“I Trusted Them With My Savings:” Crypto Investors Fight Over Frozen Accounts

Months ago, Hamish Tipene from Sydney, Australia took out two loans from Celsius Network. When he bought a new home above his pre-approval rate, he staunchly supported the crypto lender’s “Unbank Yourself” motto, using his crypto holdings as collateral rather than selling them for cash.

But when the value of crypto started declining a week ago, the collateral Tipene had pledged for the loan dwindled rapidly and he received a margin call. He had to add more collateral.

Before he could, Celsius froze Tipene’s account, making it impossible to meet the margin call in a timely manner. The company liquidated 0.59 of a bitcoin, which is worth $11,800 at today’s rate. He is now facing another margin call that would wipe out another $13,000 in Bitcoin, but since his account is still frozen, he faces the same dilemma.

“I’ve been trying to reach her for days. You can’t take away someone’s ability to resolve a situation and then punish them for not resolving it,” Zimmerman, 46, told Yahoo Finance. “I trusted them with my savings and that’s unfair.”

Over the past year, cryptocurrencies have given retail investors a chance to secure wealth, which many saw as a golden opportunity to make money. Now that the tide for risky cryptocurrency assets is being hit particularly hard, investors are rethinking their trust in some crypto firms, including Celsius Network, after the companies took drastic steps in the face of a liquidity crisis.

Crypto’s total market cap has fallen by over $237 billion since the release of May’s hot inflation data, from $1.15 trillion to $913 billion as of Monday morning, but since its peak in November, the figure has fallen 70% lost – more than two-thirds of their value – according to Coinmarketcap.

Industry players, accustomed to delivering strong returns for investors and growth for shareholders during bull markets, are now withdrawing capital with several major trading venues, including Robinhood, Gemini, Crypto.com, BlockFi and Coinbase, announcing significant layoffs.

Then there is Celsius.

The company offers retail investors high-yield interest accounts that are often misconstrued as bank-level savings accounts. According to its website, Celsius had 1.7 million users as of May and had $12 billion in customer funds, most of which came from retail.

For over a week, the company has frozen its customer accounts to stabilize its operations. But the move has also made it harder for customers to meet margin requirements, as in the case of Tipene.

Northern California resident Yevhenii Marchenko does not have access to the $85,000 in Solana, Cardano and Chainlink crypto tokens locked in the platform. He has been a customer since November when the crypto market peaked.

“Almost every crypto-related YouTube channel recommended Celsius, so I felt it was safe,” he told Yahoo Finance, adding that he has more confidence in Celsius since it’s a US-based company. “It’s a really tough and depressing situation.”

The Celsius Network logo and representations of cryptocurrencies can be seen in this illustration taken on June 13, 2022.  REUTERS/Dado Ruvic/Illustration

The Celsius Network logo and representations of cryptocurrencies can be seen in this illustration taken on June 13, 2022. REUTERS/Dado Ruvic/Illustration

Celsius has also offered little assurance of its financial health, leading customers and viewers alike to speculate whether the company is “risking bankruptcy,” which would jeopardize any additional assurances investors are offering.

Celsius hired restructuring lawyers and bankers at Citigroup. Meanwhile, some of his clients are rallied to sue the company.

“As unsecured creditors, we’re basically left behind in bankruptcy courts,” Ben Armstrong, a crypto influencer and Celsius client, told Yahoo Finance. “We probably still won’t get more than $1, but at this point, for me, it’s about holding Celsius accountable.”

Behind content brand and company Bitboy Crypto, which has over 3 million social media subscribers, Armstrong has promoted Celsius by running a paid affiliate program for the company on its website and by appearing as a guest on Celsius’ own podcast.

But as the value of crypto assets declined over the past two weeks — Bitcoin fell 29% this month — Armstrong began threatening the company and its founder and CEO, Alex Mashinsky, with a class-action lawsuit via social media. According to Armstrong, $2 to $3 million of Bitboy Crypto’s own money is currently stuck on the platform.

“I think the money is gone. This is about standing up for all the people who have seen my channel and trusted Celsius. You’re not going to take a loss the way I did,” Armstrong said, noting that he discussed possible scenarios with his attorneys. “This is about holding these people accountable for what they’ve done.”

A cryptocurrency ATM is pictured at a store in Union City, New Jersey, the United States, May 19, 2021.  REUTERS/Mike Segar

A cryptocurrency ATM is pictured at a store in Union City, New Jersey, the United States, May 19, 2021. REUTERS/Mike Segar

While retail investors may have a reduced chance of getting their money back from Celsius in a bankruptcy scenario, according to Joshua Browder, CEO of DoNotPay, a so-called “robo-lawyer” that helps get financial recovery in small claims court can provide wealthy people with help artificial intelligence filed minor lawsuits.

The service, which is also backed by some of the biggest crypto players like venture giant Andressen Horowitz (a16z) and FTX founder and CEO Sam Bankman-Fried, charges a fee for its service and has received over 1,000 applications as of Monday morning against Celsius in the past week.

Browder told Yahoo Finance that if the crypto lender doesn’t file for bankruptcy in the next two months, small plaintiffs “can actually get their money back.” [Celsius’] Company bank account ahead of everyone else.”

Even if Celsius goes bankrupt, Browder argues, small claims judgment — $10,000 to $25,000 based on state rules — will take precedence over other unsecured creditors.

“If Celsius doesn’t appear at your court case, investors will win by default. Keep in mind that Celsius is totally inundated right now,” Browder said. “I don’t think they’re going to send executives across the country defending themselves against a $10,000 lawsuit.”

A staunch supporter of the legal effort, Tipene himself cannot file a small claims case in a US court because he lives in Australia. Instead, Tipene has given up hope of seeing his remaining fortune, even after his second loan liquidation, which he is unable to fulfill in time.

“Bitcoin can go down to $10 and it wouldn’t bother me because I think it will go back up,” he said. “It’s these companies. They play with people’s money and shouldn’t get away with it.”

David Hollerith covers cryptocurrencies for Yahoo Finance. follow him @dshollers.

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