Celsius, large crypto firm with Israel ties, files for US bankrupcy

With dozens of Israel-based employees and a former Israeli CFO who is now a suspect in a fraud case, Celsius Networks’ says it has $167 million in cash to support restructure

Celsius CEO Alex Mashinsky in an image from the company's website. (Screenshot)
Celsius CEO Alex Mashinsky in an image from the company's website. (Screenshot)

A month after Celsius Network, a cryptocurrency lending platform with millions of users and ties and offices in Israel, suspended all withdrawals in a move that sent a chill across the digital currency industry, the company has filed for bankruptcy.

In its statement late Wednesday, Celsius, which suspended all withdrawals and transfers between accounts in mid-June, said it was seeking to restructure in a way that would maximize value for all stakeholders, and said it had $167 million of cash available to meet urgent needs in the meantime.

Without the freeze on withdrawals, “the acceleration … would have allowed certain customers — those who were first to act — to be paid in full while leaving others behind to wait,” the special committee of the Celsius board of directors was quoted in the statement as saying.

In the United States, Chapter 11 allows a company that is unable to pay its debts to restructure away from its creditors, while continuing its current operations.

“This is the right decision for our community and company,” said Alex Mashinsky, co-founder and CEO of Celsius.

Before suspending withdrawals, Celsius Network offered interest rates of over 18 percent for savers, but 0.1 percent for borrowers. It previously reported $10 billion in assets.

Yaron Shalem, former vice president at the venture capital firm Singulariteam, and ex-CFO of Celsius Network (Linkedin)

The company was one of the largest players in the sector. It reported having 1.7 million customers in June.

Celsius, founded in 2017, employs over 100 people in Israel. It operates as a kind of crypto bank that allows clients to deposit cryptocurrency and borrow either cryptocurrency or US dollars. In exchange for customers’ deposits, the company pays out extremely generous yields, upwards of 19% on some accounts. Celsius takes those deposits and lends them out to generate a return.

Lending platforms such as Celsius have come under scrutiny recently because they offer yields that normal markets could not support, and critics have called them effectively Ponzi schemes.

In November the former CFO of Celsius Network, Yaron Shalem, was arrested along with nine others involved in the crypto business on suspicion of involvement in an alleged crypto scam that defrauded victims worldwide of huge sums of money. C

Celsius said following Shalem’s arrest that his alleged actions were unrelated to his period with the firm; it said he was suspended when Celsius learned that he was being investigated and was no longer employed by the company.

Celsius’s crisis was the latest high-profile collapse of a pillar of the cryptocurrency industry. These meltdowns have erased tens of billions of dollars of investors’ assets and spurred urgent calls to regulate the freewheeling industry.

Last week, cryptocurrency lending specialist Voyager Digital also filed for bankruptcy.

Other companies have suspended withdrawals, such as CoinFlex and Babel Finance, due to a lack of cash.

Singaporean investment firm Three Arrows Capital is in liquidation.

Such companies were attempting to muscle in on banks by lending money and earning interest on deposits, but they are suffering from the sharp decline in cryptocurrencies in a market that is not keen on risky bets.

In early May, the stablecoin Terra imploded, erasing tens of billions of dollars in a matter of hours. Stablecoins had been seen as relatively safe, because they’re supposed to be backed by hard assets, such as a currency or gold.

Just like Terra, Celsius had sold itself as a safe place for cryptocurrency holders to deposit their funds. Even while Celsius was failing, the company’s website advertised that users can “access your coins whenever, keep them safe forever.”

The move to freeze withdrawals surprised investors and depositors. In online chats, they questioned why their investments weren’t protected.

Celsius’s investors include Quebec’s pension fund and the prominent venture capital fund WestCap.

The collapse of crypto operations has spurred calls for reform from the industry, and calls for US Congressional regulation.

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