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New analysis indicates that Celsius was already insolvent long before this year’s crypto crash, Love Island celebrities get issued a cease and desist order, and an old Binance AML probe resurfaces.
This Week In Crypto was marked by an explosive new court filing alleging that collapsed crypto lender Celsius has been insolvent since 2019.
In documents submitted to a US bankruptcy court, the Vermont Department of Financial Regulation (VDFR) claims that for several years Celsius has used a range of underhand and potentially illegal measures to conceal its insolvency.
Chief among these is its alleged manipulation of CEL, its proprietary crypto-asset token.
The CEL token served as a loyalty scheme for Celsius users, allowing them to lock in yields of up to 18 percent per year by holding CEL over other crypto-assets.
Investors could also buy and sell the CEL token on the open market, and look to profit from price appreciation.
However, according to the VDFR, Celsius used the CEL token as bait to entice new users to deposit to the platform. These deposits were then used to pay yield to existing users, as in a Ponzi scheme.
Financially, this was made possible by Celsius taking an ever larger position in the CEL token.
“Excluding the company’s net position in CEL, liabilities would have exceeded its assets since at least February 28, 2019.
“These practices may also have enriched Celsius insiders, at the expense of retail investors.”
The VDFR also took issue with many of Celsius’s public statements with regard to its financial health and its ability to safeguard funds and meet customer obligations.
On June 7, for example, days before it suspended all customer withdrawals, Celsius released a statement claiming that it “has the reserves to meet obligations, as dictated by our comprehensive liquidity risk management framework.”
But VDFR’s analysis found that Celsius had a “deeply negative net worth” on that date, and lacked sufficient assets to repay its obligations to depositors and creditors.
Similar inconsistencies were observed in Celsius’s public statements and financial records from 2021 and 2020.
Going forward, the VDFR called for further investigations into potential unregistered securities activity, mismanagement, securities fraud and market manipulation by Celsius.
More celebs rapped for crypto promotions
Last week, VIXIO reported on a slew of A-list celebrities whose crypto promotions have gotten them in hot water with regard to US federal advertising rules.
This week, a slightly more minor class of celebrities is facing similar enforcement action for their ill-advised crypto promotions.
Jessica and Eve Gale, twins and former contestants on the reality TV show ‘Love Island’, have both been issued a cease and desist order by the UK Advertising Standards Authority (ASA) for crypto-related Instagram posts.
According to the ASA, the Gales failed to warn their followers of the risk of potential losses when investing in crypto, as is required by the “social responsibility” section of the Code of Non-broadcast Advertising and Direct & Promotional Marketing (CAP Code).
“We noted that Jessica and Eve Gales’ Instagram accounts were general lifestyle accounts and not financial in nature,” the ASA said in its judgement.
“We therefore considered the ads were addressed to a general audience who were unlikely to have any specialist knowledge of investing in crypto-assets.”
The Gales started advertising crypto after being invited to do so by another influencer named Elizabeth O’Donnell.
In its judgement, the ASA singled out two ads specifically. The first stated that the crypto investment product advertised “Teaches you guys how to make money from your phone in such an easy way.”
In another ad, Jessica explained that she “knew nothing” about crypto-assets until meeting O’Donnell.
The ASA ruled that the ads must not appear again in the form complained about, and that in future, the Gales must not take advantage of consumer’s “inexperience” or “credulity”.
Binance AML probe resurfaces
Another major story in crypto this week was the resurfacing of an anti-money laundering (AML) probe involving Binance.
Previously reported by Bloomberg last year, the story hit the headlines again thanks to new details obtained by Reuters.
According to documents seen by Reuters, US federal prosecutors contacted Binance in December 2020 requesting “extensive internal records” regarding its AML controls.
In addition, prosecutors sought internal communications between Binance founder and CEO Changpeng Zhao and 12 other executives. Both sets of information were to be provided voluntarily.
According to four people familiar with the inquiry, the US Department of Justice (DOJ) is investigating whether Binance violated the Bank Secrecy Act, an offence that carries jail terms of up to ten years.
If a crypto exchange conducts "substantial" business in the US, the act requires it to register with the Treasury Department and comply with specific AML requirements.
Patrick Hillmann, chief communications officer at Binance, responded to Reuters with a statement saying that regulators reaching out to crypto exchanges is a “standard process” in the industry.
However, Hillmann did not comment on how Binance responded to the DOJ’s requests.
Everything must go
Voyager Digital, another collapsed crypto lender, also saw major developments in its own bankruptcy proceedings this week.
In a new court filing, Voyager confirmed that it will auction off the remainder of its assets on September 13 as part of its restructuring process.
In a presentation given in court last month, Voyager said it had been contacted by 88 parties that were potentially interested in bidding, including 46 that had signed non-disclosure agreements (NDAs).
It is unclear how many of these suitors followed through, but this week Voyager confirmed in a tweet that it has received “multiple” bids.
Crypto exchange FTX is known to be in the running, as is artificial intelligence (AI) and blockchain developer, KaJ Labs.
Both companies’ bid letters appeared in Voyager’s presentation, even though Voyager claimed in the same slide deck that it has received “higher and better” offers than that proposed by FTX.
According to anonymous sources quoted by CoinDesk, Binance is interested in buying out Voyager, while Coinbase was once in the running but has since pulled out.
Voyager had 1.1m customers on the day of its bankruptcy filing on July 5, making it one of the world’s largest crypto lending platforms.
