Celsius Was Using Customer Deposits To Fund Withdrawals, According to Bankruptcy Examiner

A closer look at the collapse of crypto lender Celsius shows that the firm was using customer deposits to pay for withdrawals, according to an independent examiner.

In a new court filing with the United States Bankruptcy Court in the Southern District of New York, bankruptcy examiner Shoba Pillay, a former federal prosecutor, finds that Celsius used customer funds to meet withdrawals in certain cases, particularly in the days leading up to the bankruptcy filing.

“For some crypto assets, Celsius unwound crypto deployments (such as coins deployed on DeFi [decentralized finance] protocols) to meet customer withdrawal requests. But that was not always the case, and in several coins, Celsius used incoming customer deposits to fund withdrawals in the days prior to the Pause. The following are examples involving two coins identified by the Examiner based on a non-exhaustive review of a subset of crypto assets withdrawn by Celsius customers between June 9 and June 12.”

The filing gives a specific example from June 2022 involving Gemini USD (GUSD), the stablecoin issued by crypto exchange Gemini. According to the filing, Celsius began June 10 with 1.96 million GUSD, but honored 3.96 million GUSD withdrawals over the next three days, leaving Celsius with a 2 million GUSD deficit.

“But Celsius did not make any internal transfers of crypto assets to the Main wallet to fund these withdrawals. Instead, as new user GUSD deposits were swept into the Main wallet, Celsius transferred those deposits into the frictional wallets. New GUSD deposits over this three-day period totaled 2.62 million coins, and Celsius used almost 2 million of those newly-deposited coins to fund withdrawals.” 

Pillay’s report also found that one of Celsius’ executives, Coin Deployment Specialist Dean Tappen, described Celsius’s practice of “using customer stablecoins” to buy its CEL token as “very Ponzi-like.”

Tappen also allegedly said in an internal communication that his job title should be “Ponzi Consultant,” but later said it was a “poor joke” and that he didn’t have legitimate concerns that Celsius was operating a Ponzi scheme.

The entire report can be read here.

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Featured Image: Shutterstock/Andrus Ciprian