Vermont regulator warns Celsius Network is very likely insolvent
Vermont’s Department of Financial Regulation (DFR) has issued a warning regarding Celsius Network.
Celsius Network is a cryptocurrency company, unlicensed in Vermont, that offered its customers interest-bearing cryptocurrency accounts. Celsius promised customers high interest rates (up to 17%) on deposits of cryptocurrencies. On June 12, 2022, Celsius announced that it was suspending all withdrawals, swaps, and transfers between customer accounts. This action impacts hundreds of thousands of customers and billions of dollars of cryptocurrencies, including accounts of some Vermonters.
The Department believes Celsius is deeply insolvent and lacks the assets and liquidity to honor its obligations to account holders and other creditors. Celsius deployed customer assets in a variety of risky and illiquid investments, trading, and lending activities. Celsius compounded these risks by using customer assets as collateral for additional borrowing to pursue leveraged investment strategies.
Additionally, some of the assets held by Celsius are illiquid, meaning they may be difficult to sell, and a sale may result in financial losses. The company’s assets and investments are probably inadequate to cover its outstanding obligations.
Celsius Network has been operating in multiple jurisdictions, including in Vermont. The Department believes Celsius has been engaged in an unregistered securities offering by offering cryptocurrency interest accounts to retail investors. Celsius also lacks a money transmitter license. This means that until recently, Celsius was operating largely without regulatory oversight.
Due to its failure to register its interest accounts as securities, 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 Department has joined a multistate investigation of Celsius arising from the above concerns.
Previous representations made by the Company, its CEO, and other Celsius representatives about the safety of customer funds and the company’s ability to meet withdrawal obligations are untrue.
The Department is aware of reports that Celsius has consulted with insolvency counsel and is considering a bankruptcy filing. If you are a Celsius customer, a bankruptcy filing could affect your investor rights and the value of your Celsius interest account balances. You should consult your own counsel if you have questions about your individual situation and how a bankruptcy proceeding could affect your investment in Celsius.