The new 476-page Celsius Network investigation details all the red flags VCs and pension plans missed

Perhaps it is because I write for a living, but I think about language often, and how much the words we use matter.

It’s the reason why Salesforce employees are less than enthused over their CEO referring to them as “family,” even as he lays off thousands of them in droves.

It’s also one reason why Alex Mashinsky, the startup founder and CEO of the WestCap- and CDPQ-backed, now-defunct crypto lender Celsius Network, has buried himself into a hole so deep, it seems unlikely he’ll ever get out of it.

While en route to Seattle yesterday, my airplane reading of choice was the scathing 476-page report on the crypto lender that was filed last week by former federal prosecutor Shoba Pillay. Pillay is the very thorough independent examiner appointed by the U.S. bankruptcy court in New York to oversee the investigation of Celsius’ Chapter 11 and find out where the hell several billion in capital went and ran off to.

As a reminder, Celsius, which venture funds and pensions once pegged to be worth $3.5 billion, spiraled into insolvency in the wake of its exposure to the stablecoin Terra, the hedge fund Three Arrows Capital, and later, Sam Bankman-Fried’s now infamous crypto exchange FTX.

Pillay’s expansive investigation offers us the first fully comprehensive look at what exactly happened. And it serves as a warning to investors to take a second look at founders who use words like “transparent” or “safe” or “financial freedom” to lure in new customers—particularly when they may be running an alleged sham of an operation that their own employees would describe as “very ponzi like.”

Pillay’s extensive investigation spanned 500 gigabytes of data and records, including 231,000 documents, emails, financial and coin reports, Slack messages, and dozens of interviews. All of this laid out details regarding how Celsius allegedly never had a robust risk management policy in place (and didn’t have a written policy until early 2021), had incomplete financial statements with “significant discrepancies” from its account balances, and how its executives were using both customer deposits and capital from their equity fundraising to prop up the value of their proprietary token, CEL, and cash out. One might think that all these things may have come up somewhere along the way as Celsius was fundraising around $741 million in capital. (Celsius Network, its law firm Kirkland & Ellis, and investors CDPQ and WestCap didn’t respond to requests for comment prior to publication.)

Here’s my highlight reel of some, but not all, of the more egregious red flags Pillay found during her investigation. Please note that all the following are allegations against the company and its executives, as determined by the court-appointed examiner:

–Problematic item #1: Celsius announced it had raised $50 million from its initial coin offering when it actually only raised $32 million. CEO Mashinsky represented that any of the 325 million proprietary Celisus tokens, known as CEL, that Celsius didn’t sell to community members were burned. But that didn’t happen, leading one executive to conclude that Celsius was “non-complian[t] with our own whitepaper,” according to the examination report. Employees had apparently discussed whether to disclose how they hadn’t met their ICO goals, but allegedly decided against it so as not to “upset” the community.

–Problematic item #2: The startup seems to have been highly responsible for CEL’s price movement, as it was basically the only major buyer. Since 2020, Celsius allegedly timed the purchases of its token to create activity in the market and inflate the price. Internal messages between executives in the report underscore how these individuals were allegedly not being forthright with their customers about their own role in inflating the token’s price, which rose 14,751% between March 2020 and June 2022.

–Problematic item #3: Celsius’s own employees allegedly regularly discussed how they thought the CEL token was worth nothing. Messages and interviews from the investigation revealed that, in 2022, Celsius employees supposedly regularly discussed how their token was “worthless” and that its price “should be 0,” and they questioned whether any other party besides Celsius was actually buying CEL.

–Problematic item #4: When employees laugh about misleading customers. Haha. In September 2020, after Celsius successfully propped up its own token, employees allegedly congratulated one another on “our good work” resulting in “people thinking [the price of CEL] is going to the moon haha.”

–Problematic item #5: The founders of Celsius cashed out for millions ahead of the company making any sufficient revenue and recognizing investment losses of more than $800 million in 2021. The report states that, between 2018 and the bankruptcy, Mashinsky sold at least 25 million CEL tokens, worth approximately $68.7 million, and that founder S. Daniel Leon, sold at least 2.6 million CEL tokens for at least $9.74 million. “Celsius ofte