By injecting 200 million into Celsius Network, the Caisse de depot et placement du Québec (CDPQ) bet on a model that resembled a Ponzi scam, suggests an American government agency in a damning report on this cryptobank still in the tormented.
Posted at 2:48 p.m.
Written by Vermont’s financial regulatory agency, the document, filed Wednesday in a New York bankruptcy court, also points out that Celsius Network was approaching insolvency as early as 2019. It raises new questions about the due diligence carried out by the Caisse before making its investment, in the fall of 2021.
Lawyer Ethan McLaughlin writes in particular that the company admitted to Vermont investigators that the cryptobank had “never generated enough income to support the returns paid to investors”.
“This demonstrates a high level of mismanagement and also suggests that at least at times returns were likely paid with the assets of new depositors,” its report read.
The expression “Ponzi scheme” is not used by the lawyer, but his observations correspond exactly to his definition, underlines Saidatou Dicko, professor in the department of accounting sciences at ESG UQAM and specialist in governance.
Revenues were not sufficient to generate sufficient profits to pay returns, she says. It’s a trap for investors.
Saidatou Dicko, professor in the department of accounting sciences at ESG UQAM
A Ponzi scheme consists of using the money inflows from new investors to pay false returns to other investors or reimburse those who want their money back.
Celsius Network, like other cryptobanks, pooled cryptocurrency deposits. It offered loans and interest, which could sometimes reach 17%, to depositors. This is much higher than what traditional banks offer.
Asked by The Press, Wednesday, the Quebec manager of public and parapublic pension and insurance plans declined to comment on the content of the report. The document does not specify whether the 200 million from the CDPQ was used to pay returns to the depositors of Celsius Network.
This is not the first time the cryptobank has been linked to a Ponzi scheme. A former partner had made an accusation to this effect last July in a lawsuit filed against the company. The accusation, however, was not as documented as the finding of the Vermont financial regulatory agency.
Several criticisms
The government agency is not kind to Celsius Network, which turned to US bankruptcy law on July 13, a month after freezing withdrawals from 1.7 million depositors due to of a liquidity crisis.
“Through its CEO Alex Mashinsky, Celsius has made misleading statements to investors about the company’s financial health and its compliance with securities law. This likely prompted individuals to invest in Celsius. »
The document points out that if one excludes the value of Celsius Network’s cryptocurrency – the CEL token – its liabilities would have been higher as of February 28, 2019. According to Chief Financial Officer Chris Ferraro, the cryptobank was on track to become insolvent as soon as 2020. Vermont alleges that the company also manipulated the price of its virtual currency.
This contrasts with the public version of Celsius Network, which attributed its collapse to the plunge in cryptocurrencies that began since the beginning of the year.
“Celsius and its management hid from investors its massive losses, its asset shortfall and its deteriorating financial situation,” Ms.e McLaughlin.
On more than one occasion since the beginning of the year, Vermont had warned its citizens about the risks surrounding Celsius Network. The US state is asking the bankruptcy court to appoint an auditor with “extensive powers” to investigate the company.
Unanswered questions
By making his mea culpa during the presentation of the CDPQ’s half-year results on August 17, the president and chief executive officer, Charles Emond, had defended the verifications carried out with Celsius Network.
The manager had claimed that the services of “first class” firms had been retained.
PHOTO MARCO CAMPANOZZI, PRESS ARCHIVES
Charles Emond, President and CEO of the Caisse de depot et placement du Québec
“There were no shortcuts, on the contrary,” said Mr. Emond. The team exercised caution. The verifications were exhaustive with the participation of several experts and consultants. »
Hard to believe there weren’t red lights, says Mme Dicko.
“A company that does not generate enough income and profits, but which pays returns, it seems to me that we should have seen that in the finances, explains the expert. The question is whether the CDPQ consulted all the documents before investing. »
The Vermont report also reveals that 40 states are currently investigating Celsius’ business practices.
Learn more
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- 3 billions
- Value attributed to Celsius Network when the CDPQ invested in it.
Source: Caisse de depot et placement du Québec