Former Celsius CEO Alex Mashinsky Waives Bankruptcy Rights

Former Celsius CEO Alex Mashinsky, alongside three related entities, waived their rights to bankruptcy distributions from the defunct crypto lender, reinforcing Mashinsky’s liability for the company’s collapse and distancing him from compensating victims who lost funds.

Bankruptcy Court Decision

The waiver agreement, filed on Monday in the U.S. Bankruptcy Court for the Southern District of New York, prohibits Mashinsky, AM Ventures Holdings Inc., Koala1 LLC, and Koala3 LLC from receiving any proceeds from the bankruptcy. All claims submitted by Mashinsky were disallowed, ensuring that he and the associated entities would not recover any assets under the bankruptcy plan, which facilitates the redistribution of reserved assets to other creditors.

Despite forgoing government-traced assets related to his crimes, Mashinsky’s wife claims a superior right to the property, which could diminish the restitution for his victims if recognized.

U.S. Attorney’s Remarks

U.S. attorney for the Southern District of New York, Jay Clayton, stated that Mashinsky misled retail investors, profiting nearly $48 million while his customers lost approximately $4.7 billion. Crypto influencer Tiffany Fong reported losses of over $300K. Clayton emphasized the need for better protections for American investors.

With the waiver agreement in place, assets held for Mashinsky and connected parties can now be allocated to creditors as part of the bankruptcy settlement. The bankruptcy court also levied a $50K fine and required Mashinsky to forfeit $48.3 million.

The court ruling does not interfere with other legal claims or defenses that could emerge from different lawsuits.

Progress in Returning Value

As of August 2024, Celsius reported distributing over $2.5 billion to more than 251,000 creditors; however, over $1 billion in claims from approximately 121,000 creditors were filed in the same year, underscoring the extensive liabilities and impact on affected individuals. Validating these claims remains a significant challenge.

Admission of Misleading Customers

In court, Mashinsky admitted to providing customers with “false comfort” in a 2021 interview that inaccurately claimed regulatory approval for Celsius’s “Earn” program. Prosecutors accused him of misleading clients and artificially boosting the value of the CEL token while failing to disclose his sales of CEL holdings. He acknowledged his mistakes and expressed a commitment to rectify them.

Attorney Clayton asserted that Mashinsky marketed Celsius as a secure platform for cryptocurrency investments, misrepresenting essential aspects of its operations and finances. The former CEO’s actions included manipulating the CEL token price with substantial open market purchases, sometimes using customer deposits without disclosure.