Celsius Network was already misfiring before it received around 200 million from the Caisse de depot et placement du Quebec (CDPQ), recent court documents show. This comes on top of recent testimonies from former employees pointing to significant internal flaws within the controversial crypto bank.
Posted at 5:00 am
Julien Arsenault The press
In the summer of 2021 in particular, the company found itself in a rather delicate situation. A partner from whom it had borrowed a large amount of money on the condition of a guarantee in crypto assets suddenly declared itself unable to return this guarantee.
The result ? Celsius Network has become an unsecured creditor to the unnamed lender for more than half a billion dollars.
This information is among many documents filed with New York courts since the company filed for bankruptcy protection on July 13 due to a liquidity crisis.
For Montreal attorney Adam Atlas, whose firm provides advice on cryptocurrency issues in Canada and the United States, this type of pitfall is a kind of “red flag” that could have alerted the plan manager.
“In my opinion, that’s problematic,” he said in an interview with La Presse. It’s like the rift forming in the cryptocurrency market when a lender is unable to return what has been pledged as collateral. »
This event alone was not enough to make the CDPQ change its mind, but it was a testament to the risks in this sector, adds Me Atlas.
A little over nine months after Celsius Network was presented as a “world-class” company, Quebeckers admitted on July 20 that their investment had not produced the “expected results.”
Finding out more, however, requires patience. The institution promises to say more, but “in due course” when the court case her partner is undergoing will be more advanced.
The Caisse ensures that every transaction is subject to a “rigorous analysis process”. In the case of Celsius Network, it needs further elaboration on how its due diligence led to investing millions in a crypto bank that has collapsed due to the cryptocurrency crash in recent months.
Multiple problems
According to many former employees, Celsius Network’s problems are not new. Several told CNBC that management had been problematic for years. Former Chief Compliance Officer Timothy Cradle even testified candidly, saying risk management is the crypto bank’s “biggest problem.”
“The compliance team was too small,” he told the USA Network. They didn’t want to spend on compliance. »
La Presse tried unsuccessfully to contact Mr Cradle and the CDPQ did not comment on his claims.
Mr Cradle also said he was particularly troubled by talks during a Christmas party in 2019. Company executives are said to have manipulated the price of its own virtual currency (CEL) – the tool used by Celsius Network to reward users depositing their crypto assets.
This is the second time in weeks that such allegations have surfaced. As recently as July 7, a former crypto bank partner accused it of illegally manipulating crypto assets in a lawsuit filed in the United States.
“This is worrying,” says Saidatou Dicko, professor of accounting at UQAM and specialist in governance.
The question is what information the CDPQ had access to when making the investment. Had she asked for as much information as possible? Has Celsius hidden things?
Saidatou Dicko, professor of accounting at UQAM and specialist in governance
Mr Cradle also felt that depositors “probably did not have a thorough knowledge” of the many terms of use. When a user deposits funds, they belong to the crypto bank according to their policy. According to Mr. Cradle, this contradicts the messages conveyed by Celsius Network.
CDPQ’s investment in Celsius Network
October 12, 2021 La Caisse is participating with the WestCap fund in a $400 million investment in Celsius Network.
12th of June Faced with a liquidity crisis, Celsius Network freezes withdrawals from its customers.
7th of July The company is being sued by an ex-partner. He accuses him of building a Ponzi scheme and manipulating crypto assets.
July 13th Celsius Network files for US bankruptcy protection.
Learn more
$1.9 billion This is the hole in Celsius Network’s finances when it filed for bankruptcy on July 13.
Source: Celsius Network