News reports have emerged that solidify arrest rumors surrounding Celsius Network CFO Yarom Shalem in Tel Aviv, allegedly in relation to investor fraud worth tens of millions of U.S. dollars. The arrest list reportedly included Israeli entrepreneur Moshe Hogeg, who has been sued multiple times for misappropriation of funds in previous ICOs.
Chatter concerning Shalem’s arrest has buzzed on social media for the past couple of days, putting Celsius on edge at a crucial point in its history. The company in October raised US$400 million in a Series B funding round before expanding it to $750 million due to “oversubscription,” putting its valuation at $3.5 billion. CEO Alex Mashinsky predicted to investors that Celsius’ value would increase to between $7 and $10.5 billion in the next year. It also announced a further $300 million investment in BTC mining operations.
Celsius, which operates as a “sort-of cryptocurrency bank” that develops CeFi (centralized finance) and DeFi (decentralized) solutions, paying weekly interest to customers who “deposit” digital assets in its accounts. It recently increased the interest rate it pays from 5-12% annually to 17%.
Founded in 2017 by Mashinsky and Daniel Leon, Celsius’ high interest rates and regular payouts have led to suspicions that it funds those payouts from sources other than its own investments—or in other words, a Ponzi scheme. Company representatives have frequently denied this accusation.
Notably, Celsius Network has been tied to Tether and Tether’s complex network of companies, including BitFinex and iFinex. Some noted that Tether had “minted” yet another $1 billion worth of USDT coincidentally around the same time as the arrest rumors began to appear.
Celsius got the emergency fake money in just 28 minutes after my tweet. Can’t have people panicking and blowing up the Ponzi scam. pic.twitter.com/60AE5yj1li
— Bitfinex’ed 🔥 Κασσάνδρα🏺 (@Bitfinexed) November 26, 2021
Tether is widely known in the digital asset industry as the life-raft provider of choice for several of its largest trading operations. Injections of literally tens of billions of dollars’ worth of the USDT (tether) token have provided much-needed liquidity where “real” dollars were hard to come by, and also appear related to sudden price gains in popularly traded assets like BTC and ETH.
Tel Aviv arrest reports
Israeli police also stated on November 18, 2021, that eight unnamed suspects had been arrested on charges of fraud in the cryptocurrency field amounting to hundreds of millions of shekels (100 million shekels is worth roughly US$31.6 million). It added that as well as defrauding investors, the “main suspect” was also accused of committing “sexual and moral offenses.” However, it did not mention who the main suspect was.
8 חשודים נעצרו בחשד לביצוע עבירות הונאה בתחום המטבעות הקריפטוגרפים, בהיקפים של מאות מיליוני ש’, בעקבות חקירה סמויה שהתנהלה בחודשים האחרונים ביחידה הארצית לחקירות הונאה בלהב 433 וביחידת יהלום ברשות המיסים. לפי החשד, הם פעלו באופן שיטתי לביצוע הונאה של משקיעים במספר מיזמים בתחום >>
— משטרת ישראל (@IL_police) November 18, 2021
Celsius itself tweeted on November 21 that it was “aware of a police investigation in Israel involving an employee” who “was immediately suspended.” It denied the investigation had any connection to Celsius or the employee’s time there.
We were recently made aware of a police investigation in Israel involving an employee. While this is in no way related to the employee’s time or work at @CelsiusNetwork, the employee was immediately suspended. We have also verified that no assets were misplaced or mishandled.
— Celsius (@CelsiusNetwork) November 26, 2021
ADA withdraw issues add to bad news storm
Given the timing of Shalem’s arrest in relation to Celsius’ recent investment injection, any bad news surrounding its C-level team could spell disaster for the company even if the arrests are unrelated to any activity at Celsius.
As a weekly interest-paying, “sort-of cryptocurrency bank,” it would be just as vulnerable to a bank run—if not more so, given that deposits in DeFi and digital asset service providers are not insured by government agencies.
There have been scattered reports on social media of some difficulties withdrawing ADA, though they have not been widespread so far.
Anyone get any $ADA failures when withdrawing from @CelsiusNetwork ?
Tried twice and both time the withdrawal has failed, blockchain issues?!
— Bull Run Blackmore ©️ ⚡️ (@21blacky) November 25, 2021
Whether Celsius funds interest payouts from its investments, BTC mining operations or from new customers, market movements mean additional trouble. The BTC unit price fell from US$58,000 to around $54,000 on Friday, making mining operations everywhere immediately less profitable. Many companies operating in the BTC space will be praying that it does not fall further, and indeed continues the upward trend that has sustained many of them in 2021.
Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—a from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.
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