Former Celsius senior executives have revealed the crypto lending company had been struggling internally for years before going bankrupt, contrary to the firm’s claims that its problems stemmed from the recent market crash.
Poor Risk Management and Disorganization
According to the employees, Celsius was disorganized and lacked proper risk management. Internal documents reviewed by CNBC showed that the crypto lender would invest in high-risk crypto projects and borrow money to hedge funds in return for higher yields. The firm would then share the profits with customers.
Unfortunately, the model failed during the recent market bloodbath induced by Terra’s crash and news about the Fed hiking interest rates.
“The biggest issue was a failure of risk management. I think Celsius had a good idea, they were providing a service that people really needed, but they weren’t managing risk very well,” Timothy Cradle, Celsius’ former director of financial crimes compliance, said in an interview with CNBC.
He also claimed that the company also failed to invest in compliance. The former director said he was part of a three-person compliance team at the firm between 2019 and 2021, and the division lacked enough resources to function properly.
CEL Token Manipulation
Cradle further revealed that the crypto lender manipulated the price of its native token CEL by “actively trading and increasing the price” of the asset. The “pumping up” of the token was carried out by the company’s executives, who openly discussed it at a Christmas party in 2019.
“They weren’t shy about it. They were absolutely trading the token to manipulate the price. It came up in two completely different conversations for two completely different reasons,” he said.
Another Celsius employee who wished to remain anonymous alleged that while Celsius was incentivizing customers to buy CEL, the company’s CEO, Alex Mashinsky, was secretly selling off his tokens.
The allegations from former Celsius employees align with those of the company’s former money manager Jason Stone, who sued the crypto lender for fraud, lack of proper risk management, and market manipulation.
Meanwhile, a document from Celsius’s first bankruptcy hearing revealed that about 77% of the crypto assets deposited on the platform belong to the company and not customers.