KEY POINTS

  • Internal company documents suggest that Celsius failed to manage risk
  • Former executive claims that CEL token was pumped by the firm's employees
  • The firm's compliance staff were just 3 people: former director of financial crimes compliance

Former employees at crypto lending firm Celsius revealed it had multiple internal issues, which piled up over the years eventually causing the firm to halt withdrawals and file for Chapter 11 bankruptcy.

Several missteps, ranging from risk-taking, disorganization to alleged market manipulation, by the executives led to the turmoil that Celsius has found itself in, as per statements from former employees and internal documents that CNBC cited in a report.

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

The Hoboken, New Jersey-based crypto lender saw its popularity surge over the years as it provided significant returns to the users' deposits. The firm had a user base of 1.7 million, with total deposits of $11.8 billion in June.

Some of these users told CNBC that it was the 17% yield that Celsius promised that attracted them. According to the lawyers of the firm, the user deposits belonged to the firm as per the Terms of Services (ToS). So Celsius used these funds to earn interests from DeFi protocols, which offered higher yields.

Internal documents suggest that Celsius deposited the users' funds in high risk-high reward platforms and would split the gains with the users. The document also suggests that “there is not adequate compliance staff for the amount of users on Celsius’s platform as there are only 3 full-time individuals.” Hence, the firm was not capable of detecting fruadulent cryptocurrency projects.

Cradle stated that he was shocked to hear that the executives were "pumping up the CEL token" and “actively trading and increasing the price of the token” during a Christmas party in 2019.

“They weren’t shy about it. They were absolutely trading the token to manipulate the price,” Cradle said. “It came up in two completely different conversations for two completely different reasons.”

Celsius Network logo and representations of cryptocurrencies are seen in this illustration taken, June 13, 2022.
Celsius Network logo and representations of cryptocurrencies are seen in this illustration taken, June 13, 2022. Reuters / DADO RUVIC
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