When Celsius Network co-founder Alex Mashinsky resigned, interim Chief Executive Officer Chris Ferraro implemented a strategy that ran counter to the very ethos of cryptocurrency: he made the bankrupt digital-asset lender as boring as possible.
(Bloomberg) — When Celsius Network co-founder Alex Mashinsky resigned, interim Chief Executive Officer Chris Ferraro implemented a strategy that ran counter to the very ethos of cryptocurrency: he made the bankrupt digital-asset lender as boring as possible.
With Ferraro at the helm, Celsius began hosting regular staff meetings, sending frequent memos to employees and — crucially — sticking to a budget. The point was to “make this place normal. Boring. Stable,” he said in an interview.
“It’s OK to be boring, we’re in bankruptcy,” Ferraro, 47, said. “We should tone it down.”
Ferraro, of course, does not view things like budgeting and communication as revolutionary — his career is dotted with stops in the world of traditional finance including at JPMorgan Chase & Co and an affiliate of Cerberus Capital Management LP. But implementing such normalities was a shock to the crypto lender’s culture. Before Celsius went bankrupt, Ferraro said he observed “a lot of yelling, a lot of kind of poking at each other, disrupting each other. It just wasn’t an optimized culture.”
He sought to change that by fostering a new culture to hold Celsius managers accountable and focus the company on repaying its customers, who have had billions of dollars trapped on the platform since June 2022. Now, a year after Ferraro took over, Celsius is close to completing a novel bankruptcy plan that would repay customers a portion of what they’re owed in Bitcoin and Ether and launch a new creditor-owned crypto company.
Notably, Celsius is on track to be the first failed crypto firm to be reborn in a meaningful way after a wave of insolvencies rocked the industry starting last year. Key stakeholders, including a committee representing Celsius creditors, are supporting its restructuring plan. Roughly 38,700 users of Celsius’ flagship interest-bearing product — owed more than $2.4 billion — voted in support of the plan, compared to about 250 such accounts that voted against it, according to a Monday court filing.
The proposal faces pushback from the Securities and Exchange Commission, the Justice Department’s bankruptcy watchdog and some customers who are challenging aspects of the plan. But the finish line is near: a federal judge is scheduled to consider approving Celsius’s plan on Oct. 2. If approved, Celsius anticipates it could begin repaying customers before the end of the year.
“These folks need the liquidity,” Ferraro said.
Ferraro joined Celsius a little more than three months before it went bankrupt, in March 2022, as head of financial planning, analysis and investor relations. He joined after taking a break from finance, time he used to run farms in Ecuador, where his wife is from. He grows local fruits like Granadilla and Naranjilla in the mountains and near the coast.
Ferraro’s first task for Celsius was to prepare a budget, something he said the company had never done. At the time, he was working from the basement of his mother’s home in Seattle while waiting on a visa from Ecuador. Ferraro said he quickly identified problems as he reviewed Celsius’ products.
“I remember going upstairs and saying, like, I just don’t understand how they’re not making any money in crypto,” he said over a video call from his residence in Quito, Ecuador’s capital city. “Everywhere I read, the spreads are wide. What’s going on?”
In July, federal prosecutors charged Mashinsky with wire fraud and other crimes and accused him of making misleading statements to get customers to lend to the platform. Mashinsky is also accused of manipulating the value of Celsius’ native token, CEL, and causing investors to buy the token at inflated prices. Prosecutors allege Mashinsky made about $42 million selling his own CEL tokens.
Mashinsky has pleaded not guilty to the charges and his lawyers didn’t respond to messages seeking comment. Mashinsky’s lawyers have said his firm’s problems were the result of market forces outside of his control, including the May 2022 crash of so-called stablecoins Luna and TerraUSD, and unexpected mass withdrawals by Celsius customers.
An independent examiner who reviewed events surrounding Celsius’ collapse said the company’s financial problems dated back to at least 2020 when the business started using customer assets to fund operational expenses. The practice contributed to a $1 billion hole in Celsius’ balance sheet, the examiner said in a report.
Celsius has entered into a non-prosecution agreement with the DOJ and settled with the Federal Trade Commission, which accused Mashinsky and two other former executives of tricking customers into putting crypto assets on the platform.
‘Best We Can Do’
Still, Celsius has managed to keep alive the prospect of a continued business in a way similarly situated peers have not. The new Celsius should net higher recoveries for customers than a liquidation, the fate that befell peers BlockFi Inc., Voyager Digital Holdings Inc. and crypto hedge fund Three Arrows Capital.
Preserving that option hasn’t been cheap. It paid more than $100 million fees and expenses for bankruptcy advisers through August, according to a court filing. More than half of that — $54.8 million — was paid to Kirkland & Ellis, the company’s lead bankruptcy law firm.
Celsius has been mindful of those expenses but is happy with the resulting restructuring plan, which would see customers getting paid in liquid crypto and shares in a new publicly listed company, Ferraro said. That company also struck settlements with creditors and other stakeholders to avoid more costly litigation in Chapter 11, he said.
“The cost of a US bankruptcy is just appalling,” Ferraro said. “I would have never imagined this in a million years.”
Ferraro said he has been in contact with proposed management for the reborn Celsius so the business can be handed off seamlessly. He’ll stay with Celsius to oversee distributions to creditors and a small group of employees will stay on to wind down anything not taken over by the post-bankruptcy company.
“It’s a very hard story, people are not getting what they put on the platform,” he said. “But I think it’s the best that we can do.”
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.