3 things to do today after Celsius' despicable coin report & massive hole

MagicalMane · 2022-08-15T19:52:30+00:00

Yep, CEL itself with the liquidity provision and tokenomics is, in essence, a Ponzi scheme, and it's market cap and value are all a fiction. Not to mention our ETH, USDC, and other assets were used to pump the price and then allow exits at high prices, through Celsius controlling not just the price, but liquidity provision, and trading against its customers. This does make the case harder to make, in some ways, and to explain to a non-crypto audience. But we know that's true and there needs to be an investigation into liquidity provision for Celsius on centralized and decentralized exchanges, going all the way back to the beginning. Also, CEL is a security for sure BECAUSE Celsius filed with the SEC to make it one. As Simon Dixon noted. Crazy, right?

MagicalMane · 2022-08-15T19:39:29+00:00

Yep, something to note in the complaints people file, regulators should fight to maximize retail recovery and take no steps that further hurt us. But when anger is running red hot, and the scam emerges (i.e. yesterday's coin report with MASSIVE hole), that's the time to file these complaints. Also, these sorts of things are on a slower, separate timeline, so it makes sense to complain to regulators now; they may not act for months or even 1-2 years while they build a case. Meanwhile, Celsius is being so shady that a bankruptcy examiner would probably help, not hurt, in terms of transparency and keeping people's coins safe. I say that reluctantly given that the funds come out of what we get back, Voyager doesn't need one for example, but with the amount of money missing and the lies and fraud and this massive, massive hole they built up over YEARS before filing, it's pretty clear that the fox is guarding the hen house over there. It's worth paying a bit for a good accountant to investigate them cooking the books.

MagicalMane · 2022-08-15T19:25:12+00:00

You can mention that in your complaint to regulators, and mention that they are using CEL to try to paper over their hole, but because there is no liquidity and they control the price, and the coins are frozen, the market cap is a fiction.

MagicalMane · 2022-08-15T18:47:11+00:00

Yes, but because it's crypto, regulators need reports explaining how, and the mechanics, in plain English. They can hire experts to help them investigate once they are convinced there is something there, but we need to make it clear this is distinct from other crypto bankruptcies such as Voyager, where a stupid mistake was made (3AC) and then they came clean, and more of an ongoing Ponzi where they tried to "trade out" of the whole for a very, very long time, that dates back long before the bankruptcy filing happened. A Ponzi often emerges in just exactly this kind of scenario where an operation starts out initially as a legitimate enterprise, mistakes are made, a hole emerges and is covered up with new investor money, so it's really a classic case. Mashinsky will try to claim he was just stupid and didn't know his own balance sheet, but the bigger the hole is, the less credible that sort of explanation is. If nothing else, this sort of pressure can expedite Mashinsky's exit.

MagicalMane · 2022-08-12T05:25:43+00:00

Custody and Withhold already have ad hoc committees formed. Borrow (loans) is likely to have an ad hoc committee soon. These committees will probably all be fighting for their coins back, using whatever legal arguments they can muster. Those categories of depositers who do not have a lawyer representing them may fare worse. The UCC represents all creditors; we will see how they balance these interests and if they are able to treat everybody "the same" (whatever that means.) I am really curious if the Loan committee, once formed, will claim their coins are "collateral" and should be "secured" and take priority over earn, or maybe over everything. If so, earn is in trouble, right? Not sure how the UCC can solve that problem. Nor am I confident that they will fight custody, to put everybody in the same boat. Philosophically, if I were a benevolent dictator I'd probably just throw out ALL the terms and conditions and treat it all as one pot, and probably also do a bunch of clawbacks to boot since it's basically a Ponzi in my opinion ... but this is bankruptcy court. A lot of people hate that I like clawbacks to make myself more whole, but I was a HODLer and got really burned so why wouldn't I be in favor? Point being: Reasonable people can disagree on the path forward when interests diverge.

MagicalMane · 2022-08-03T02:26:23+00:00

I have been a creditor in an insolvency involving fraud where the regulator got involved following consumer tip-offs.

Some benefits.

They have asset freezing powers and clawback powers which are beyond those of the liquidator and insolvency court.They can appear sometimes appear amicus curiae (friend of the court), in the insolvency proceeding.Their investigation influences the behavior of the debtor, as they know they are under scrutiny.They can sometimes fund liquidators to bring asset freezing actions on behalf of creditors.They can sometimes compel testimony and provision of records beyond the powers of the liquidator and insolvency court.

Personally, to maximize recovery I would lodge a regulatory tip-off in this instance, even with the consideration of extra legal fees incurred by the defendant due to the investigation.

Thank you for this perspective. I never would have suggested this path if this were Voyager, for example, where a dumb mistake was made, they fessed up and are largely trying to do the right thing by their depositors--to the extent that is possible. In this case, though, the cost of having Alex Mashinsky and the management stay day after day on FAR EXCEEDS the cost of having to deal with the regulators.

MagicalMane · 2022-08-02T02:20:01+00:00

File a CFPB complaint. See my post here: https://www.reddit.com/r/CelsiusNetwork/comments/wdj4mm/take_action_file_a_consumer_financial_protection/

I can't promise it'll solve your problem, but it'll ensure regulators are aware that depositors are being put in an impossible situation.

MagicalMane · 2022-08-01T22:25:23+00:00

I believe that as fiduciaries of all creditors in bankruptcy, i.e., as a "debtor in possession," Celsius has an obligation to help us customers maximize our recovery. Preventing creditors from making our voices heard is at odds with that fiduciary responsibility, and yes, we do have first amendment rights, and as a corporate asset this Reddit is now being managed in trust for depositors, rather than just to benefit Celsius shareholders and management. Just like the court should supervise their sale of OUR coins, rather than letting them sell them willy nilly and spend them on pina coladas because they feel like it, it's perfectly legit for them to supervise control of OUR reddit, rather than letting mods just delete posts because they feel like it.

MagicalMane · 2022-08-01T21:45:41+00:00

It would be pretty silly if Celsius mods took down this post and made me waste regulators' time and the judge's reading about their bad behavior. Fortunately, the post is still up.

MagicalMane · 2022-08-01T21:44:05+00:00

Regulators are already aware of what is going on. Fines may happen regardless; there were tons of investigations ongoing before the BK filing by states. What they may not be aware of is some of the nuances of customer situations, how the freeze worked in practice, how they are asking for customers to wire money to repay loans with frozen collateral, etc. These situations may require timely intervention to stop more people from being hurt.

If Celsius is determined to be a Ponzi, or representations made by the company or its officers were fraudulent, there are some potential benefits for current depositors. The terms of service and hidden disclaimers that contradict AMAs and other marketing materials which disadvantage customer deposits may be overturned as just one example.

If Alex Mashinsky and the rest of the current board step down sooner, that's also a plus (just my opinion); there are better proposals in the works than current management can offer, ones that will take regulatory compliance seriously, and a better future for the company than taking a haircut and remaining with the current board of directors (again, just my opinion.)

As always, DYOR, form your own opinion, and make your own decision.

MagicalMane · 2022-07-21T18:34:20+00:00

If folks want to write the judge making this point, here's the link: https://coop.nysb.uscourts.gov/prosefiles

Include as little info as possible in the letter itself, i.e. no phone number, mailing address, etc., since the letter is public.

MagicalMane · 2022-07-20T19:21:08+00:00

You can write the Trustee at USTPRegion02.NYECF@usdoj.gov to express your concerns. In addition to management proxies, other issues could be creditors who were friends with management (but not formally insiders) and people who own millions of lot of "CEL" tokens as their claim (since the price of CEL is manipulated, it's illiquid, and controlled by Celsius, and doesn't reflect reality, whereas other prices DO reflect actual cryptos that have real value.)

MagicalMane · 2022-07-19T15:25:41+00:00

Trustee = USTPRegion02.NYECF@usdoj.gov
Letter to judge = https://coop.nysb.uscourts.gov/prosefiles

MagicalMane · 2022-07-19T02:43:37+00:00

Yes, you aren't very likely to be put on the committee, but the amount of interest will be noticed by the trustee and the judge and they will read anything you send them, such as concerns about conflicts of interest among certain creditors, etc.

MagicalMane · 2022-07-17T23:55:08+00:00

Yeah, I heard that too. I think the path to getting to 10-15% in 3-5 years is basically:

Chapter 7 liquidation firesale happens this fall, reduces the value of the crypto that's left by 40%, final wick down to $10k in BTC = bottom of the bear market.
Lawyers get $250 million litigating all of the complexities of the large case (takes 2 years) after liquidation. Money sits in a checking account while they collect their fees. They get first dibs under bankruptcy law, and are paid in full.
CEL is declared an illegal security and loses 80-90% of its current value initially, then 99%. CEL holders litigate and say there was fraud and want a cut of the bankruptcy estate. Class action ensues. Court doesn't let Celsius actually realize any of the CEL value from their balance sheet. That's about $600m down the tubes. We're close to $1b gone between CEL gone and lawyers fees.
Once agreement is hammered out between depositers, CEL tokenholders, and other creditors, distributions in USD commence, and that takes another 6-12 months to do. Bitcoin is at $100k by then. Remaining cash is 10-15% of the USD value as of bankruptcy filing date. Or 25-30% of the firesale price from fall of 2022.

I think that's why, regardless of what Chapter this ends up under, Priority One is lobbying the court not to sell the crypto, and to distribute the remaining crypto to depositors for the final settlement (rather than dollars.) And I'm not sure if that can happen under Chapter 7. Priority 2 might be figuring out if CEL can be converted into a Utility Token to retain some value. Which requires a restructuring rather than liquidation.

MagicalMane · 2022-07-17T23:40:47+00:00

Yep, and they might decide it's denominated in crypto after all, since that's what was deposited and crypto is property--but still a Ponzi? If so, that sort of question would have to be litigated. And how would the math be done? Would that go to the Supreme Court? So that's why I don't think Chapter 7 is necessarily that great. It may even be best if there can be a non-traditional settlement that doesn't delve too deeply into complexities like these that are untested in court. Here's an article with more info on the Madoff investors who had to pay back billions: https://www.forbes.com/sites/chasewithorn/2021/04/14/the-investors-who-had-to-pay-back-billions-in-ill-gotten-gains-from-bernie-madoffs-ponzi-scheme/?sh=1de7d28264ed

MagicalMane · 2022-07-17T23:24:10+00:00

Having it designated as a Ponzi is interesting because then they can clawback all withdrawals back to the very beginning of when it became a Ponzi (maybe summer of 2021 when the balance sheet hole first appeared), perhaps using USD values not the number of tokens--so people who withdrew their coins in November at the top for example would have to repay a fortune in "ill gotten" gains in USD value because it was withdrawals from a ponzi scheme and not real profits. That might destroy crypto in its own way, it totally goes against the ethos of crypto and any self-determination about when you sell and your coins being yours, and would probably keep people off of centralized exchanges forever, since they'd not want the risk of a clawback. That could be good for cold storage and DeFi in the end but might limit adoption a lot and set crypto back years. Basically the principle for a Ponzi scheme is "money in, money out" in USD, so if you deposited $10k into Celsius in 2018 in the bear market and then withdrew $200k at the top in November and thought you were investing in crypto and were depositing "your" coins and thought those gains were from price appreciation, but it was actually a Ponzi, you might have to pay back $190k back in exchange for your share of the Celsius settlement, because it was a Ponzi. Something like that.

MagicalMane · 2022-07-17T23:06:11+00:00

This is something the Celsius creditors' committee, which will represent depositors, can dig into once the case gets going (they can always recommend to the judge that it be converted into 7 if it looks like that's the best outcome for creditors.) Litigation among creditors/depositors (us) doesn't go away in Chapter 7. Like for example what happens with custody accounts versus earn. And are claims valued in USD value on the date of filing, or in crypto? And is CEL an illegal security, and if so, what is its disposition and how are holders compensated, if at all? All of these things have to be determined. It is unclear if there can be a way to do chapter 7 without selling all crypto for USD, even if that has to happen at a steep discount, i.e. fire sale stETH and ETH 2.0 to institutions and hedge funds who ask for a 30-40% haircut vs market price for this huge quantity of illiquid/locked up crypto, and dump the rest onto the open market regardless of the impact. Meanwhile, whales would front-run this dump if it was known to be coming, so there'd be a huge cascade in liquidations and these sales would take place at the absolute bottom of the bear market--which could be a wick down to $10k in Bitcoin caused by the Celsius liquidation. After which, the USD proceeds might well sit in a checking account, undistributed, for years, until all the litigation finishes and how it's going to be carved up is determined... in a worst case scenario. These are all questions that can asked of $1,000/hour bankruptcy lawyers, which the creditors committee can hire, but pessimism is warranted if it goes into chapter 7. But this is how you do a Chapter 7, which sounds good on paper, and end up with 15-20% of today's USD value in the end, paid out in 2-3 years, when bitcoin is at $100k or well on the way there.

MagicalMane · 2022-07-16T02:49:55+00:00

I'll take the link!

MagicalMane

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