Homeless, suicidal, down to last $1,000: Celsius investors beg bankruptcy judge for help

https://www.cnbc.com/2022/08/02/celsius-investors-owed-4point7-billion-
beg-judge-to-recover-life-savings.html

Celsius Network, once a titan of the crypto lending world, is in 
bankruptcy proceedings and facing down claims that it was running a Ponzi 
scheme by paying early depositors with the money it got from new users. 
Some of the 1.7 million customers ensnared by the alleged fraud are now 
directly pleading with the Southern District of New York to help them get 
their money back.

Christian Ostheimer, a 37-year-old living in Connecticut, wrote in a 
letter included in court exhibits that he trusted Celsius with his 
retirement savings and has lost more than $30,000, which has brought him 
into “unsurmountable tax complications.”

“It is in your hands, honorable judge to make this a different case were 
not the lawyers, the attorneys, the big corporations and managers get paid 
out first but the little man, the mom and pop, the college grad, the 
granny and grandpa — all those many small unsecured creditors — so that 
they are not like usual at the end of the chain where they lose 
everything,” wrote Ostheimer.

The question of who gets repaid first — should that day ever come — looms 
heavy over the bankruptcy proceedings.

At its peak in October 2021, CEO Alex Mashinsky said the crypto lender had 
$25 billion in assets under management. Now, Celsius is down to $167 
million “in cash on hand,” which it says will provide “ample liquidity” to 
support operations during the restructuring process. Celsius owes its 
users around $4.7 billion, according to its bankruptcy filing.

That filing also shows that Celsius has more than 100,000 creditors, some 
of whom lent the platform cash without any collateral to back up the 
arrangement. The list of its top 50 unsecured creditors includes Sam 
Bankman-Fried’s trading firm Alameda Research, as well as an investment 
firm based in the Cayman Islands. Those creditors are likely first in line 
to get their money back, leaving smaller retail investors holding the bag.

Unlike the traditional banking system, which typically insures customer 
deposits, there aren’t formal consumer protections in place to safeguard 
user funds when things go wrong. 

Celsius spells out in its terms and conditions that any digital asset 
transferred to the platform constitutes a loan from the user to Celsius. 
Because there was no collateral put up by Celsius, customer funds were 
essentially just unsecured loans to the platform.

Also in the fine print of Celsius’ terms and conditions is a warning that 
in the event of bankruptcy, “any Eligible Digital Assets used in the Earn 
Service or as collateral under the Borrow Service may not be recoverable” 
and that customers “may not have any legal remedies or rights in 
connection with Celsius’ obligations.” The disclosure reads like an 
attempt at blanket immunity from legal wrongdoing, should things ever go 
south.

On July 19, Celsius published a document detailing next steps for 
customers. In it, the platform said its Chapter 11 bankruptcy plan will 
“provide customers with the option, at the customers’ election, to recover 
either cash at a discount or remain ‘long’ crypto,” but it is unclear 
whether customers will ever see their money again.

The entire process lays bare just how much of crypto regulation in the 
U.S. happens by enforcement.

The Securities and Exchange Commission has effectively become one of the 
industry’s top regulators in the country, including by weeding out Ponzi 
and pyramid schemes, and it appears that some precedent will be set in 
U.S. bankruptcy courts in coming months as lawmakers deliberate over 
formal legislation on Capitol Hill.

Pleas from investors
In the hundreds of letters officially submitted to the court, retail 
investors beg to be put at the front of the line to get their money back.

Flori Ohm, a single mother of two college-bound daughters, said her family 
has been “severely impacted both in financial and mental health” by the 
bankruptcy, which has left her funds stranded on the platform. Ohm, who 
also supports her parents, said she can’t sleep or focus on work.

“I am struggling hard [to make a] living,” she wrote.

Jeanne Y Savelle, who described herself as a “little retired old lady” 
living on a fixed income, said she turned to Celsius in search of a way to 
supplement her monthly Social Security check to stretch her dollar amid 
record levels of inflation.

“I purchased my small amount of crypto hoping just to earn enough to help 
me weather a few years, kind of a safety net,” said Savelle. “Yes, I know, 
buyer beware but I agree that there has been way too much deception.”

Others have lost everything.

California resident Stephen Bralver said he has less than $1,000 left in 
his Wells Fargo checking account — now his only source of funds to provide 
for his family since Celsius suspended all withdrawals.

“There is absolutely no way that I can continue to provide without access 
to my assets at Celsius,” he wrote to Judge Martin Glenn, who is 
overseeing the Celsius bankruptcy proceedings in New York.

“This is an EMERGENCY situation, simply to keep a roof over my family and 
food on their table,” Bralver wrote.

Sean Moran of Dublin wrote that he lost the family farm in Ireland and his 
family is homeless.

“Can’t believe that they lied to us on the weekly AMA [ask-me-anything 
events] about not trusting banks whilst all along they we’re wolfs in 
sheep clothing false promises and misleading information,” Moran wrote. 
“I’m mentally unstable. Family are distraught with my decisions of 
trusting Celsius and promising them a better future.”

Beyond the financial devastation described in each of these letters, one 
recurring theme centers around a sense of betrayal over the breach of 
trust between Celsius CEO Alex Mashinsky and his customers.

Three weeks after Celsius halted all withdrawals due to “extreme market 
conditions” — and a few days before the crypto lender ultimately filed for 
bankruptcy protection — the platform was still advertising in big bold 
text on its website annual returns of nearly 19%, which paid out weekly.

“Transfer your crypto to Celsius and you could be earning up to 18.63% APY 
in minutes,” the website read July 3.

Ralphael DiCicco, who disclosed holdings of roughly $15,557 in crypto 
assets on Celsius, said he was fooled by the marketing.

“I believed in all the commercials, social media and advertising that 
showed Celsius was a high yield, low risk savings account. We were ensured 
that our funds are safer at Celsius than in a bank,” wrote DiCicco.

“This money is pretty much my life savings ... I hope you can find it the 
best interest of all parties involved to pay back the smaller investors 
first ... before any restructuring occurs,” DiCicco continued.

Travis Rodgers of Phoenix said that he was told on numerous phone calls to 
Celsius Network, as recently as two days before it locked depositors’ 
accounts, that there was no danger to client assets and zero probability 
of bankruptcy. Rodgers said he recorded several of those calls. He said 
his Celsius holdings total $40,000 across 11 cryptocurrencies.

The weekly ask-me-anything events hosted by Mashinsky on YouTube were 
mentioned in multiple letters, including one sent in by Stephen 
Richardson, who itemized the many ways in which he feels Mashinsky 
deceived the public in order to lure new customers into the scheme.

Richardson said he watched every single Friday AMA since signing up.

“Alex would talk about how Celsius is safer than banks because they 
supposedly don’t rehypothecate and use fractional reserve lending like the 
banks do,” wrote Richardson. “I currently have six figures worth of crypto 
locked in my Celsius account unable to be withdrawn, despite Alex’s claims 
mere hours before withdrawals were closed that nobody has any issue 
withdrawing from Celsius and that everything you hear to the contrary is 
simply ‘fud’ [fear, uncertainty and doubt].”

Some said they have even contemplated suicide if they can’t retrieve their 
funds.

Katie Davis of Australia pleaded with the judge for the return of the 
$138,000 she and her husband have stranded on the Celsius platform.

“The thought of losing that amount of money is horrifying,” Davis wrote.

“If I do not get that back, I will end my life as the loss will impact my 
family and I significantly,” she wrote.

Mashinsky did not immediately respond to CNBC’s request for comment.


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