The once-dominant cryptocurrency lending company Celsius Network is currently going through bankruptcy court and defending itself against accusations that it was operating a Ponzi scheme by compensating early depositors with funds it received from new members. The Southern District of New York is currently receiving direct requests for assistance from some of the 1.7 million clients who were allegedly victimised by the alleged fraud.
In a letter that was presented in the court’s documents, Christian Ostheimer, a 37-year-old resident of Connecticut, said that he trusted Celsius with his retirement savings and that he lost more than $30,000 as a result, putting him in “unsurmountable tax complications.”
“It is in your hands, honorable judge to make this a different case were not the lawyers, the attorneys, the big corporations and managers get paid out first but the little man, the mom and pop, the college grad, the granny and grandpa — all those many small unsecured creditors — so that they are not like usual at the end of the chain where they lose everything,” wrote Ostheimer.
The question of who gets paid first weighs large over the bankruptcy proceedings, assuming that day ever comes.
CEO Alex Mashinsky claimed the cryptocurrency lender had $25 billion in assets under management at its height in October 2021. Celsius claims that its remaining $167 million “in cash on hand” will offer “ample liquidity” to continue business operations throughout the restructuring process. According to its bankruptcy petition, Celsius owes its clients somewhere around $4.7 billion.
In addition, the petition reveals that Celsius has more than 100,000 debtors, some of whom provided funding to the site without any supporting collateral. Alameda Research, a trading company run by Sam Bankman-Fried, is on the list of its top 50 unsecured creditors, along with a Cayman Islands-based investment company. Those debtors will probably be paid back first, leaving smaller retail investors carrying the bag.
There aren’t any official consumer protections in place to protect user funds when things go wrong, unlike the conventional banking system, which normally protects customer deposits.
Any digital asset that is transferred to the platform constitutes a loan from the user to Celsius, according to Celsius’ terms and conditions. Customer funds were effectively merely unsecured loans to the platform because Celsius did not put up any collateral.
Additionally, customers “may not have any legal remedies or rights in connection with Celsius’ obligations” and “any Eligible Digital Assets used in the Earn Service or as collateral under the Borrow Service may not be recoverable” are cautioned in the fine print of Celsius’ terms and conditions. If things ever go wrong, the revelation appears to be an attempt to grant everyone general immunity from legal responsibility.
The next actions for customers are outlined in a paper that Celsius published on July 19. Although it is unknown if users will ever see their money again, the site stated in it that its Chapter 11 bankruptcy plan will “provide customers with the option, at the customers’ election, to recover either cash at a discount or remain ‘long’ crypto.”
The entire procedure makes clear how much crypto legislation in the US is accomplished through enforcement.
By eliminating Ponzi and pyramid schemes, among other things, the Securities and Exchange Commission has effectively become one of the industry’s top regulators in the nation. As lawmakers debate formal legislation on Capitol Hill, it appears that some precedent will be set in U.S. bankruptcy courts in the coming months.
Requests from investors
Retail investors ask to be put in front of the line to receive their money back in the hundreds of letters that have been officially submitted to the court.

Flori Ohm, a single mother of two college-bound kids, claimed that the bankruptcy, which left her money trapped on the platform, had “severely impacted both in financial and mental health” on her family. Ohm, who also helps her parents, claimed she had trouble sleeping and concentrating at work.
“I am struggling hard [to make a] living,” she wrote.
Jeanne Y Savelle, a “little retired old lady” on a fixed income, claimed that she turned to Celsius in seeking of a way to increase her monthly Social Security check in order to stretch her dollar in the face of high inflation.
“I purchased my small amount of crypto hoping just to earn enough to help me weather a few years, kind of a safety net,” said Savelle. “Yes, I know, buyer beware but I agree that there has been way too much deception.”
Others have suffered total loss.
Stephen Bralver, a citizen of California, reported having less than $1,000 in his Wells Fargo checking account, which is currently his only source of income to support his family after Celsius banned all withdrawals.
“There is absolutely no way that I can continue to provide without access to my assets at Celsius,” He addressed his letter to New York bankruptcy judge Martin Glenn, who is in charge of the Celsius bankruptcy case.
“This is an EMERGENCY situation, simply to keep a roof over my family and food on their table,” Bralver wrote.
Sean Moran, a Dublin resident, claimed that his family had lost their farm in Ireland and was now homeless.
“Can’t believe that they lied to us on the weekly AMA [ask-me-anything events] about not trusting banks whilst all along they we’re wolfs in sheep clothing false promises and misleading information,” Moran wrote. “I’m mentally unstable. Family are distraught with my decisions of trusting Celsius and promising them a better future.”
In addition to the financial ruination detailed in each of these letters, a recurrent theme is around a feeling of betrayal due to the trust gap between Celsius CEO Alex Mashinsky and his customers.
A few days before the cryptocurrency lender ultimately filed for bankruptcy protection, three weeks after Celsius stopped all withdrawals due to “extreme market conditions,” the platform was still promoting annual returns of almost 19 percent that paid out weekly in huge, bold type on its website.
“Transfer your crypto to Celsius and you could be earning up to 18.63% APY in minutes,” according to the company’s website statement on July 3.
Ralphael DiCicco claimed he was duped by the marketing and revealed holdings of about $15,557 worth of cryptocurrency on Celsius.
“I believed in all the commercials, social media and advertising that showed Celsius was a high yield, low risk savings account. We were ensured that our funds are safer at Celsius than in a bank,” wrote DiCicco.
“This money is pretty much my life savings … I hope you can find it the best interest of all parties involved to pay back the smaller investors first … before any restructuring occurs,” DiCicco continued.
As recently as two days before Celsius Network locked depositors’ accounts, according to Travis Rodgers of Phoenix, he made many phone calls to Celsius Network and was assured that there was no risk to customer assets and no chance of bankruptcy. Rodgers claimed to have taped a number of the calls. He claimed that he currently holds 11 cryptocurrencies, totaling $40,000 in Celsius.
Several emails addressed the weekly ask-me-anything sessions that Mashinsky sponsored on YouTube, including one from Stephen Richardson who listed the several ways that he believes Mashinsky misled the public in order to get new clients into the scheme.
Since signing up, Richardson claimed to have watched every single Friday AMA.
“Alex would talk about how Celsius is safer than banks because they supposedly don’t rehypothecate and use fractional reserve lending like the banks do,” wrote Richardson. “I currently have six figures worth of crypto locked in my Celsius account unable to be withdrawn, despite Alex’s claims mere hours before withdrawals were closed that nobody has any issue withdrawing from Celsius and that everything you hear to the contrary is simply ‘fud’ [fear, uncertainty and doubt].”
Some claimed that if they can’t get their money back, they’ve even thought about killing themselves.
Australian Katie Davis begged the judge to return the $138,000 that she and her husband were left stranded on the Celsius station.
“The thought of losing that amount of money is horrifying,” Davis wrote.
“If I do not get that back, I will end my life as the loss will impact my family and I significantly,” she wrote.
When CNBC asked Mashinsky for a remark, he did not answer right away.