Know in advance to freeze the account? Celsius founder withdraws $10 million before company goes bankrupt

Cryptocurrency lending firm Celsius Network, which froze customer accounts as it teetered on the edge of bankruptcy, has now withdrawn $10 million from the company weeks before Celsius froze customer accounts, according to people familiar with the matter.

Alex Mashinsky made the massive cryptocurrency withdrawal in May, when clients were withdrawing their assets from the company in large numbers, mainly due to the broader volatility in the cryptocurrency market and concerns about the financial health of Celsius Network.

Celsius Network then froze withdrawals on June 12, leaving hundreds of thousands of retail investors unable to access their deposits. The company filed for bankruptcy in July, with a $1.2 billion funding hole on its balance sheet.

The peak of Celsius’ business came last year, when customers attracted by ultra-high interest rates deposited $25 billion worth of crypto assets on the platform, as some cryptocurrencies offered interest rates as high as 18%.

The news of the early withdrawal of funds will raise scrutiny of Alex Mashinsky, who recently resigned as CEO of the company, and questions about when he first learned that Celsiu would not be able to return assets to clients.

Celsius will submit details of the Mashinsky deal to the court in the coming days.

Mashinsky’s spokesman said that even after Mashinsky’s withdrawal, he and his family still had $44 million in crypto assets frozen by Celsius, “at the end of May 2022, Mr. Mashinsky withdrew a portion of the cryptocurrency from his account. , mostly to pay state and federal taxes. Nine months prior to the withdrawal, he continued to deposit the same amount of cryptocurrency that he had withdrawn in May.”

The spokesperson said Mashinsky will remain committed to working with the community on recovery plans to maximize the liquidity of cryptocurrencies.

Mashinsky, 56, who co-founded Celsius in 2017, is the company’s “face to the masses” and appears on YouTube every week to speak.

Celsius raised $600 million in a funding round late last year from U.S. investment firm WestCap and Canada’s second-largest pension fund, Caisse de dépôt et placement du Québec, valuing the company at $3 billion.

Despite Mashinsky’s optimism in the public eye, the company’s internal systems for managing assets are weak, and the company sometimes pays more interest to customers than it earns on loans.

Celsius also suffered a string of investment losses in 2021 and 2022, but did not disclose it to customers. The Vermont financial regulator said Celsius became insolvent as early as May 13.

Celsius suffered a major outflow of assets in May, when TerraUSD and sister coin Luna collapsed, battering the market and triggering a string of company closures in the crypto industry.

Celsius reassured customers that they had sufficient funds in reserve a few days before the withdrawal was frozen.

Mashinsky now faces the prospect of being forced to repatriate the $10 million he withdrew from Celsius. Under U.S. law, payments made by a company within 90 days of bankruptcy must be recovered for the benefit of creditors.

According to a person familiar with the matter, about $8 million of Mashinsky’s assets has been paid for tax payments derived from the income generated by Celsius’ assets. As for the remaining 2 million, Celsius’ native token, CEL, the withdrawal is pre-planned and related to Mashinsky’s estate planning.

Mashinsky, Celsius’ largest shareholder, has also said he was one of the company’s biggest creditors in bankruptcy. He apologized to clients in his resignation letter earlier last week, saying he was “deeply sorry for the difficult financial situation members of the community are facing.”