The Problems That Led to Celsius’ Bankruptcy

Thom Weidlich 07.21.22


These are tough times for cryptocurrencies. The overall market recently dipped below $1 trillion for the first time since January 2021. Some platforms, including crypto lender Celsius Network LLC, have gone bankrupt. A recent CNBC probe into that company gives insight into what went wrong — and how it relates to crisis prevention and preparation.

CNBC spoke to two former Celsius employees, examined internal documents and did stories on air and in print. Basically, the company, which says it had 1.7 million accounts totaling $11.8 billion (offering annual yields as high as 18 percent), had problems for years before its July 13 bankruptcy filing.

A recent public inkling of trouble at Hoboken, New Jersey-based Celsius came on June 13 when it froze customer accounts, citing “extreme market conditions.” Like other crypto companies (and the financial world in general in 2008) the business model crashed when the market did. The announcement drove down prices of bitcoin, Ethereum and Celsius’ own cel token.

Layoffs, Lawsuit

In early July Celsius laid off a quarter of its workforce, 150 employees. On July 7, KeyFi Inc., a company founded by former Celsius money manager Jason Stone, sued the crypto outfit, alleging it engaged in market manipulation. At least six states are investigating its investment and disclosure practices. Then it filed for bankruptcy.

“The biggest issue was a failure of risk management,” CNBC quotes Timothy Cradle, Celsius’ former director of financial crimes compliance. “I think Celsius had a good idea, they were providing a service that people really needed, but they weren’t managing risk very well.”

Granted, in the finance world “risk management” is mostly about investment risk. But that’s clearly one of the main crisis scenarios a finance company should plan for — that risky bets will go bad and land the company on the front page of the business section. Every company in every sector has to decide what its most likely crisis scenarios are.

Compliance Area

One problem was lack of resources for compliance; Celsius has only three full-timers in that area, according to CNBC. That’s a perennial issue in crisis: People don’t see the need to spend money on preventing, or preparing for, crises that might not happen. It’s a mistake.

A former H.R. employee, Nikki Goodstein, also said the company didn’t conduct background checks on new hires, including the incoming CFO who was arrested in Israel in November 2021 and charged with money laundering at his previous company.

It appears Celsius didn’t have a culture of compliance and transparency. That led to problems. “I think it was good people with poor planning — they didn’t hire at the right times, they didn’t staff up at the right times, they didn’t scale with the growth of the company,” Cradle said. “It was just a bunch of mistakes that are ending up very tragically.”

Photo Credit: T. Schneider/Shutterstock

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