By Amy Beaver and David Gerard
“Fraudsters don’t play on moral weakness, greed or fear; they play on the weaknesses of the system of checks and balances, the audit processes that are supposed to complete an overall environment of trust. – Dan Davies, Lying for Money
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Krissy and Alex Mashinsky
Crypto is a cooling market. The desperation is still there – but the cash from other retail suckers to fuel the desperation is gone.
(No, we also don’t know why bitcoin is stuck around $19,000. We’re guessing the margin call levels are such that manipulating the price higher is cheaper than taking the hit…but that is just a guess.)
The ongoing liquidity crunch in the real-world economy will lead to the exposure of more crypto-Ponzi schemes. Crypto executives are already jumping ship as fast as they can.
As more Ponzi schemes are exposed, expect more crypto traders to disappear. We’re a little surprised that Celsius’ Alex Mashinsky hasn’t already disappeared.
The future of crypto reporting will be bankruptcies, indictments, criminal trials, and regulations. We’ll be right here saying “YES! Hahaha yes!”
Celsius Network: oops, you doxxed me bro
Celsius needs to be liquidated, and the sooner the better. There’s no viable business here, the money is gone, and letting what’s left flow to company insiders and bankruptcy professionals does nothing to find more money for creditors.
Newly appointed reviewer Shoba Pillay is expected to lift the veil. We expect any serious third-party report on Celsius to be infuriating.
An October 7 hearing concerned the Celsius filings. (We explained the four types of Celsius clients in a previous update.) The court will hold a two-part custodial account trial on Dec. 7 and 8.
Judge Martin Glenn ordered Pillay to produce an interim report on Celsius’ financial management and handling of customer accounts. This should be out next month. [CoinDesk]
The report will influence court decisions on custody accounts and preference claims. A preferential claim, also known as a “recovery”, is brought by the trustee in bankruptcy against paid creditors within a certain period of time before filing for bankruptcy. The deadline is 90 days for creditors and 1 year for insiders.
If you received money as a customer of Celsius within 90 days of filing Chapter 11, that means you — bankruptcy law says the court and the public must know who you are. We covered this in our last update.
Thus, Celsius published its tables of assets and liabilities and its financial statements (SOFA) for each of its eight companies. The schedules contain the names and transactions of every Celsius user on the platform, dating back 90 days. One of the documents is 14,000 pages. [List of schedules]
The crypto world was outraged! Celsius was “doxxing” its customers, and several on Twitter called it a “leak” of information. Bitcoin Magazine’s Namcios suggested that “laws should prohibit the court from asking this in the first place.” [Twitter, archive; Twitter, archive; Twitter, archive]
Crypto wants the benefits of the laws, but not the responsibilities.
Celsius and the UCC wanted to release this data anonymously, but Judge Glenn made it clear that he was not going to rewrite the bankruptcy law for crypto. He agreed to remove customers’ home addresses and email addresses, but the names were to remain public. [Claims process FAQ]
Public data has already been scrutinized, for things like crypto influencers telling Celsius users to just trust the company and stick with it, while withdrawing their own funds. [Twitter]
Take care of the team
Celsius’ asset and liability timeline reveals that company executives withdrew at least $17 million worth of crypto from the platform before it filed for bankruptcy in July.
Mashinsky withdrew around $10 million worth of crypto in May. Celsius co-founder Daniel Leon withdrew about $7 million (and an additional $4 million from CEL designated as “collateral”) between May 17 and May 31. [Coindesk; FT]
At the same time, Mashinsky profusely assured clients that their funds were safe. The state of Vermont believes the company had been insolvent since 2019. [Twitter, archive; Decrypt]
We noted the last time Mashinsky stepped down as CEO. Leon also resigned. [Coindesk]
Celsius also said it paid former CFO Yaron Shalem more than $200,000 from December 2021 to March 2022. Shalem was fired from Celsius in November 2021, when he was one of 10 people detained by the Israeli authorities in connection with alleged fraud at other crypto companies. [Twitter]
Coffeezilla shows how Mashinsky’s wife, Krissy, withdrew $2.7 million worth of crypto from the platform in May. [Twitter]
Mashinsky: Trust me
The Celsius UCC held a meeting on Twitter spaces just after the Oct. 7 hearing, where White & Case attorney Greg Pesche answered questions from creditors. [YouTube]
Mashinsky joined an unofficial Twitter Spaces meeting on Oct. 5 to discuss how easy it should be to remove Celsius from Chapter 11. Mashinsky’s stock in trade has always been implausible new money-making schemes. “Returning coins plus mining is enough to be profitable and return all assets to all users, and for that you don’t need any license. Nothing.” [YouTube]
Why are creditors even giving their time to this guy? Only because they really, really, really want to believe that they will get their money back.
Celsius’s next “341” creditors’ meeting will be October 13 at 10:00 a.m. ET.
Dirty Bubble notes that Celsius also got rid of tens of millions of dollars in restitution from Badger DAO after the DAO was mined in December 2021. [Twitter; Medium post]
Capital of the Three Arrows
Teneo, the business advisory firm responsible for the liquidation of Three Arrow Capital (3AC), now owns the vast NFT collection held by Starry Night Capital, a fund created by 3AC and the pseudonym Vincent Van Dough. [Twitter] Teneo managed to convince Van Dough to fully cooperate with them. [Teneo letter, PDF; Decrypt]
Here is Van Dough proudly announcing his partnership with the founders of 3AC in August 2021. [Twitter, archive]
Most of the collection – 464 NFTs so far! – has already been moved to a new wallet on OpenSea. There’s plenty of jewelry to see here, including a huge assortment of Rare Pepes. Although we are a little disappointed not to see our friend CryptoDickButt #1462 there. [OpenSea wallet]
Starry Night has spent at least $35 million worth of crypto on NFTs, as NFTs are clearly a brilliant investment for a top crypto hedge fund! Teneo plans to sell the assets to recover money for 3AC’s creditors. It’s a shame that the NFT market has completely collapsed and died, as Amy recently noted in Artnet. [Dune Analytics]
Teneo has set up a website with liquidation updates. It’s still unclear where 3AC founders Su Zhu and Kyle Davies went. [3acliquidation.com]
South Korea clip Do Kwon’s wings. His passport has been revoked, which is expected to hamper his ability to travel, although he insists he is not on the run. It is with South Korea which has already issued an Interpol Red Notice for Kwon. [Notice, Korean; Techcrunch]
Kwon says South Korea didn’t freeze his cryptos. [Twitter]
Prosecutors have also sought an arrest warrant for Yoo Mo, the chief business officer of Terraform Labs, who allegedly used robots to wash trade and manipulate crypto prices, in violation of capital market law. . The warrant was denied, but the prosecutor’s office is considering reapplying. [JTBC, in Korean; Yonhap News, in Korean; The Block]
Wave Financial was one of the companies that bid on Voyager’s assets but lost to FTX US, which we had always picked to win the auction. We don’t even know what the point of the two-week blind auction was. Customer lists?
Voyager Digital is pissed off by Wave Financial’s interview with CoinTelegraph. In the Sept. 28 article, Wave said better deals were on the table, but “were passed over for strictly cash offers.” [CoinTelegraph]
Voyager filed a lengthy response with the court, claiming that Wave never made a qualified bid: [Filing, PDF]
If better offers were available, Voyager would have accepted them. Wave’s misrepresentations appear to be a publicity stunt in an attempt to regain credibility lost in the market due to its poor auction performance.
We think Voyager protests too much.
Voyager’s next omnibus meeting will be on October 19.
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Celsius Reveals Its List Of Creditors, 3AC NFTs, Terra-Luna, Voyager – Attack Of The 50 Foot Blockchain Tech Tribune France
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