders made their millions. After the ICO, they held substantial amounts of CEL.

Manipulating the CEL token was Celsius’ main business, and that’s what the company spent all its time and money on. There was no organic market demand for CEL. Celsius was the only substantial buyer of CEL at any time.

If you must talk about your company doing something illegal, you do it behind closed doors. You don’t put it into company emails or text chat, which can be used as evidence against you. But Celsius employees did this routinely.

Former Celsius CFO Harumi Urata-Thompson wrote on Slack: “we are talking about becoming a regulated entity and we are doing something possibly illegal and definitely not compliant.”

Another employee said on Slack:

“If anyone ever found out our position and how much our founders took in USD could be a very very bad look … We are using users USDC to pay for employees worthless CEL … All because the company is the one inflating the price to get the valuations to be able to sell back to the company.”

Starting in 2020, Celsius used a scheme called the “OTC flywheel” to push-start a market for its CEL token into existing. The company bought CEL on exchanges and sold it in private over-the-counter sales to boost the price.

How brazen is Mashinsky? He thought it would be a good idea to lie about the CEL market directly to Pillay:

Mr. Mashinsky reiterated this flywheel concept to the Examiner. After the ICO, Mr. Mashinsky explained, CEL was trading on exchanges, and its value was “whatever it was trading at, that’s what the community agrees its value is, market price.”

In total, Celsius spent $558 million buying CEL. Pillay wrote: “In effect, Celsius bought every CEL token in the market at least one time and in some instances, twice.”

Celsius’ balance sheet was only in the black if you counted CEL at mark-to-market — though employees in 2022 called CEL “worthless” and thought its price “should be 0.”

Mashinsky himself made a total of $68.7 million selling his personal holdings of CEL tokens. Leon made $9.7 million. As one Celsius employee said:  “we spent all our cash paying execs and trying to prop up alexs [sic] net worth in CEL token.”

Page 504 of the report is an appendix summarizing Mashinsky’s personal on-chain CEL activity.

Just telling people how you feel

Celsius and Mashinsky knowingly lied to customers, over and over. Mashinsky’s lies are documented repeatedly throughout the report.

Mashinky regularly did AMA video streams promoting Celsius and pumping CEL — “Ask Mashinsky Anything.” He promised customers that they owned their deposited crypto (false), that Celsius did not invest in unsecured loans (hugely false), or that the CEL flywheel scheme was working as planned (it never did).

Mr. Mashinsky told the Examiner, “I just went on a show for an hour once a week to tell people how I feel.”

Celsius employees even edited some of the later YouTube versions of Mashinsky’s streams to remove the most egregious misstatements, over Mashinsky’s objections — and “internal documents suggest that Celsius employees hoped viewers would not notice the discrepancies that had been edited from the videos.”

Celsius represented itself as superior to traditional “big banks.” Its customers could “unbank” themselves and reach “financial freedom.” Celsius insisted that it put “its community first” with a business “built on trust” and “transparency”:

Can we really bring unprecedented financial freedom, economic opportunity and income equality to everyone in the world? We are Celsius. We dream big.

We’re sure at least one guy at Celsius did dream big.

Mashinsky also claimed on several occasions that Celsius, in contrast to its competitors, had registered with the SEC — which it never did — and that CEL was a “registered” token — whatever that was supposed to mean. “We registered with the SEC in 2018 so we won’t have the issues others have.” He told Barron’s that “ the regulators looked into us and said these guys know what they’re doing.” Every detail of these claims was false.


Pillay was asked by Judge Martin Glenn to examine “claims that Celsius’s business operations amounted to a Ponzi scheme.” Specifically:

whether “the Debtors used new deposits being made by customers to make payments or otherwise meet obligations to existing customers at a time when the Debtors had no other sources (whether liquid or which could have been monetized) from which to make such payments or meet such obligations;”

Pillay doesn’t say the word “Ponzi” in the report herself. Instead, she establishes this behavior — and quotes Celsius employees using the P-word:

In April 2022, Celsius’s Coin Deployment Specialist described Celsius’s practice of “using customer stable coins” and “growing short in customer coins” to buy CEL as “very ponzi like.” A few weeks later when Celsius made another push to prop up the price of CEL, Celsius’s former Vice President of Treasury asked where the cash was coming from to make the CEL purchases and Celsius’s Coin Deployment Specialist replied, “users like always.” This same employee explained that at the time he made this statement, Celsius had “negative equity” and therefore necessarily was using customer funds when it made these purchases.

Celsius was never profitable. “Celsius Network on a stand-alone basis has been insolvent since inception.” In fact, Celsius was functionally a Ponzi from the beginning:

Celsius persistently struggled to pay the rewards it promised to its customers. Celsius’s net revenue exceeded reward obligations to customers by approximately $34 million from 2018 through 2020. But Celsius’s reward obligations to customers in 2021 ($582 million) exceeded net revenue by approximately $1 billion in 2021 (net revenue was negative $433 million before rewards), and by $380 million in the first half of 2022. Cumulatively, from 2018 through June 30, 2022, Celsius accrued reward obligations to customers of $1.36 billion more than the net revenue it generated from customer deposits.

Celsius paid more in interest to depositors — mostly in CEL, not anything liquid — than it collected from loaning cryptos out. Mashinsky demanded that Celsius had to offer higher interest rates than anyone else’s, regardless of the actual earnings.

Celsius fell into unmistakable Ponzi territory in 2022, just before it froze withdrawals. Per Pillay: ”between June 9 and June 12, Celsius did directly use new customer deposits to fund customer withdrawal requests.”

Stablecoins for BTC and ETH

In early 2021, Celsius found itself staring at a gaping hole in its balance sheet — it did not earn enough on its lending and business lines to make good on the ridiculously high interest rates it promised customers.

Mashinsky filled the hole by using $300 million in stablecoins to buy and borrow BTC and ETH to match the amount of those tokens it owed to customers.

The “net deficit” between what Celsius customers had deposited and what Celsius actually held grew over time to more than $1 billion in crypto.

A sinking ship without a plan

Mashinsky and Celsius lied to customers incessantly. But it’s also important to note that Mashinsky was incredibly bad at running an investment business, even while the 2021 bitcoin bubble was in full swing and making other idiots look like geniuses:

Mr. Mashinsky and others in leadership frequently made significant decisions on an ad hoc basis, without any formal procedures, controls, or sufficient financial data to inform decisions.

Celsius lost hundreds of millions in bad investments and loans. The most damage came from Equities First Holdings, Grayscale GBTC, KeyFi, and Stakehound.

Celsius lost $288 million when it borrowed from Equities First — Celsius repaid the loans, then Equities First said it couldn’t return the collateral! So Celsius had to accept a promissory note at a significant loss.

Patrick Holert, then Celsius’ financial risk officer didn’t find out about the loan from Equities First until months later. Holert later decided the loans were a good idea — Celsius needed the money both for operational expenses and to supply money they could loan to customers. And Equities First was one of the few companies that would lend actual dollars to a crypto company at all.

Celsius got into GBTC to take advantage of the GBTC arbitrage that Amy has discussed at length. They bought into GBTC in July 2020. In December, Celsius increased its GBTC holdings to 30% of its deployed assets — Mashinsky said that the GBTC premium was “not going away soon.”

The premium disappeared by February 2021, and GBTC has since traded at a discount to bitcoin. Celsius didn’t sell because it didn’t want to realize the GBTC loss — and Mashinsky thought the discount meant GBTC was underpriced, so he wanted to buy even more of it.

KeyFi was the company that Celsius bought to do its DeFi trading for it. Mashinsky did the deal to buy KeyFi because he knew founder Jason Stone (the DeFi whale known as “0x_b1”) personally. Mashinsky claims Stone got Celsius funds liquidated repeatedly and stole Celsius’ money. Stone claims Celsius interfered with the investment process, ran as a Ponzi scheme, and didn’t pay him. These claims are the subject of a suit being dealt with in the bankruptcy.

Stakehound is an Ethereum staking platform. Celsius put 35,000 ETH into Stakehound — and on May 3, 2021, Stakehound and Fireblocks told Celsius that the validator keys had been lost! Celsius lost $105 million of staked ether.

Mashinsky had no idea what he was doing, but he didn’t let that or any mere Celsius employees stand in his way:

Mr. Alisie’s team undertook a CeFi review because Mr. Mashinsky had “circumvented some controls and processes under stressful market conditions,” and then went “over the head” of Finance and Risk leadership to direct trades inconsistent with Celsius’s directionally-neutral strategy.

By 2021, Celsius was running out of even slightly safe investments to fund its eye-popping reward rates. It started getting into hilariously unsafe investments with high yields.

Celsius also accepted exchange tokens like FTX’s FTT and Serum as collateral for loans — even though these were internal “airline miles” like CEL was.

In the search for yield, Celsius got into bitcoin mining — even though US-based bitcoin mining could only make a profit if it was run as an exit scam on naïve institutional investors. Celsius lost piles of cash in its mining business because it did everything incompetently.

Celsius set credit limits for its borrowers, but Alameda, Tether, 3AC, and others exceeded those limits. Tether’s peak borrowing from Celsius was $2 billion and was considered an “existential risk” internally at Celsius.

By the way, Pillay’s report reveals that Tether did in fact buy Chinese commercial paper. Tether has vehemently denied backing its reserves with Chinese commercial paper — maybe they just bought it on the side!

Mashinsky didn’t let bad news like the Terra-Luna collapse worry him:

Throughout May 2022, as Celsius’s employees openly expressed the view that Celsius was a “sinking ship” without a plan, Mr. Mashinsky continued to assure customers that all was well at Celsius. On May 11, 2022, both Celsius and Mr. Mashinsky posted on Twitter that “All user funds are safe.” That same day, Mr. Mashinsky posted that “Celsius has not experienced any significant losses and all funds are safe.” At the beginning of the May 13, 2022 AMA, he stated “Celsius is stronger than ever.”

The Mashinsky Method for accounting

Some Celsius accounting was done in QuickBooks — the small-business accounting program of choice for the crypto industry, apparently — and NetSuite.

Nobody was keeping track of how Celsius’ investments were going. Celsius said themselves: “Absolutely pathetic systems of record — We do not do a good job of knowing anything about how our assets are actually performing.”

So a “Task Force” assembled the “Freeze Report”: a Google spreadsheet (the other accounting tool of choice for crypto) that did API calls. Celsius employees themselves called the spreadsheet “one band-aid on top of another.”

The API data was known to be inaccurate. But Celsius just assumed they could trust the direction the known-inaccurate information was pointing in. They vaguely planned to fix it at some point, though.

Celsius thought it was profitable, maybe? But they weren’t really sure:

some Celsius employees (especially in Treasury) were concerned that Celsius’s method of calculation did not account for the cost of its liabilities and resulted in an overstated NIM [net interest margin] that made Celsius appear profitable, when in fact it was not.

Celsius did not employ any sort of tax professional until June 2021. They’re still sorting out the mess. Celsius Mining owes between $16 million and $22 million in taxes. Celsius Network UK owes over $1 million in VAT (sales tax). Lior Koren, Celsius’ tax guy, said it was “unknown” to him how or why Celsius Mining failed to apply for use tax exemptions.

What the report means

Celsius was a crime scene from its first day. Interest rates as high as 18% don’t exist! If you see an interest rate like that, it’s a Ponzi! Magic doesn’t happen!

Celsius was never profitable. They were paying rewards to old customers with deposits from new customers.

Mashinsky was a terrible businessman. He had no clue what he was doing. His “unique skills” were telling people what they wanted to hear and manipulating the truth. Whether it’s Gerald Cotten or Sam Bankman-Fried, crypto is a bunch of dumb crook stories. This is yet another.

All crypto firms are Quadriga. It’s just that some haven’t exploded yet.

Mashinsky told customers Celsius was the future of banking and finance. Crypto claims that technology means everything is different now. This is always just a lie.

We fully expect to see an indictment for Mashinsky and other Celsius executives soon with the following charges: commodities and/or securities fraud, manipulation of commodity or securities prices, and wire fraud … the only one we didn’t see in the report was money laundering.

This report is long, but extremely readable — for example, by senior bureaucrats or political staff. The executive summary will correctly inform them precisely how crypto works and what to expect of it.

This report isn’t just bad for Celsius. It’s bad for all of crypto. Good.

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9 Comments on “Celsius Network: Final report from the examiner — lies, incompetence and Ponzi schemes”

  1. Its so funny to imagine these employees – probably still silicon valley myth believing starry eyed college grads, excited to have a job. theyre getting titles like Finance and Risk leadership

  2. I vaguely wonder how many of the victims who still think in terms of their money being locked up will understand, when reading the report or a summary like this one, that their money is gone.

  3. The difference between crypto and old-style banks seems to be that in the latter, there are multi-million sized rewards for being first to blow the whistle.

    This is one of the reasons you simply cannot trust crypto firms: in real finance, at least one of the staff who realised that being a Ponzi was just one of a host of crimes would have slipped off to talk to the regulators clutching a memory stick or two and ended up much richer as a result.

    Here, what? They thought it might work out in the end?

  4. Mashinsky is a liar and a thief, he deserves to rot in jail. All of the Celsius executives deserve the same. That’s easy to see.

    IMO, all of the Celsius employees deserve the same. A few of them sent emails and Slack messages about how illegal their business was? Others tried to convince Mashinsky to stop lying during the AMA sessions and edited the worst lies of out the videos? Can anyone say (with a straight face) the ongoing crime WASN’T a daily topic of gossip at every level? Does anyone honestly believe there was even one Celsius employee who DIDN’T know what was going on? But they all stayed. Even when the job market was booming and they could have found work anywhere else, they stayed. They all kept writing code, making transactions, editing videos anyway. They’re all enablers at best, co-conspirators at worst. Every one of them deserves to stand trial right next to their boss. Every one of them deserves to stand right next to him when the cell door slams closed.

    1. Not enough positive incentive to tell the truth: who would reward them for doing so?

      Perhaps some negative incentives – jail time – will encourage those elsewhere not to hang around, but given the level of greed, substantial (fiat!) reward for whistleblowing would have stopped most of the big frauds.

      Instead, various frauds have had CFOs etc come, look, and go and yet the fraud continues to the final crash. If they had gone to the press saying what they knew, the crypto press is not independent, and they would have run up bills with lawyers because of the libel threats that would have resulted.

    2. Many of them probably should. I mean, if you’re going to post to the company slack “All because the company is the one inflating the price to get the valuations to be able to sell back to the company” and you aren’t at least thinking “hey this might be illegal – I should possibly check with an attorney to see if I’ve opened myself up to criminal prosecution” you probably need to have something happen to you.

      Being dumb isn’t a crime but it’s also not a defense when you get caught criming.

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