A cryptocurrency giant has blocked their accounts. Now customers are begging a judge to get their money back. – Mother Jones

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Before Celsius deposited for bankruptcy last month, the company seemed optimistic about its future. In a June 7 blog post titled “Damn the Torpedoes, Full Speed ​​Ahead”, the cryptocurrency firm targeted “voice actors” who were “spreading misinformation and confusion.” He assured his customers that he was “online 24/7” and said he was continuing to “process withdrawals without delay”.

Celsius, which offers banking-like services for cryptocurrency enthusiasts, including the ability to earn jaw-dropping interest rates by depositing digital assets and the ability to borrow using cryptocurrencies as collateral, prided itself on having “one of the best management teams. of the risk of the world. ”

“We have already overcome cryptocurrency declines (this is our fourth!),” The company assured consumers. “Celsius is ready.”

Five days later, Celsius suspended all customer withdrawals, a move that essentially froze the assets of its hundreds of thousands of users. A month later, Celsius filed for bankruptcy. During the bankruptcy procedure it emerged that the company did not offer the same protections as traditional banks. Since 2019, “the Company has been clear” that it may have to temporarily or permanently suspend withdrawals due to a number of potential circumstances, Celsius CEO Alex Mashinsky wrote in a legal statement. When customers deposit their savings with Celsius, they “transfer ‘all rights and title’ of their crypto assets to Celsius,” he said.

According to a court filed presentation, Celsius now hopes to offer its clients a choice: accept a cash payment that’s worth only a fraction of their investments, or opt to “stay ‘long’ cryptocurrencies,” meaning continue to hold their own currency. digital about Celsius’ books in hopes they can finally get their money back.

That offer may not be enough to satisfy Celsius depositors, many of whom have found themselves in dire straits after trusting the company. Dozens of clients detailed their situation in letters to the bankruptcy judge handling the Celsius case.

“My life savings were in Celsius,” wrote a depositor last month. “I pray and hope that every day you are doing everything in your power to rightfully return deposits to customers. I cannot tell my wife and children that our retirement and our dreams have been stolen from us. Life is stale, we need updates and silence is not the answer ”.

Cryptocurrencies can be a bulky good. There are thousands of different digital currencies and transferring them from one owner to another is sometimes difficult, due to the fees and long processing times. It can also be difficult to buy or sell cryptocurrencies for traditional money. Unlike other assets, such as homes, it is difficult for cryptocurrency owners to borrow against their holdings. And while ownership of a cryptographic asset is recorded in what is known as a distributed ledger, that record does not correspond to a person but rather to a particular code that is stored on a computer. This means that it can be easy to lose, especially if an investor is not technologically sophisticated.

Companies like Celsius were created to solve these problems by making it easier for consumers to build their finances around cryptocurrencies. Celsius tried to present itself as a consumer-friendly alternative to a rapacious financial sector: the company used the slogan “unbank yourself”. Mashinsky was something of a populist figure and often wore a T-shirt that read “Banks are not your friend”. He would conduct weekly live streams with customers, which the company called his “community”.

As the value of cryptocurrencies has exploded in recent years, financial regulators have not kept up. While Celsius does many of the things a bank does, such as lending and paying depositor interest, it did not register with state regulators, which meant customers did not have access to the same information they would have received if they had. he had done business with a more traditional financial institution.

Celsius has experienced rapid growth in tandem with rising cryptocurrency prices, its bankruptcy documents state. That early success “was not without hiccups,” Mashinsky wrote in a court filing. Celsius reinvests its customers’ deposits in an attempt to earn a profit, and the company “made what, in hindsight, turned out to be some poor resource allocation decisions.” The company had attempted to “properly scale those liabilities” starting in 2021, Mashinsky continued. Then, in 2022, cryptocurrency prices plummeted. Clients began withdrawing their funds and Celsius found itself unable to dissolve its investments fast enough to meet client demand. Eventually, the company suspended withdrawals and then filed for bankruptcy.

Other legal proceedings paint a grimmer picture. Several state regulators said Celsius offered illegal “unregistered security” by allowing customers to open accounts. Last month the state of the Vermont Department of Financial Regulatory issued a warning to consumers warning that “Celsius’ assets and investments are likely inadequate to cover its outstanding obligations” and that “Celsius has used customer assets. in a variety of risky and illiquid investments, exchanges and lending activities ”.

In a separate lawsuit against Celsius, KeyFi, a company that provided investment services for Celsius, claims that Celsius was “running a Ponzi scheme,” that it was manipulating the value of its holdings and that it lacked adequate risk controls. Subsequent CNBC reports claimed that Celsius had a risk management team of only three full-time employees, a number that a former Celsius employee described as “too small”. Celsius declined to comment on CNBC and did not answer questions for Mother Jones.

In their letters to the bankruptcy judge, Celsius customers said they were initially drawn to the company because of its anti-wall street ethics. “I felt it was a safe consideration,” wrote one. “Many of Celsius’s proposals such as: ‘Unbank yourself’ and ‘Banks are not your friends’ made sense when moving into a new world of digital money systems.”

Some said they found Celsius’ social media communications, such as weekly live streams, particularly compelling. “This company presented itself as a safe alternative to a bank that cared about its community,” wrote another customer.

Celsius ultimately disappointed that community. A number of customers have parked a significant portion of their savings with the company, the letters show. Now, with Celsius having suspended withdrawals, those resources are in limbo. “I am a Celsius customer with just over $ 15,000 of deposits locked in Celsius,” reads a letter. “$ 15k may not mean much to some people, but it’s about 65% or my life savings.”

For some, the problems with Celsius have done little to dampen their general enthusiasm for cryptocurrency. “I’m a long-term HODLer,” says one letter, using a slang term for people who hold their cryptocurrency during market fluctuations and expect it to increase in value over time. “If there were guarantees for the full recovery of the funds in my accounts, I would choose HODL for the foreseeable future as this investment was a long-term holding game.”

As part of the bankruptcy process, Celsius hopes to “take care of his global community,” Mashinsky wrote to the court. But the company has numerous other creditors who are not customers and who may have higher claims on its assets, bankruptcy experts told Reuters. Regardless, it may take years for any bankruptcy proceedings to run their course. With their accounts locked and no guarantee that the process will be resolved in their favor, some Celsius customers are becoming anxious.

“Every Monday I received a notification from my Celsius application for interest repayments and felt a sense of pride in growing my nest egg,” wrote one customer. “The money is now being held hostage by Celsius and this has seriously damaged my family. Every day since June 13, 2022, I got up and felt terrible for part of the day. I look at my children and think about how the money Celsius stole from me could be destined to improve their lives. ”

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