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Former Celsius CEO Fights Back Against Fraud Complaints From New York Attorney General

Former Celsius CEO Fights Back Against Fraud Complaints From New York Attorney General

Former Celsius Network founder Alex Mashinsky is asking the courts to dismiss the New York State complaint against him that alleges he defrauded investors out of billions of dollars. According to a new filing with the New York Supreme Court, Mashinsky argues that the complaint should be tossed out because it relies on misinformation, among […]

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Russia Using Bitcoin to Bypass Sanctions – Is the Global Financial System Cracking?

Celsius eyes merge of entities as creditors claim distinctions were a ‘sham’

New court filings are pushing to straighten out the issue in a bid to help recover lost funds for customers.

Defunct crypto lender Celsius Network is looking to combine its United Kingdom and United States entities as new court filings allege that any supposed distinction between the two companies was a “sham.”

The central point of dispute is focused on a decision made by the crypto lender in June 2021, when Celsius Network Limited (CNL) was issued with a warning to cease operations in the U.K. from the country’s Financial Conduct Authority.

To avoid fallout, CNL set up a Limited Liability Company — Celsius Network LLC — in the state of Delaware and looked to transfer its assets to the new company.

According to a May 1 court filing from the now-bankrupt crypto firm, the migration of the two entities “resulted in intercompany chaos.” The filing adds that formal documentation of the intercompany relationship was “not completed for several months” and when it was “it remained ambiguous” what transactions the agreements affected.

The filing claims that for everyday investors the result of this transfer was too confusing to make sense of, however, the more “sophisticated” Series B investors were well aware of the implications of such dubious record keeping.

As a result, the two entities should be treated as one and the same in subsequent bankruptcy proceedings, so that smaller creditors are not ignored in favor of Series B investors when it comes to the recovery and return of lost funds.

According to a corresponding court filing from the Celsius Official Committee of Unsecured Creditors (UCC), the migration was a “sham” and the transactions that facilitated the transfer of billions of dollars worth of assets between the two were likely fraudulent.

Simon Dixon, who reportedly lost more than $8.8 million worth of Bitcoin (BTC) as a result of the Celsius collapse, summarised the UCC filing in a series of tweets on May 2 saying “Celsius acted as if the migration never occurred” and was given “poor documentation” and “no clear distinctions” to distinguish between the two entities.

In a March 9 memorandum opinion, Chief U.S. Bankruptcy Judge Martin Glenn found that customers only had claims against Celsius’ Delaware-based LLC, meaning that Series B investors stand to be more likely to receive recompensation.

Related: Celsius creditors demand transparency on ‘suspicious’ FTX transactions

The auction of the remaining Celsius assets is scheduled to go ahead on Wednesday, May 3, with a number of major firms including the exchanges Coinbase and Gemini vying for possession of the defunct firms’ assets.

NovaWulf Digital Management currently stands as the “stalking horse bidder,” a term used to describe the first mover that sets the bar for the ensuing bids. NovaWulf’s proposal includes a direct cash contribution in the range of $45 million to $55 million. If NovaWulf’s proposal is accepted, customers can expect to recover up to 70% of their funds.

The auction marks a significant step forward for Celsius’ customers in recovering their funds, after the firm filed for Chapter 11 bankruptcy protection on July 14, 2022.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

Russia Using Bitcoin to Bypass Sanctions – Is the Global Financial System Cracking?

Celsius creditors demand transparency on ‘suspicious’ FTX transactions

Celsius creditors say info from FTX is crucial in determining if some CEL trades were meant to inflate its price artificially.

Celsius creditors claim that some FTX users have engaged in suspicious trades that may have manipulated the price of the Celsius (CEL) token in 2022. The creditors are seeking the help of a bankruptcy judge to unmask the users in question.

Represented by a committee, creditors of Celsius Network have requested permission from a bankruptcy judge to issue subpoenas to FTX, seeking information on users associated with ten cryptocurrency wallets that were allegedly involved in suspicious trades of Celsius' CEL coin between April and August.

The creditors believe that the information from FTX will help them determine whether the trades were legitimate or constituted market manipulation, such as wash trading. The request for subpoenas was made in court papers filed on April 26.

According to the committee, it employed the help of blockchain consultant Elementus to identify transactions that were suspicious. The filing wrote:

“Elementus identified 947 transactions involving a near one-to-one relationship of CEL Token deposits and withdrawals over three-day periods between ten private wallets and ten FTX-operated wallets.”

The committee representing Celsius Network's creditors has stated that the information they are seeking from FTX is crucial in determining whether the trades involving CEL were intended to inflate its price artificially.

Related: Celsius auction has Gemini and Coinbase as new bidders: Report

In addition, the committee is requesting information regarding any short positions taken on CEL. This could have also had a negative impact on its price, according to the court filing. The creditors believe that it’s important to determine whether the trades were legitimate, as it could be critical to resolving a dispute related to Celsius' bankruptcy.

Meanwhile, collapsed crypto exchange FTX has entered into a purchase agreement with an affiliate of Miami International Holdings to sell LedgerX, its futures and options exchange and clearinghouse, for approximately $50 million. The deal is pending approval from the United States Bankruptcy Court for the District of Delaware, with a hearing scheduled for May 4.

Magazine: 4 out of 10 NFT sales are fake: Learn to spot the signs of wash trading

Russia Using Bitcoin to Bypass Sanctions – Is the Global Financial System Cracking?

Celsius Releases Names of Customers Eligible To Receive Most of Their Crypto Assets Back

Celsius Releases Names of Customers Eligible To Receive Most of Their Crypto Assets Back

Eligible customers of bankrupt crypto lending firm Celsius Network will soon be allowed to obtain the funds trapped when the platform paused withdrawals and transfers in June of last year. In a new court filing, Celsius names the users who are qualified to withdraw their withheld assets, saying these users will be notified of their […]

The post Celsius Releases Names of Customers Eligible To Receive Most of Their Crypto Assets Back appeared first on The Daily Hodl.

Russia Using Bitcoin to Bypass Sanctions – Is the Global Financial System Cracking?

Novogratz’s Galaxy Digital to acquire Celsius’ GK8 in bankruptcy garage sale

The self-custody platform was acquired by Celsius in 2021 for $115 million and is now set to change hands, pending approvals.

Mike Novogratz-led investment firm Galaxy Digital Holdings has won the bidding to buy GK8, an institutional digital asset self-custody platform owned by Celsius Network — pending court approvals and certain closing conditions.

According to a Dec. 2 blog post from GK8 and a press release from Galaxy, if the acquisition goes ahead, Galaxy will acquire the platform's nearly 40-strong team as part of the deal including cryptographers and blockchain engineers and an office in Tel Aviv.

GK8 is a self-custody platform for managing blockchain-based assets which offers custody, staking, DeFi, NFT support, tokenization and trading.

The team behind the platform claims it can run secure blockchain transactions without being connected to the internet, severely reducing the risks of hacks.

Celsius acquired GK8 in 2021 for $115 million, though Galaxy has not disclosed how much it offered during the bidding process. 

Mike Novogratz, founder and CEO of Galaxy called the acquisition a “crucial cornerstone in our effort to create a truly full-service financial platform for digital assets.”

"Adding GK8 to our prime offering at this pivotal moment for our industry also highlights our continued willingness to take advantage of strategic opportunities to grow Galaxy in a sustainable manner," he added.

Galaxy intends to support GK8's ongoing operations while utilizing its technology to develop its trading platform GalaxyOne it said.

GK8 founders, including CEO Lior Lamesh and CTO Shahar Shamai, are expected to stay with the company and lead Galaxy's new custodial business.

"With the backing of Galaxy, we aim to introduce new and exciting offerings to the industry that showcase a combination of Galaxy's best-in-class services and GK8's cryptography, security, and unparalleled R&D skills," Lamesh said.

Related: Mike Novogratz: Bankman-Fried is ‘delusional’ and headed to jail

Celsius has been undergoing bankruptcy proceedings since filing for Chapter 11 bankruptcy protection on Jul. 13, discussing plans to sell some of its assets.

In the court filing, Celsius CEO Alex Mashinsky indicated the company could sell Bitcoin (BTC) mined by its mining operation to help repay at least one of its loans and provide revenue for the company in the future.

While in a Sept. 15 filing with the United States Bankruptcy Court for the Southern District of New York, Celsius asked for permission to sell its stablecoin holdings.

Galaxy Digital was recently named in a $100 million lawsuit by institutional crypto custodian service and wallet operator BitGo for dropping its plans to acquire the firm. 

Galaxy terminated the May, 2021 agreement to acquire the firm on Aug. 15, 2022, citing a breach of contract by BitGo when it allegedly failed to deliver audited financial statements by July 31, 2022. 

BitGo then revealed in Sept. 13 post that it was seeking more than $100 million in damages, accusing Galaxy of “improper repudiation” and “intentional breach” of its acquisition agreement with BitGo.

Russia Using Bitcoin to Bypass Sanctions – Is the Global Financial System Cracking?

3 reasons why the FTX fiasco is bullish for Bitcoin

The FTX fiasco is nothing new for Bitcoin as it survived multiple exchange collapses, bear markets and even outright bans in its decade-plus existence.

The "Bitcoin-is-dead" gang is back and at it again. The fall of the FTX cryptocurrency exchange has resurrected these infamous critics that are once again blaming a robbery on the money that was stolen, and not the robber.

"We need regulation! Why did the government allow this to happen?" they scream.  

For instance, Chetan Bhagat, a renowned author from India, wrote a detailed "crypto" obituary, comparing the cryptocurrency sector to communism that promised decentralization but ended up with authoritarianism.

Perhaps unsurprisingly, his column conveniently used a melting Bitcoin (BTC) logo as its featured image.

Bhagat should have picked a more accurate image for his op-ed (melting FTX (FTT) Token?), particularly after looking at Bitcoin's decade-plus history that has seen it surviving even nationwide bans. This includes 465 466 obituaries since its debut in 2009 when it traded for a few cents.

Bitcoin performance since debut. Source: TradingView

The FTX/Alameda's collapse is similar to previous bearish trigger events like Mt. Gox in 2014. Therefore, this failure of centralization will once again underline what makes Bitcoin special, and why FTX is the opposite of Bitcoin and decentralization. 

Moreover, the incident should also boost growth and development of in, non-custodial exchanges for Bitcoin that will help reduce dependency on trust. 

FTX may have had zero Bitcoin in custody

Traders responded to FTX's shocking collapse by pulling their BTC from custodial exchanges. Notably, the total amount of Bitcoin held by all exchanges dropped to 2.07 million BTC on Nov. 17 from 2.29 million BTC at the beginning of the month.

United States-based exchanges saw the biggest outflows, in particular, with users withdrawing over $1.5 billion in BTC in the past week alone. 

Bitcoin reserves across all exchanges. Source: CryptoQuant

On Nov. 9, FTX halted withdrawals of all cryptocurrencies, including Bitcoin, raising suspicions that the exchange did not have adequate reserves to meet the demand.

That was further evident in a leaked FTX balance sheet that showed the exchange having zero Bitcoin against its $1.4 billion liabilities in BTC. In other words, FTX enabled fractional-reserve Bitcoin trading. 

"This is, on the one hand, bad for you as you will only find out if they have been swimming naked once the exchange implodes, accompanied by you losing all your funds," Jan Wüstenfeld, writes independent market analyst. He adds:

"On the other hand, this artificially increases the bitcoin supply in the short-run, suppressing the price and preventing actual price discovery [...] Yes, I know these are not real bitcoin, but as long as the exchanges issuing fake paper, Bitcoin remains operational, the effect is there."

Thus, FTX's little-to-negligible exposure to Bitcoin potentially reduces Its likelihood of selling any remaining funds to raise liquidity. 

The incident is also likely to produce a new cohort of Bitcoin hodlers by forcing people to not keep their funds on risky exchanges and practice self-custody. While a decreasing amount of BTC on exchanges means fewer coins available to sell.

Sam Bankman-Fried was anti-Bitcoin

FTX founder Sam Bankman-Fried (SBF) was the Democrats' second biggest donor after George Soros for the midterm elections, giving nearly $45 million to lobby for crypto regulations that would allegedly benefit his firm.

Related: US crypto exchanges lead Bitcoin exodus: Over $1.5B in BTC withdrawn in one week

But speculations are large that SBF attempted to tarnish Bitcoin's growth through the U.S. lawmakers,  as well as news articles, where he downplayed Bitcoin as an efficient payment system.

Other commentators have also pointed out a connection between SBF and anti-crypto U.S. Senator Elizabeth Warren, noting the former's father, Joseph Bankman, helped the politician draft tax legislation in 2016. 

SBF's influence among U.S. lawmakers is now gone with him facing potential criminal charges for illegally using customer funds for FTX trades. 

Press "F" to flush 

Past cryptocurrency market downturns have roots in the failure of centralized players as well as "altcoins" that ultimately ended up being a money-grab. 

FTX's token FTT is just the latest example. Other failed projects that triggered a market downturn just this year include the Defi lending platform Celsius Network (CEL) and Terra (LUNA). 

Created and operated by centralized entities, the supply of these tokens, and therefore price, becomes vulnerable to manipulation: undisclosed pre-mine allocations, insider VC deals, small float vs. total supply, you name it.

It is exposure to such (crap) tokens, particularly in the form of collateral, that ultimately drove crypto hedge funds Three Arrow Capital, FTX's sister firm Alameda Research, and many others to the ground.

"In our view, the bubble in crypto that popped this year was in the atmosphere of tokens being created just for speculative purposes," noted BOOX Research, adding:

"While we can debate which cryptos are 'bad money driving out the good', FTT and LUNA are just two examples everyone can agree should not have existed."

Therefore, a market flush of altcoins that should not have ever existed, FTT included, may further strengthen investors' trust in Bitcoin. Early data is showing the same, with CoinShares reporting an inflow uptick into Bitcoin-based investment funds. 

Notably, Bitcoin-based investment vehicles attracted $18.8 million to their coffers in the week ending Nov. 11, bringing its year-to-date inflows to $316.50 million.

Flow by asset. Source: Bloomberg/CoinShares

"The inflows began later in the week on the back of extreme price weakness prompted by the FTX/Alameda collapse," noted James Butterfill, head of research at CoinShares, adding:

"It suggests that investors see this price weakness as an opportunity, differentiating between 'trusted' third parties and an inherently trustless system."

Meanwhile, Bitcoin is not witnessing a collapse in demand in the current bear market compared to 2018, on-chain data reveals.

The number of non-zero Bitcoin addresses has continued to climb despite the price downtrend, hitting a record high of 43.14 million as of Nov. 16.

Bitcoin addresses count with a non-zero BTC balance. Source: Glassnode

In comparison, the 2018 bear market saw a substantial drop in the number of non-zero Bitcoin addresses, suggesting traders have become relatively more confident about a price recovery, especially as the FTX domino effect clears out the dead wood.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Russia Using Bitcoin to Bypass Sanctions – Is the Global Financial System Cracking?

Crypto.com’s CRO is in trouble, but a 50% price rebound is in play

Short CRO traders were paying as much as 3% premium to long traders on Nov. 14, reflecting extreme bearishness in its futures market.

Crypto.com’s native token Cronos (CRO) is showing restraint on Nov. 14 against mounting sell-pressure building in the wake of the FTX’s dramatic collapse last week. Now, the CRO/USD pair is eyeing a watershed price recovery.

On Nov. 14, CRO’s price wobbled between profits and losses, trading around $0.069 a day after crashing to $0.05, its lowest level since April 2020 — that’s a 60% price decline from November’s peak of around $0.178.

CRO/USD weekly price chart. Source: TradingView

CRO funding rate drops to -3%

The period of CRO’s price decline occurred alongside a sharp drop in the token’s perpetual futures funding rates.

Funding rates are recurring payments made by traders based on the difference between the prices in the futures and the spot market. A positive funding rate means bullish traders (long positions) pay bearish traders (short positions), representing their confidence about a price rally.

Conversely, a negative funding rate means short traders pay long traders to keep their positions open. On Nov. 14, CRO’s funding rates on Huobi and OKX dropped to minus 3%, showing traders are extremely bearish on the token.

CRO funding rates history. Source: Coinglass.com

“This is literally the exact same dynamic that occurred before Celsius and FTX collapsed,” warned Dylan LeClair, senior analyst at digital asset fund UTXO Management on Nov. 13, when CRO funding rates were near minus 2%.

FTX contagion fears spread to Crypto.com 

The CRO sell-off started from fears of contagion amid the FTX fiasco, particularly concerns that Crypto.com, a Singapore-based crypto exchange, would collapse in the same manner as FTX.

At the core of these worries is potential insolvency, with analysts pointing out that Crypto.com is holding low-liquid cryptocurrencies like Shiba Inu (SHIB) and its own token CRO as reserves, which reportedly make up 40% of the exchange’s total assets. 

In addition, Crypto.com also moved $210 million worth of stablecoins from Binance and Circle before demonstrating its reserves to the public. Binance CEO Changpeng Zhao confirmed the move, urging caution, the day before CRO dropped to its April 2020 low.

What’s more, Crypto.com also misconducted a $400 million Ether (ETH) transaction, sending it to a Gate.io exchange wallet instead of its cold storage. Later, the exchange did manage to recover the funds, but that also raised a lot of questions.

Overall, Crypto.com saw its users withdraw $14 million in ETH and $39 million in other tokens over the weekend, according to data tracked by Argus Inc.

50% Cronos price relief rally ahead?

Strictly from a technical perspective, however, CRO’s price could nevertheless see a potential relief rally in the coming weeks.

A set of indicators support the said bullish outlook, including CRO’s weekly relative strength index (RSI), which dropped to nearly 30, or nearly “oversold” territory. A similar drop in June earlier this year had preceded a 75% recovery rally from $0.099 to $0.162, as shown below.

CRO/USD weekly price chart. Source: TradingView

The other bullish indicator includes strong historical support of $0.061. In addition, CRO’s current price range of $0.061 and $0.111 has the token’s highest volume profile visible range (VPVR) on record.

In other words, CRO price could recover to $0.111, up over 50% from the current price levels, as its next upside target. 

Related: Exchange outflows hit historic highs as Bitcoin investors self-custody

Conversely, CRO/USD falling alongside funding rates suggests that its drop may have been driven by futures markets, which was also the case with Terra’s collapse in May. Thus, the persistent bearish sentiment across the entire cryptocurrency market could dampen CRO’s recovery prospects.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Russia Using Bitcoin to Bypass Sanctions – Is the Global Financial System Cracking?

Celsius Network’s bungling showed why centralization can’t protect privacy

Celsius’ bankruptcy proceedings resulted in 14,000 pages of customer data leaking to the public. The incident displayed the pitfalls of centralized finance.

In Celsius Network’s recent court filing, the billion-dollar centralized finance (CeFi) platform exposed more than 14,000 pages of customer identity and on-chain transaction data without user consent — a prescient reminder that privacy absent decentralization is no privacy at all.

As part of its bankruptcy proceedings, CeFi lending giant Celsius Network disclosed names and on-chain transaction data of tens of thousands of its customers in an Oct. 5 court filing. While Celsius’ user base complied with standard Know Your Customer (KYC) procedures in order to open personal accounts with the CeFi platform, none consented to nor could have anticipated a mass disclosure of this scope or scale.

In addition to doxxing the multi-million dollar withdrawals of Celsius founder Alex Mashinsky and chief strategy officer Daniel Leon just before Celsius’ bankruptcy announcement, the disclosure directed tens of thousands of CeFi users to reconsider what resolute privacy protections entail and how systems that incorporate any degree of trust or centralization stand to compromise those protections.

To protect privacy, any degree of centralization or specialized authority that exchanges use in the future must eschew the bungled Celsius model. Otherwise, privacy will be rendered yet another false promise teased out in the fine print.

Uncharted territory

While unsavory, at the very least, Celsius’ mass data dump points to more than an outright distrust of authority and opaque organizations. As per usual, at the intersection of on-chain finance and law, there’s a lot of gray area.

An emergent and nascent industry, the blockchain space has already spun up a mess of unprecedented conflicts and disputes that neither existing legislation nor established case law has developed a reliable methodology to navigate. Even in the heavily nuanced legal environment of 2022, courts are not adequately prepared to uphold established legal principles in the on-chain domain.

Related: Coinbase is fighting back as the SEC closes in on Tornado Cash

In defense of their customers, Celsius’ legal representatives allege that they issued requests to redact private customer data from their disclosures. However, their requests were ultimately rejected by the court on the grounds that all Chapter 11 Bankruptcy proceedings require a complete and transparent “Creditor Matrix.” Obviously, such a bankruptcy rule was penned and passed several eras before the emergence of distributed on-chain lending protocols; a time when financial institutions did not have 14,000 pages worth of supposed creditors.

To make matters more unclear, Celsius legal officials have also claimed that, as per Celsius’ terms of service, all user funds deposited in the platform essentially belong to Celsius. Thus, as a self-regarded de-facto owner of all customer deposits, Celsius’ public release of customer transaction data treads further into hazy legal territory as to the parameters that define ownership — and, therefore, privacy protections — in the on-chain space.

Whatever the case, Celsius’ customers have permanently lost their privacy. The only sure verdict is that there can be no certainty in depending on an unprepared legal system to uphold privacy rights in fluid and uncharted territory.

Celsius isn’t alone

Although dramatic, Celsius’ meltdown is only the most recent in a stint of CeFi industry bankruptcies. The platform’s billion-dollar deficit presented in bankruptcy filings has been much less the exception than the rule.

Once one of crypto’s dearest and most powerful CeFi platforms, Celsius’ rise and downfall serve as a painful reminder to crypto critics and advocates alike that a core team can become a singular point of failure at any time. And further, centralized KYC procedures always carry some risk of exposure in legal proceedings.

The predicament tens of thousands of innocent crypto investors now face points to a much broader principle: that privacy cannot be truly conferred nor absolutely protected within the confines of a centralized system. Even with the best intentions in mind, professionals on both sides of the court have little legal precedent to draw from as they navigate the novel and perplexing territory.

Related: Government crackdowns are coming unless crypto starts self-policing

As on-chain data analytics become more sophisticated, hackers more conniving and personal data ever more valuable to marketing agencies and authorities, privacy-conscious individuals must exercise the utmost prudence in determining which crypto platforms best align with and protect their interests.

After all, Google, Meta, and the rest of the Web2 platforms that the crypto community has since dismissed as exploitative and archaic are about as private as Celsius and its CeFi counterparts. Each provides privacy as a service. Meanwhile, its users’ search histories, account information and browsing preferences are private to almost everyone — except, of course, the platform itself. As Celsius’ bankruptcy proceedings have proven, even the most well-intended custodians are not a sufficient substitute for decentralized architecture.

The true promise of systems built on blockchain is that what they confer, be it asset ownership, scarce monetary units or permissionless contracts, cannot be regulated, erased or modified on a whim. Their constitutions are written in code. Any and all modifications are coordinated and executed by decentralized autonomous organizations ( DAOs). There is no trust between counterparties, only a shared belief in the permanence of principle and the wisdom of the collective.

In the same way, privacy has been a prerequisite for personal freedom and self-expression since time immemorial, decentralization is today a prerequisite for privacy online — and, to that end, on-chain.

Alex Shipp is the chief strategy officer at Offshift, where he contributes to platform tokenomics, produces content and conducts business development on behalf of the project. In addition to his industry role as an expert in private decentralized finance (PriFi), he has also served as a writer at the Elastos Foundation and as an elected ecosystem representative on the Cyber Republic DAO.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Russia Using Bitcoin to Bypass Sanctions – Is the Global Financial System Cracking?

Celsius Founder Alex Mashinsky Withdrew $10,000,000 Worth of Crypto Prior to Bankruptcy Filing: Report

Celsius Founder Alex Mashinsky Withdrew ,000,000 Worth of Crypto Prior to Bankruptcy Filing: Report

A Financial Times report claims Celsius Network founder Alex Mashinsky withdrew millions of dollars in digital assets from the platform weeks before the bankrupt crypto lender froze customer accounts as its position worsened. The report says Mashinsky withdrew $10 million worth of digital assets in May at a time when the crypto lender’s customers were […]

The post Celsius Founder Alex Mashinsky Withdrew $10,000,000 Worth of Crypto Prior to Bankruptcy Filing: Report appeared first on The Daily Hodl.

Russia Using Bitcoin to Bypass Sanctions – Is the Global Financial System Cracking?

Celsius founder reportedly withdrew $10M before bankruptcy filing: FT

The details of the withdrawal will reportedly be part of upcoming court filings, and it's possible the founder and former CEO of the crypto platform could be forced to pay it back.

Celsius Network founder and former CEO Alex Mashinsky allegedly withdrew $10 million from the crypto lending platform just weeks before the company froze customer funds and declared bankruptcy.

The withdrawal was cited by sources from the Financial Times who said Mashinsky withdrew the funds in “mid to late May” prior to the Jun. 12 pause on all withdraws.

Celsius was a popular crypto-lending platform with 1.7 million customers and $25 billion in assets under management but the prevailing poor crypto market conditions eventually led the company to a $2.85 billion gap in its balance sheet.

This led Celsius to pause customer withdraws in June before filing for chapter 11 bankruptcy in July with Mashinksy attempting to restructure and revive the company to be based around crypto custody services.

The withdrawal raises questions about whether Mashinsky knew ahead of time that the company would be freezing customer funds and withdrawals. 

However, a spokesperson for Celsius told FT that the founder withdrew cryptocurrency at the time to pay state and federal taxes.

“In the nine months leading up to that withdrawal, he consistently deposited cryptocurrency in amounts that totaled what he withdrew in May,” the spokesperson said, adding Mashinsky and his family still had $44 million worth of crypto frozen on the platform.

Meanwhile, sources told the FT the withdrawal was pre-planned in line with Mashinsky’s estate planning.

Roughly $8 million worth of assets withdrawn were used to pay income taxes arising from the yield the assets produced, and the remaining $2 million was made up of the platform's native token CEL.

Related: Learn from Celsius: Stop exchanges from taking your money

The questions will likely be answered when the transactions in question will be presented by Celsius in court in the next few days as part of disclosures by the crypto-lender regarding its finances.

There’s also a possibility Mashinsky could be forced to return the $10 million as in the 90 days leading up to a bankruptcy filing, payments by a company can be reversed to benefit creditors under United States laws.

Mashinsky resigned as CEO of Celsius on Sept. 27 saying his role “has become an increasing distraction” but said he would continue to focus on helping find a plan to return funds to creditors.

Russia Using Bitcoin to Bypass Sanctions – Is the Global Financial System Cracking?