ceo of celsius alex mashinsky

Former employees of the now bankrupted crypto lending protocol known as the Celsius Network have shed some more light on the firm’s practices, some of which are deeply troubling and may lead to fines and penalties under the prevailing financial regulatory framework in the United States and overseas.

In an exclusive interview with CNBC, the former head of Celsius’s financial crimes compliance department revealed that his department was quite small and was considered a mere “cost center” for the company due to its inability to bring on revenue.

According to Timothy Cradle, the former director of the unit, poor risk management was “the biggest issue” for Celsius as the company didn’t really want to spend money on compliance despite Cradle’s role being to ensure that the business operated within the boundaries of international finance laws.

Cradle stated that Celsius engaged in various high-risk practices such as lending money to hedge funds that were willing to pay above-average interest rates and investing in risky crypto projects.

This may explain why the protocol went under water during the crypto winter and especially after the implosion of the Terra ecosystem and its native tokens LUNA and UST as not just Celsius but also its high-profile borrowers were been exposed to these assets.

Poor Risk Management at Celsius Leads to $1.2 Billion Balance Sheet Hole

According to a document filed with the US Bankruptcy Court of the Southern District of New York, Celsius’s balance sheet had a $1.19 billion deficit as its liabilities surpassed its assets due to the severe decline that the value of cryptocurrencies experienced throughout the year.

In this same document, Celsius disclosed that it extended two loans to Three Arrows Capital for $75 million. After 3AC failed to meet the platform’s margin call, Celsius liquidated its assets and reduced its exposure to just $40.6 million or around 54% of the loan, which reflects how poorly the firm managed its risk when providing financing to third parties.

In addition to these comments concerning Celsius’s inability to implement proper risk management protocols, Cradle highlighted that the firm’s practices concerning how it dealt with the network’s native token CEL were also questionable.

In this regard, the ex-head of compliance told the media outlet that executives at the firm were very vocal about how they intentionally manipulated the price of the crypto asset to later on dump it on unwary investors.

“They weren’t shy about it. They were absolutely trading the token to manipulate the price”, Cradle stated.

Another former employee of the firm whose identity was concealed at his request told CNBC confirmed Cradle’s comments as he stated that, due to its low trading volumes, the cryptocurrency was “easy to manipulate”.

This other ex-employee went on to accuse the Chief Executive Officer of the platform, Alex Mashinsky, for using his social media account and other similar channels to make comments about CEL that pushed the price of the token higher to then sell it behind the curtains without disclosing any of those transactions to the public.

Mashinsky Misled Investors on Record About the Company’s Financial Health

Asked about whether funds were safe at Celsius or not, Mashinsky told James Altucher, the host of the InvestAnswer podcast on YouTube, that they had negligible exposure to the collapse of Terra while he also stated that Celsius did not invest directly in crypto projects or assets.

In regards to accusations that he was selling CEL back then, the CEO of the company denied these claims and said that he just used the asset to pay some vendors and had no idea if they sold them afterwards while stating that he owned around 90% of the CEL tokens that he has received in compensation for providing his services to the firm.

Back then, Mashinsky stated that the firm had survived five different 50%+ drawdowns in the crypto market but for some reason this instance was different and that may have some relation with the firm’s exposure to several demised crypto projects and poor risk management.

On repeated occasions, Mashinsky referred to rumors and allegations that the company was insolvent and that users were struggling to withdraw money as FUD (fear, uncertainty, and doubt) and accused its competitors of spreading these rumors to prompt users to leave the platform.

This interview was published on 1 June, only 11 days before Celsius paused all withdrawals and transfers within its platform citing “extreme market conditions”.

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