YEREVAN (CoinChapter.com) — The Vermont Department of Financial Regulation has accused bankrupt cryptocurrency lender Celsius Network and its CEO Alex Mashinsky of misleading investors. According to the United States Bankruptcy Court filings, Celcius might have hidden its financial troubles from backers. The company also allegedly engaged in “improper manipulation” of the price of the platform’s CEL token to boost its balance sheet.
The Financial Regulation’s filing supports the United States Trustee’s motion to appoint an independent examiner. The trustee has asked for an independent examiner to protect the investors’ rights in the bankruptcy case.
As CoinChapter reported, Celsius Network filed for chapter 11 bankruptcy in July.
Did Celsius CEO Alex Mashinsky mislead investors?
The Financial Regulator also accused Celsus CEO Alex Mashinsky of making inaccurate representations of the firm’s financial situation.
Moreover, the watchdog claimed Celsius failed to disclose the “massive losses” it suffered in the first half of last year to its investors, despite laws requiring it to do so.
“Celsius, through its CEO Alex Mashinsky,…made false and misleading claims to investors about, inter alia, the company’s financial health and its compliance with securities laws, both of which likely induced retail investors to invest in Celsius or to leave their investments in Celsius despite concerns about the volatility of the cryptocurrency market,”
the filing by the regulator claims.
To back its accusations, the regulator also cited blogs and tweets from Mashinsky. In one Tweet, he insisted that “all funds are safe.”
However, the regulators insisted that Celsius was insolvent and depositor funds were not safe when Mashinsky made those claims.
In July, KeyFi Inc founder Jason Stone alleged in a lawsuit that Mashinsky and his team operated a Ponzi scheme. Stone has previously served in Celsius Network as an investment manager.
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Celsius has been insolvent since at least 2019
The Vermont regulator had further alleged that Celsius Network may have been insolvent since February 2019, when its liabilities exceeded its assets.
To hide this from its investors, the company allegedly manipulated the price of its CEL token and boosted its CEL token holdings, thus ramping up its balance sheet.
The filing also cites a recent creditor meeting during which the company admitted it had never earned enough revenue to support the yields it was paying to investors.
“This shows a high level of financial mismanagement and also suggests that at least at some points in time, yields to existing investors were probably being paid with the assets of new investors,“
says the filing.
Some 40 state regulators have allegedly started a multi-state investigation of possible illegal activities, including fraud and unregistered securities.
The development comes weeks after a US judge granted Celsius Network permission to mine and sell Bitcoin (BTC).
The Vermont financial regulator further argued that the appointment of an Examiner is critical for the protection of the rights of investors.
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