A bombshell new filing by the Vermont Department of Financial Regulation in the Chapter 11 proceedings of the collapsed Celsius Network makes the case that the crypto lender was effectively insolvent, not just after the crypto market declines of early 2022 but as early as 2019.

Celsius itself admitted to investigators “that the company had never earned enough revenue to support the yields being paid to investors.” The filing further claims that its financial analysis “suggests that at least at some points in time, yields to existing [Celsius] investors were probably being paid with the assets of new investors.”

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Although the regulator never used the word, that’s the dictionary definition of a Ponzi scheme.

In short, contrary to voluminous public statements by CEO Alex Mashinsky, Celsius never really functioned as an investment middleman for crypto-asset holders, generating yields from institutional lending and passing them along to depositors. Instead, nearly from the beginning of its existence, it was paying depositors at least in part from non-revenue sources including other depositors’ funds, venture capital investments or the CEL token it printed from thin air.

I recently wrote about the inherent danger of unsustainable high yields as a customer acquisition strategy in finance. That encompasses other actors, including both BlockFi and the Terra blockchain's Anchor system. But Mashinsky and the Celsius team are in potentially much, much hotter water than even a delusional screwup like Terra founder Do Kwon. There’s a slim chance Kwon actually believed his own absurd claims about the UST “stablecoin.” That’s why I called him the Elizabeth Holmes of crypto – like Holmes, it remains at least slightly unclear whether Kwon was an outright fraudster or just not very bright.

Alex Mashinsky won’t get to exploit the same ambiguity. The Vermont filing, as the kids put it, has got receipts.

See also: Celsius and BitConnect: Not So Different? | Opinion

It again and again notes specific dates on which Mashinsky made public attestations to the firm’s financial health, at the precise moment Celsius was actually deeply in the red. Those deceptions may well form the foundation of a criminal fraud case against the CEO and his allies.

CEL-ing lies

The Vermont filing also explores the role of the CEL token in Celsius’ finances. “If Celsius’ net position in CEL is excluded, its liabilities exceed its assets in all of the Freeze Reports and Preliminary Balance Sheets provided to state regulators,” the filing claims, referencing reports beginning May 2021. Even more broadly, the filing claims that “excluding the Company’s net position in CEL, liabilities would have exceeded its assets since at least Feb. 28, 2019.”

In other words, Celsius was effectively insolvent nearly from birth. The only way it avoided acknowledging that was by tallying the value of its self-generated “Monopoly” money.

See also: Bankrupt Lender Celsius CEO Owes Creditors Transparency

And if that wasn’t enough, the Vermont filing further cites “credible claims [that] Celsius and its management engaged in the improper manipulation of the price of the CEL token.” Celsius spent hundreds of millions of dollars worth of depositor funds buying CEL tokens, with the possible intent of pumping the token price – including after Celsius halted user withdrawals on June 12.

Regardless of what any court concludes, that sure sounds like criminal behavior. It’s also a major question for regulators going forward – should centralized private companies be free to issue their own blockchain tokens at all? And if they can, how should they be required or allowed to account for those tokens financially?

Celsius, certainly, makes the case that printing your own money shouldn’t be treated as a legitimate path to corporate profit.