Embattled crypto lender Celsius files for bankruptcy protection

Technology

Celsius on Thursday was sued by former investment manager Jason Stone, as pressure continues to mount on the firm amid a crash in cryptocurrency prices. Stone has alleged, among other things, that Celsius CEO Alex Mashinsky (above) was “able to enrich himself considerably.”
Piaras Ó Mídheach | Sportsfile for Web Summit | Getty Images

Crypto company Celsius is in the process of filing for Chapter 11 bankruptcy, according to a source familiar with those discussions.

The company’s lawyers were notifying individual U.S. state regulators as of Wednesday evening, according to the source, who asked not to be named because the proceedings were private. Celsius plans to file the paperwork “imminently,” the person said.

The Hoboken, New Jersey-based company made headlines a month ago after freezing customer accounts, blaming “extreme market conditions.”

The news marks the latest high-profile crypto bankruptcy as prices plummet.

Voyager filed for Chapter 11 bankruptcy protection last week, after suffering losses due to exposure to now defunct hedge fund Three Arrows Capital. A judge in New York bankruptcy court froze the fund’s remaining assets this week. Three Arrows is now in the process of liquidation proceedings.

“Unfortunately, this was expected. It was anticipated. It does not, however, stop our investigations. We will continue investigating the company and working to protect its clients, even through its insolvency,” said Joseph Rotunda, director of enforcement at the Texas State Securities Board.

Celsius did not immediately respond to CNBC’s request for comment.

The company was one of the largest players in the crypto lending space with more than $8 billion in loans to clients and almost $12 billion in assets under management as of May. Celsius said it had 1.7 million customers as of June. The company offered interest-bearing crypto accounts with yields as high as 17% deposits.

The company was sued last week by a former investment manager who alleged Celsius failed to hedge risk, artificially inflated the price of its own digital coin, and engaged in activities that amounted to fraud.

Six state regulators have launched investigations into Celsius. Vermont became the latest to do so earlier on Wednesday. The state’s Department of Financial Regulation said Celsius “deployed customer assets in a variety of risky and illiquid investments, trading, and lending activities.”

“Celsius customers did not receive critical disclosures about its financial condition, investing activities, risk factors, and ability to repay its obligations to depositors and other creditors,” the Vermont regulator said in statement. “The company’s assets and investments are probably inadequate to cover its outstanding obligations.”