The court-appointed inspector discovered numerous deliberate and unintentionalfaults with the insolvent digital currency lender, starting from its establishment.On January 31, Shoba Pillay, an examiner who was appointed by the court, handedin her conclusive report on some elements of the operations of the failed cryptocompany, Celsius. The assessment was ordered on September 29, and it is 470pages in length, not including the 31 extras added to it.Pillay, a past U.S prosecutor and an associate at Jenner & Block, examined theprocedure of safeguarding customer cryptocurrency at Celsius, the truthfulness of thecompany's public declarations, whether fresh deposits were appropriated to pay outcurrent customers, the condition of the business's mining activities and taxesconformity.
Pillay stated that, although Celsius publicly portrayed itself as a kind-heartedcompany, it operated in a very different way from how it was sold to its customers.Pillay discovered that right from the start, the Celsius ICO in March 2018 did notgenerate the projected $50 million, and only earned $32 million. Furthermore, theCelsius community was not informed of the unsuccessful result and founder AlexMashinsky did not purchase any of the unsold tokens as he had promised.Pillay's investigation also revealed that Celsius had not achieved the desired level ofcontrol over the value of the native CEL token. This was due in part to shortcomingsin the company's accounting practices. Celsius was not able to generate enoughrevenue from crypto asset investments to cover the costs of the CEL buybacks.Consequently, Celsius had to use customer-deposited Bitcoin (BTC) and Ether (ETH)to finance its CEL purchases.
At the start of 2021, due to the surge in value of Bitcoin and Ether as well ascustomers withdrawing their CEL tokens, Celsius stated the reason for utilizingcustomers' deposits to cover the deficit in its accounts was that it was not selling thedeposits, but rather using them as collateral when borrowing the required coins.Pillay remarked that the Celsius coin deployment expert referred to their practices as"very Ponzi-like" in internal discussions. Further, the interest rates awarded tocustomers were not linked to yields derived from customer's possessions, but wereinstead established to be higher than competitor's—without any policy in place untilJuly 2021.
From 2018 up to June 30, 2022, the company gave away over $1.36 billion more inrewards than the income gained from its customers' resources.When Terra's UST stablecoin crashed in May, Celsius was unable to keep CEL at itspredicted rate and needed to suspend withdrawals on June 13, although itmaintained its rewards program. At that stage in time, Celsius was engaging in somevery dubious activities. Pillay stated that between June 9 and June 12, Celsius wasusing new customer deposits to fulfill customer withdraw requests.
Celsius declared insolvency on 13th of July.
The inspection revealed that, on the whole, Celsius Mining was up to date on theirpayments, with a few overdue balances. The total amount of unpaid utility-relatedbills totaled $13,982,152. However, the mining hosts had received a total of$46,809,756 in advance payments that could be used to pay off Celsius Mining'sdebts.
In October, Celsius failed to repay its loan to Core Scientific, a third-party miningservice.
Pillay discovered that the tax situation was far from ideal. She found that there weremajor compliance issues with tax regulations. This could be explained by the fact thatbefore June 2021, Celsius had no personnel specializing in taxation, and nomeasures had been established to make sure their use or value-added taxes werepaid punctually.
Pillay commented on the disarray concerning the imposition of taxes on CelsiusMining's activities. Thus, it is estimated that the company might be liable to a tax billof up to $20 million in the states of Texas, Pennsylvania, and Georgia, where theyconduct mining activities. However, this figure might be lowered retroactively throughthe use of tax exemptions.
Celsius Network, based in the UK, has set aside $3.7 million in order to cover anyValue-Added Tax (VAT) that they may incur.Pillay stated that the troubles Celsius encountered with regards to their taxes were aresult of an absence of systems, communication and experience, saying that noevidence was found that implied Celsius or any of their businesses had deliberatelynot paid the taxes they owed.