Bankrupt Crypto Lender Celsius Hit by Federal Investigations

Celsius has been one of the more high-profile casualties of a sharp sell-off in the crypto market that was triggered in part by May’s collapse of the Terra blockchain. The now-bankrupt crypto lender’s legal headaches continue.

In the latest development, the company is reportedly facing US federal investigations, a Tuesday filing from lawyers for its committee of unsecured creditors revealed. It is worth noting that several Celsius customers ended up as the company’s unsecured creditors, that were represented by the committee.

More Troubles Ahead

According to a council, the number and extent of investigations of the debtors by governmental entities are “significant.”

The company has been subjected to enforcement proceedings or investigations in nearly 40 states, along with investigations or inquiries involving the federal government. Bloomberg revealed that the document also contained a statement from the Texas State Securities Board notifying Celsius of being targeted by multiple states.

Previously, the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Federal Trade Commission have all issued inquiries to the lender.

The judge in charge of the case has received letters from multiple customers accusing the lender and its former Chief Executive Officer, Alex Mashinsky, of deceiving them about the risks associated with entrusting their digital assets to the company.  As a result, an examiner was appointed by the judge to probe these issues, among others

Celsius froze customer withdrawals in June to steer clear of a potential case of a “panic run” by users. It filed for bankruptcy a month later.

The company has faced tremendous backlash from users over its marketing and management strategies since declaring insolvency. It even received a federal grand jury subpoena on June 15. The subpoena came from the US District Court for the Southern District of New York. It was also later revealed that Celsius had over $1 billion hole in its balance sheet as it held $4.3 billion of assets and $5.5 billion of liabilities.

“Shady” Mashinsky

Celsius Network founder Alex Mashinsky, who resigned as the CEO of the embattled company in September, found himself in troubled waters as well. The exec reportedly removed $10 million from Celsius weeks before it halted customer withdrawals. During this time, the crypto markets were being roiled by the collapse of the Terra fall.

In yet another interesting turn of events, an internet investigator who goes by the pseudonym ‘Coffeezilla’ alleged that the former CEO was still dumping hundreds of dollars of CEL tokens. The transactions are believed to have been executed from Mashinsky’s multiple wallets last week.

After Mashinsky, another co-founder – Daniel Leo – also turned in his resignation letter in the middle of bankruptcy proceedings.