Controversial cryptocurrency lender Celsius informs state regulators it is filing for ‘immediate’ bankruptcy, source says

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Celsius was sued on Thursday by former investment manager Jason Stone as pressure on the company continues to mount amid a crash in cryptocurrency prices. Among other things, Stone has claimed that Celsius CEO Alex Mashinsky (above) has “enriched himself significantly”.

Piaras Midheach | Sports file for Web Summit | Getty Images

According to a source familiar with those discussions, crypto firm Celsius is in the process of filing for Chapter 11 bankruptcy.

The company’s lawyers notified individual U.S. state regulators on Wednesday evening, who asked not to be named because the proceedings were private. Celsius plans to file the paperwork “soon,” 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 from exposure to now-defunct hedge fund Three Arrows Capital. A New York bankruptcy court judge has frozen the fund’s remaining assets this week. Three Arrows is now in the process of liquidation.

“Unfortunately, this was to be expected. It was anticipated. However, it will not stop our investigations. We will continue to investigate the company and work to protect its customers even through its insolvency,” said Joseph Rotunda, director of enforcement at the Texas State Security Council.

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

The company has been one of the largest players in the crypto lending space with more than $8 billion in customer loans and nearly $12 billion in assets under management as of May. Celsius said it had 1.7 million customers in June. The company offered interest-bearing crypto accounts with returns of up to 17% on deposits.

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

Six state regulators have launched investigations into Celsius. Vermont was the last to do so earlier on Wednesday. The state’s Ministry of Financial Regulation said Celsius has “used client assets for a variety of risky and illiquid investment, trading and credit activities.”

“Celsius customers have not received 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 a statement. “The company’s assets and investments are likely to be insufficient to cover its outstanding liabilities.”



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