Former Celsius CEO Alex Mashinsky and three related entities waived rights to bankruptcy distributions from the defunct crypto lender. The waiver cemented Mashinsky’s position as the party responsible for the collapse of Celsius. It also distanced him from making amends to the victims who lost funds.
The agreement filed on Monday in the U.S. Bankruptcy Court for the Southern District of New York prohibited Mashinsky, AM Ventures Holdings Inc., Koala1 LLC, and Koala3 LLC from receiving any bankruptcy proceeds. The court document stipulated that all of Mashinsky’s claims submitted or scheduled on his behalf be “withdrawn, disallowed, and shall receive no distribution” under the bankruptcy plan. Mashinsky and the entities related to him were permanently barred from receiving any recovery in the Celsius bankruptcy, allowing those reserved assets to be redistributed to other creditors.
However, even as Mashinsky claimed to have agreed to forfeit the assets that the government traced directly to the proceeds of his crimes, his wife asserted that she had a superior claim to the property. Her assertions would reduce what the government seized and returned to Mashinsky’s victims if credited.
Attorney Clayton says America’s investors deserve better
U.S. attorney for the Southern District of New York, Jay Clayton, said the Celsius founder targeted retail investors with false promises, used their funds to place risky bets, and profited tens of millions of dollars (~$48M). At the same time, his customers lost billions (~$4.7B). Crypto influencer Tiffany Fong lost 3.1 BTC and 11.6 ETH to Celsius (over $300K at today’s prices). However, Clayton believes that America’s investors deserve better.
The waiver agreement, therefore, stipulated that since the court had disallowed claims from Mashinsky and related parties, all the money and assets (crypto and company shares) that were being held for them could be released for distribution to other creditors who were owed under the bankruptcy payout plan. Mashinsky was ordered by the bankruptcy court to pay a $50K fine and forfeit $48.3 million.
However, despite this specific ruling, the order clarified that it did not affect other claims, counterclaims, or defenses that the Plaintiffs, Mashinsky, AMV, Koala1, and Koala3 might have in other legal proceedings, whether in the main case or other lawsuits.
Celsius has made progress in returning value to affected users, distributing over $2.5 billion to more than 251K creditors as of August 2024. However, despite the progress, reports indicated that over $1 billion in claims from ~121K creditors were filed this year alone, highlighting the scale of the liabilities Celsius faced and the number of individuals and entities impacted. Clayton also pointed out that validating and categorizing claims remained a monumental task.
Mashinsky admits to giving Celsius customers ‘false comfort’
In court, Mashinsky admitted to giving Celsius customers “false comfort” by giving an interview in 2021 in which he said Celsius had received approval from regulators for its “Earn” program, which it had not. Federal prosecutors in Manhattan also said the former CEO misled Celsius’ customers to persuade them to invest, and artificially inflated the value of his company’s proprietary crypto token. He also failed to disclose that he had been selling his CEL holdings. However, Mashinsky owned up to his wrongdoings and vowed to do whatever it took to atone for his mistakes.
Attorney Clayton claimed that Mashinsky marketed Celsius as the safest place for crypto, and encouraged customers to “unbank” themselves by transferring crypto assets to the platform. He repeatedly misrepresented key aspects of Celsius’s business and finances throughout his tenure to attract customers and retain their assets. His false claims covered the safety of Celsius’s yield-generating activities, its profitability, the sustainability of high reward rates, and the risks associated with depositing crypto assets on the platform.
Mashinsky and others orchestrated a years-long scheme to mislead customers about the CEL token. They manipulated CEL’s price by spending hundreds of millions purchasing it on the open market to artificially inflate its value. They sometimes used customer deposits to fund these market purchases, without disclosing that to customers.
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