Collapse of Celsius Network | Long-standing cracks at the Caisse partner

Celsius Network was already experiencing misfires before it received around 200 million from the Caisse de depot et placement du Quebec (CDPQ), recent court documents reveal. This comes on top of recent testimonies from ex-employees pointing to significant internal failings within the controversial cryptobank.

Julien Arsenault
The Press

In particular, the company found itself in a rather delicate situation in the summer of 2021. A partner from whom it had borrowed a large sum of money on the condition of providing a guarantee in crypto-assets suddenly declared himself unable to give it back this guarantee.

The result ? Celsius Network has become an unsecured creditor of the unnamed lender for more than half a billion US dollars.

This information is among the many documents filed with New York courts since the company filed for bankruptcy protection on July 13 due to a liquidity crisis.

For Montreal lawyer Adam Atlas, whose firm offers advice on cryptocurrency issues in Canada and the United States, this type of pitfall is a form of “red flag” that could have alerted the plan manager. pension and public and parapublic insurance.

“It’s problematic in my opinion,” he said, in an interview with The Press. It’s like seeing the crack forming in the cryptocurrency market with a lender unable to return what was placed as collateral. »

On its own, this event was not enough to encourage the CDPQ to change its tune, but it testified to the risks of this sector, adds Mr.^e Atlas.

A little over nine months after presenting Celsius Network as a “world-class” company, Quebeckers acknowledged last July 20 that their investment had not generated the “expected results”.

However, it will take patience to find out more. The institution promises to say more, but “at the appropriate time”, when the legal process that its partner is going through will be more advanced.

The Caisse ensures that each transaction is subject to a “rigorous process” of analysis. In the case of Celsius Network, it has yet to elaborate on how its due diligence prompted it to invest millions in a cryptobank that collapsed due to the cryptocurrency plunge in recent months.

Multiple problems

According to many ex-employees, Celsius Network’s problems are not recent. Several told CNBC that management has been problematic for years. Former chief compliance officer Timothy Cradle even testified openly, saying risk management was the “biggest problem” at the cryptobank.

“The compliance team was too small,” he told the USA Network. They didn’t want to spend on compliance. »

The Press tried, without success, to contact Mr. Cradle and the CDPQ did not comment on the latter’s assertions.

Mr Cradle also said he was particularly troubled by conversations during a Christmas party in 2019. Senior executives at the company allegedly allegedly manipulated the price of its own virtual currency (CEL) – the tool used by Celsius Network to remunerate users who deposit their cryptoassets.

This is the second time in weeks that such allegations have surfaced. As recently as July 7, a former cryptobank partner accused her, in a lawsuit filed in the United States, of manipulation of cryptoassets, an illegal practice.

“It’s worrying,” says 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, these belong to the cryptobank, according to its policy. According to Mr. Cradle, this goes against the messages that were conveyed by Celsius Network.