Celsius Network founder Alex Mashinsky withdrew $10 million from the crypto lender just weeks before the company froze customer accounts as it headed for bankruptcy, according to people familiar with the matter.
Mashinsky’s withdrawal from crypto in May this year came as clients pulled their assets from the company in large numbers, spooked by the broader turbulence in crypto markets and concerns about Celsius’ financial health.
Celsius froze withdrawals on June 12, leaving hundreds of thousands of retail investors unable to access their savings. The company filed for bankruptcy in July with a $1[ads1].2 billion hole in its balance sheet.
The business peaked last year at $25 billion worth of crypto assets deposited by customers attracted by the high interest rates Celsius offered, as high as 18 percent on certain cryptocurrencies.
The withdrawal revelations will intensify scrutiny of Mashinsky, who stepped down as chief executive on Tuesday, raising questions about when he knew Celsius would not be able to return customers’ assets.
Details of Mashinsky’s transactions are to be presented in court by Celsius in the coming days as part of a wider disclosure by the company about its financial affairs.
A spokesperson for Mashinsky said he and his family still had $44 million worth of crypto assets frozen with Celsius even after the withdrawals, which he had voluntarily disclosed to the Official Unsecured Creditors Committee (UCC) in bankruptcy proceedings.
“In mid to late May 2022, Mr. Mashinsky withdrew a percentage of cryptocurrency from his account, much of which was used to pay state and federal taxes. In the nine months leading up to that withdrawal, he consistently deposited cryptocurrency in amounts equal to what he withdrew in May, the spokesperson said.
“He remains committed to working with and uniting the community around a recovery plan that will maximize coins and liquidity for all,” they added.
Mashinsky, 56, co-founded Celsius in 2017 and was the public face of the company, appearing in weekly video addresses on YouTube pushing his message of financial liberation from the banking establishment.
At the end of 2021, Celsius was valued at $3 billion when it raised $600 million in equity investments from US investment firm WestCap and Canada’s second-largest pension fund Caisse de dépôt et placement du Québec.
Despite Mashinsky’s public bullishness, the company struggled behind the scenes with weak internal systems for managing its assets, and at times paid out more to customers in interest than it generated from lending.
Celsius also suffered a series of investment losses in 2021 and 2022 that contributed to the downfall but were not disclosed to customers. Last month, the Financial Supervisory Authority of Vermont claimed that Celsius was already insolvent on May 13 this year.
The company saw massive outflows of assets in May as crypto markets were rocked by the collapse of two linked cryptocurrencies, TerraUSD and Luna. Their demise started a series of corporate failures in the crypto industry.
Just days before Celsius froze withdrawals, the crypto lender assured customers it had sufficient reserves and declared “full steam ahead”.
Mashinsky, a former telecom entrepreneur, faces the prospect of being forced to return $10 million he withdrew from Celsius. Under US law, payments made by a company in the 90 days before it goes bankrupt can be reclaimed for the benefit of all creditors.
About $8 million of the assets Mashinsky withdrew were used to cover taxes arising from the income the assets had generated at Celsius, one of the people familiar with the matter said.
The remaining $2 million were units of Celsius’ original “CEL” token. The withdrawal had been pre-planned and was linked to Mashinsky’s estate planning, the person added.
Mashinsky was Celsius’ largest shareholder and has said he is among the biggest creditors in the bankruptcy. Earlier this week, he apologized to customers in his resignation letter, saying he was “very sorry for the difficult financial circumstances facing members of our community”.