40 states are all investigating the Celsius Crypto platform

How many government regulators will it take to screw up a bankrupt crypto trading platform? While one could probably do the job on their own, there are apparently 40 states and their financial regulatory agencies gunning for defunct crypto-lending platform Celsius. One of these agencies is so close to calling the platform what many other critics have already alleged: a Ponzi scheme.

A Vermont Department of Financial Regulation archiving Wednesday laid a massive set of charges against the crypto lender as it searches chapter 11 protection in federal bankruptcy court. Last year, around the time when the price of the most popular crypto tokens reached its height, the platform gave as much as 18% interest on its crypto.

But Vermont regulators say this was just in an effort to create a protective cloud around gross financial mismanagement of client assets. They alleged that the company, through CEO Alex Mashinsky, misled investors about how well the company was doing financially and whether it was complying with securities regulations. Regulators revealed that “at least 40 state securities regulators” are involved in a multi-state investigation surrounding the crypto lender.

The filing further claims that during a meeting of creditors held on August 19, that “the company had never earned enough revenue to support the returns paid to investors. This shows a high level of financial mismanagement and also suggests that the returns to existing investors were, at least at some points, likely to be paid with the assets of new investors.”

Without saying the name, this is pretty much the textbook definition of a Ponzi scheme.

The filing said that while Celsius had initially claimed that its financial problems were due to the market downturn in May and June, CFO Chris Ferraro told investors on August 19 that its insolvency started with losses as far back as 2020.

The comments from Vermont regulators even mention that the company’s liabilities exceeded its assets as far back as February 2019. The filing also claims based on financial data, Celsius has artificially inflated the holdings of its original CEL token to “enrich Celsius insiders.”

The Vermont regulators used fileing to ask the probate court to appoint an examiner to examine Celsius. Gizmodo reached out to Celsius, but did not hear back immediately. In a blog posts published last week, the company wrote that it asked the court to allow customers “with certain escrow and retention accounts” to allow them to withdraw their assets. They said this would affect tens of thousands of customers.

Jason Stone, CEO of KeyFi who worked as an asset manager for Celsius, basically claimed the same thing against their old partner in a lawsuit in July. The suit alleged that Celsius lured in new depositors with high interest rates and then used those funds to pay back previous depositors and creditors.

Celsius, of course, was not ready to let that accusation lie. The platform contrary KeyFi and Stone last month instead accused them of robbing Celsius of tens of millions of dollars and losing more due to “incompetence.”

Back in June, Celsius was one of the first few crypto platforms to begin halting withdrawals as the price of crypto took a dive into what is still being called the ongoing crypto winter. Users were particularly concerned about the network’s terms of service which suggested the company would hoard users’ crypto as collateral in the event of bankruptcy. The company claimed its main goal was to restore liquidity and preserve customers’ assets, adding “there may be delays.”

Just a few days after Celsius made its announcement, reports indicated that several state regulators, including agencies in Alabama, Kentucky, New Jersey, Texas and Washington examined Celsius. While some states effectively confirmed their investigations, the new figure revealed by the Vermont file would actually put enormous pressure on the already beleaguered crypto-lending platform. Reports show that there are holes in the company’s balance sheet $1.2 billion across the boardand there is a good chance that users who have pinned crypto on the platform will never see crypto again.