In October 2021, the CDPQ invested nearly $200M in Celsius, which acts as a bank in the crypto world. Clients could deposit cryptoassets there and earn an annual return. They could also obtain crypto or cash loans by placing cryptoassets with Celsius as collateral.
In May 2022, Celsius announced that it was freezing its clients’ assets, citing
instability in the market of crypto. The New Jersey-based company finally filed for bankruptcy protection on July 13.
In the document filed Wednesday, attorney Ethan McLaughlin, who represents Vermont’s Department of Financial Regulation, also alleges that Celsius never generated enough profits for its custodians to profit from their investments.
This demonstrates a high degree of financial mismanagement and suggests that, at times at least, returns from existing investors were paid for using deposits from new investors.he wrote.
In fact, a former Celsius business partner accused the company of being a Ponzi scheme in a lawsuit filed in July. This consists of finding new investors and using their funds to compensate investors who joined earlier.
In May, a Radio-Canada investigation raised serious questions about Celsius’ business model.
Mr. McLaughlin also alleges that
the insolvency of [Celsius] started with financial losses in 2020 and during 2021. The lawyer judges that Celsius falsely attributed its dire financial situation to the turmoil that hit the crypto market beginning in May 2021 and caused the value of major cryptoassets to plummet.
Celsius and its managers hid their massive losses, cryptoasset shortfall, and deteriorating financial condition from their investorsaccording to the document.
It is not clear if this includes the CDPQ.
Separately, McLaughlin reveals that financial authorities in 40 US states are investigating Celsius, for
concerns regarding potential unregistered securities activity, mismanagement, securities fraud and market manipulation by Celsius and its principals.
The lawyer alleges that Celsius manipulated the price of CEL, a cryptocurrency created by the company and of which it was the largest holder. Excluding CELs from its balance sheet, Celsius’ liabilities had exceeded its assets since at least February 2019, he said.
These practices may have had the effect of enriching the directors of Celsius at the expense of ordinary investors.says McLaughlin.
Financial authorities in Vermont and other states are particularly concerned about the losses incurred by ordinary investors, for example, unaccredited middle-class investors who have invested their college funds or retirement funds in Celsius.writes the lawyer.
There is no indication that the CDPQ was aware of the facts alleged by Mr. McLaughlin when it announced its participation, in the amount of US$150 million, in a round of investment of US$750 million in Celsius, in October 2021.
In addition, Mr. McLaughlin accuses Celsius CEO Alex Mashinsky of making misleading statements on social media, which he says had the effect of fooling his customers.
The lawyer cites, among other things, a December 2021 interview given by Mr. Mashinsky to a YouTube channel, where he said:
M$US. Nos investisseurs, ils ont tout fouillé et ils se sont assurés que tout était casher. Aucun problème.”,”text”:”Nous venons de recevoir une ronde d’investissement de 750M$US. Nos investisseurs, ils ont tout fouillé et ils se sont assurés que tout était casher. Aucun problème.”}}”>We have just received an investment round of US$750 million. Our investors, they searched everything and they made sure everything was kosher. No problem.
The CDPQ had not responded to questions from Radio-Canada at the time of publication. Celsius did not respond to our email.
While at Zone Économie in mid-August, the CEO of the CDPQ, Charles Emond, admitted that the investment in Celsius may have been a mistake.
First, no one at the Fund is happy with that, me first. We make it an important post-mortem, he said in an interview with Gérald Filion. We arrived a little early. The situation of the company, it had a hypergrowth to manage, it became fragile.
The conclusion has not yet been reached in this file, we will look, as I said, at our legal options. he added.