Latest / Follow the Lies: Fraud & Deceit Uncovered / Episode 13: Celsius Froze $4.7 Billion Overnight — After Promising Safety
Transcript
- Kevin Barrows: 2022. The 94th Annual Academy Awards featured Will Smith's Slap Heard Round the World. Johnny Depp and Amber Heard's trial dominated social media, and Stranger Things rejuvenated Kate Bush's 1985 classic Running Up That Hill. On June 12th, millions of everyday people, retirees, families, and regular investors, thought their money was finally working for them. They had deposited their life savings, retirement accounts, and emergency funds. Into a flashy crypto platform called Celsius Network. The promise was intoxicating. Earn up to 18% annual returns. Safe, reliable, and far better than any bank. Unbank yourself was their slogan. Then on a quiet Sunday morning, everything collapsed. Without any warning, Celsius froze all withdrawals and transfers. Billions of dollars of customer money, gone, locked, inaccessible. People woke up to find they couldn't pull out a single dollar of their own crypto. This wasn't a hack. This wasn't just a market crash. This was a company that had spent years telling its customers their money was safe, right up until the moment it wasn't. Today, we're pulling back the curtain on one of the biggest financial betrayals in crypto history, and the man who promised safety while quietly gambling it all away. Welcome to Follow the Lies for Deceit Uncovered. I'm Kevin Barrows. I've spent over two decades, both in the FBI and in the private sector, investigating some of the largest white collar fraud cases in the country. I've followed money trails that look completely legitimate on the surface until we pulled them apart and discovered the enormous risks hidden underneath. In the private sector, I've seen firsthand how modern financial products are often wrapped in slick, revolutionary sounding marketing that sounds too good to pass up, while quietly shifting massive risk. onto everyday people who simply want their money to work harder. The Celsius case is a textbook example of exactly that. The crypto boom created powerful new opportunities for deception, not through old school accounting tricks like Enron, but through something far more seductive, the promise of easy, high returns and what looked like the future of finance. If you've ever been tempted by an investment that promised unusually high returns with what seemed like very little risk, you're not alone. Stick around. Today you're going to see exactly how those promises can completely unravel and the specific warning signs I learned to spot after more than two decades investigating white collar fraud. If you're getting value from these stories, I'd really appreciate it if you follow the show and like this episode. It helps independent podcasts like this one reach more people who need to hear these lessons. Celsius launched in twenty eighteen with what sounded like a simple revolutionary idea. Users could deposit their Bitcoin, Ethereum, and other cryptocurrencies onto the Celsius platform and immediately start earning high annual yields, often between 8% and 18%, depending on the asset. In return, Celsius would lend those digital assets out to borrowers and share a portion of the interest earned with the depositor. On paper, it looked like the perfect win win. Everyday people who had watched their crypto sit idle in wallets for many years had found a way to make it work for them. They could generate meaningful income in a way that traditional savings accounts and banks could never match in the low interest rate environment of the time. Celsius, meanwhile, profited from the spread between what they paid depositors and what they earned from the lending. The marketing was masterful and relentless. Alex Mashinsky positioned Celsius as the future of finance, a place where you could unbank yourself and finally escape what he called the greedy low yield trap of traditional institutions. He repeatedly wore t-shirts that said, Banks are not your friends, and hammered home the message that Celsius was empowering regular people in the new digital economy. The company ran aggressive social media campaigns, produced polished videos, and most effectively, posted weekly Ask Me Anything live streams, where Mashinsky answered people's questions for an hour or more. These sessions helped build a passionate and dedicated online community that felt more like a movement than a simple financial platform. Thousands of ordinary people bought in enthusiastically. Retirees moved portions of their nest egg seeking better income in retirement. Young professionals parked emergency funds and savings. Some took out loans against their homes or sold their assets just to deposit more into Celsius, chasing those eye popping yields. The platform grew at an explosive pace, eventually managing billions in assets and attracting users from all over the world who believed they'd found a better, smarter, more modern way to grow their money. But behind the polished marketing, the impressive yield numbers and the charismatic leadership, the operation was running on far more fragile ground than customers ever realized. Celsius was not a bank. It had no legal requirements to hold full reserves. Customer deposits were being lent out aggressively, often many times over through complex arrangements, and those same assets were frequently used as collateral for Celsius' own leveraged trading positions in the volatile crypto markets. It was essentially a high wire act. As long as the market kept rising and fresh deposits kept flowing in, the promised yields could be paid. But the entire model was heavily dependent on continued growth and favorable market conditions. When those conditions changed, the risks that had been quietly accumulating became impossible to contain. What made the deception so effective was how confidently and consistently the company sold the story of safety. Mashinsky and the Celsius team repeatedly told users that their funds were secure, that the platform had robust risk management systems in place, and that withdrawals would always be available when needed. They created an environment where asking tough questions or expressing skepticism felt almost unnecessary, even outdated or cynical. Mashinsky himself became the face of the brand. A serial entrepreneur who often spoke with passion and conviction. He cultivated an image as a trustworthy outsider fighting against the traditional banking system. He frequently appeared in interviews, podcasts, and live streams wearing casual clothes and using relatable language that resonated with everyday investors who felt left behind by Wall Street. The community around Celsius became almost cult-like. Users shared success stories on social media, screenshots of their monthly yield payments, discussions about how much better their returns were compared to banks, and encouragement for friends and family to join. This peer to peer validation created a powerful feedback loop that made the platform feel legitimate and trustworthy. Many users reported feeling like they were part of something bigger than just earning interest. They were participating in the future of money. Internally, however, the operation relied increasingly on complex financial engineering. Celsius engaged in what's known as rehypothication, using the same customer assets as collateral across multiple lending agreements. This amplified both potential returns and potential losses. The company also maintained large proprietary trading positions, betting on crypto price movements with customer funds at stake. While this strategy worked beautifully during the bull market of 2020 and 2021, it left the platform extremely vulnerable to a downturn. By late 2021 and into early 2022, warning signs were appearing across the broader crypto space. Major players were facing pressure, and liquidity was starting to dry up. Yet Celsius continued its aggressive growth strategy, offering high promotional rates to attract even more deposits. The company's public communications remained upbeat, with Mashinsky and the team emphasizing stability and strength at a time when internal metrics were showing increasing strain. By early 2022, the broader crypto market began to sour. Bitcoin and other major coins entered a sharp decline. Liquidity across the industry tightened dramatically. At that critical point, Instead of being transparent with their users about the growing pressure on the platform, Celsius continued to project strength and stability. They kept promoting the high yields and actively encouraged new deposits even as the underlying economics became increasingly strained. Then came the breaking point. On June 12, 2022, without any prior warning to customers, Celsius suddenly froze all withdrawals and transfers. In a single moment, Roughly four point seven billion dollars in customer funds, money that people genuinely believed they controlled and could access, became completely locked and inaccessible. The impact on real people was immediate and brutal. When Celsius froze withdrawals and filed for Chapter 11 bankruptcy just a month later, federal investigators from the Department of Justice, the Securities and Exchange Commission, and the Commodity Futures Trading Commission moved fast. They immediately recognized the signs of potential criminal fraud. rather than a simple business failure caused by market conditions. What unfolded was a sophisticated multi-year investigation that spanned multiple agencies and continents. Investigators served dozens of subpoenas targeting not only Celsius' internal systems, but also third party partners, lenders, and even some of the largest institutional players who had interacted with the platform. They seized server logs, trading records, bank statements, and detailed financial models. Forensic accountants worked meticulously to reconstruct the company's true financial position, peeling back layer after layer of how customer funds had actually been used. A key turning point came when investigators obtained internal Slack messages and emails that revealed executives discussing the platform's precarious liquidity position months before the public freeze. These communications showed a growing desperation to keep the yield promises alive even as the underlying assets deteriorated. Former employees became key witnesses. Some described a culture where raising concerns about risk management was often dismissed or ignored. Investigators also spoke with borrowers who had received large loans from Celsius and uncovered how customer deposits were being commingled and used in ways that created hidden leverage across the entire operation. The evidence painted a clear picture. Internal messages showed that senior executives, including Mashinsky, had been monitoring serious liquidity issues for months. There were discussions acknowledging the company's growing dependence on new deposits to sustain the high yields. Even more concerning, investigators discovered that customer crypto was being deployed not just for straightforward lending, but to collateralize Celsius' own high risk trading positions and to support the price of their native Cell token. Users were encouraged to hold the Cell token for even higher rewards. This token became central to the platform's ecosystem. With Mashinsky frequently touting his potential on social media and live streams. What many users didn't realize was how much the company's stability had become tied to maintaining the price of cell itself. One of the most damaging aspects of the case was the sharp contrast between what was said publicly and what was happening privately. While Mashinsky continued appearing in Ask Me Anything sessions and on social media, projecting confidence and assuring users their assets were safe. Internal records revealed serious concerns about the platform's stability. Investigators also uncovered that Mashinsky and other executives had taken steps to protect themselves personally. Records showed substantial withdrawals and sales of cell tokens by insiders in the months leading up to the freeze, actions that stood in sharp contrast to the public reassurances being given to customers. The multi agency effort highlighted serious regulatory gaps, customer fund segregation. Reserve requirements and transparency were either unclear or unenforced. This allowed the platform to scale to billions in assets with far less oversight than a traditional bank or registered investment advisor would face. Prosecutors argued this lack of guardrails enabled the kind of behavior that ultimately harmed hundreds of thousands of users. The probe extended internationally, examining Celsius' operations in multiple jurisdictions and how funds flowed through various entities. This global scope added significant difficulty as investigators had to coordinate across borders while dealing with the complex nature of blockchain transactions. Now let's go inside the investigation, where I provide some insight into what goes on behind closed doors during a complex investigation, and cryptocurrency investigations offer unique technical challenges. Celsius operated on blockchain networks. Unlike a traditional bank, Where investigators can subpoena records from one institution and see every transaction clearly. Blockchain transactions are public but not tied to real names. This meant investigators had to trace wallet addresses across multiple chains, exchanges, and services. They worked with specialized blockchain analytics companies to connect these coded addresses back to real people and companies. This process was painstaking and time consuming, requiring coordination with international partners. When funds moved through overseas exchanges or privacy coins. Every layer added complexity, turning what looked like simple transfers into a global puzzle that demanded both technical expertise and old-fashioned investigative work. It was like trying to follow cash through hundreds of different ATMs and hidden accounts all over the world. Extremely time-consuming and technically complex. The investor's suffering was profound. Court filings in the bankruptcy case contained hundreds of Hundreds of victim impact statements that revealed the true scale of the betrayal. A retired school teacher described losing her entire retirement savings, money she had counted on for medical expenses. A young couple who had deposited funds for a home down payment wrote about having to delay their wedding and move in with family. An elderly man shared how the loss forced him to return to work at age 70. Many victims spoke of sleepless nights, crushing anxiety, and a deep sense of shame for having trusted the platform. Some described the experience as financially devastating and emotionally traumatic, several mentioning suicidal thoughts in the aftermath. These weren't day traders chasing speculative gains. They were teachers, nurses, engineers, and retirees who would believe Celsius offered a legitimate modern alternative to traditional banking. In July 2023, the investigation reached a dramatic climax. Alex Mashinsky was arrested at his home in a highly publicized early morning operation by federal agents. Prosecutors also charged two other senior executives, Ronnie Cohen Pavan, the chief revenue officer, and David Heller, the head of trading. Mashinsky was charged with one count of securities fraud, one count of wire fraud, and one count of commodities fraud. The core allegation against all three executives was that they had knowingly misled customers for years about the safety and liquidity of their assets. While publicly telling users their crypto was safe and easily accessible, Mashinsky and the company were using customer deposits to fund risky lending, trading positions, and efforts to prop up the price of Celsius' own Cell token. Internal communication showed executives were aware of the growing liquidity problems months before the June 2022 freeze, yet continue to encourage deposits and portray platform as secure. The government's case was exceptionally strong because of the clear, documented timeline. Years of consistent public reassurance. Followed by an abrupt and total freeze with virtually no warning to customers. After prolonged negotiations, Mashinsky pleaded guilty and, in twenty twenty five, was sentenced to twelve years in federal prison. Cohn, Pavon, and Heller also eventually pleaded guilty, but received lesser sentences for cooperating with the government. ⁓ It wasn't the old school corporate accounting fraud of Enron with its complex special purpose vehicles and off-balance sheet debt. This was deception through narrative control and manufactured trust. The company didn't hide the money in offshore accounts. Instead, they hid the risk itself, wrapping highly leveraged and speculative operations in the language of empowerment, innovation, and financial freedom. They convinced thousands of ordinary people that a lightly regulated crypto platform could deliver bank like safety. With dramatically better returns. By constantly repeating the message that customer funds were secure and accessible, they lowered people's natural skepticism and made the platform feel like a safe, modern choice. This kind of deception is especially dangerous because it preys on hope and the desire for financial security in uncertain times. It uses sophisticated branding and charismatic leadership to make age old risks feel new and revolutionary. Betrayal ran deep. Precisely because so many victims were not sophisticated investors. They were regular Americans trying to do the responsible thing with their savings. Celsius' collapse also served as an early warning for the entire crypto industry. Just a few months later, in november twenty twenty two, the much larger FTX implosion would send shockwaves across markets and regulators. While the two cases had different technical mechanics, they shared the same critical flaw. Platforms that aggressively marketed safety and high returns while operating well outside the strict customer fund protections and regulatory oversight required of traditional banks. Both companies cultivated an image of innovation and trustworthiness while quietly exposing everyday people to enormous undisclosed risks. The rapid succession of these collapses helps accelerate calls for stricter regulation across the entire crypto space. Each episode, I share a practical field-tested lie detector tip. Today's tip is about chasing high yield opportunities in emerging or lightly regulated spaces. When someone offers you significantly higher returns than the market average, whether in crypto, private investments, or any new financial product, treat it as a serious concern. Ask yourself three simple questions. What is the actual source of these returns? Are they sustainable even in a market downturn? And what happens to my principal if things go against them? In the Celsius case, Those high yields were only possible because the company was taking on massive risk with customer funds while publicly promising safety. If the promised return sounds far too good for the level of risk being described, assume the risk is being understated. Demand clear, transparent answers about where that yield is really coming from and what actual protections exist for your money. Never let excitement about big returns override basic due diligence. Real opportunities can withstand honest questions. Dangerous ones almost never can. From sky high promises of safe crypto yields to frozen accounts and a founder heading to prison, the Celsius collapse is a cautionary tale for our time. It shows how quickly trust can evaporate when marketing outpaces transparency and risk management. If you've ever been drawn into an investment that promised unusually high returns or felt pressured to act fast because this is the future, I'd genuinely like to hear your story. Send it to Kevin at Follow The Lives Podcast dot com. The most compelling ones may shape future episodes. And if you want a practical tool to help you evaluate opportunities and spot deception more effectively in business, investing, or everyday life, I created a free guide called Seven Proven Strategies to Spot Lies and Uncover the Truth in any interview. You can download it right now at Follow The Lives Podcast dot com. No sign up required. While you're there, I'd love for you to join our growing community on Substack at follow the lies. Where I share deeper dives and extra lie detector tips. If you're getting value from these episodes, please hit subscribe, leave a rating or review, and turn on notifications. And if you know someone who might benefit from these stories, I'd really appreciate it if you text them the link. Those small shares help independent shows like this one grow more than anything else. Thanks for listening. Until next time, follow the lies. Mm.