According to the interim report, “The Custody accounts did not regularly reconcile with assets held in the Custody wallets; shortfalls in the Custody wallets were funded by the Main wallets, where Earn deposits and other crypto assets were held.”
Shoba Pillay, the third-party examiner in Celsius' bankruptcy case, has dropped her interim report detailing her investigation into the firm.
Earlier, in 2021, US regulators began probing Celsius for providing unregistered securities. This caused Celsius to launch Custody and Withhold programs to allow US clients to keep their assets on its platform.
Pillay's report revealed that Celsius' programs lacked proper “accounting and operational controls or technical infrastructure.”
The report stated that the Custody wallets experienced shortfalls on 16 dates between April and July 2022. The bankrupt lender would use its Main wallet to fund these deficits. Celsius would then transfer the funds back to the Main wallets once the Custody wallets had a surplus of tokens, with Pillay adding,
“To cover shortfalls for certain crypto assets, Celsius noted a “need to source” the coins. When sourcing coins, Treasury first looked to its undeployed, liquid assets, and transferred those crypto assets to Custody.”
Although Celsius had a surplus of $9.7M funds in its Custody wallets at the beginning of June 2022, the wallets incurred a deficit of over $50M by the end of the month.
Furthermore, Celsius did not separate the assets stored within its Main and Withhold wallets. This has led to issues in determining which assets belong to Celsius users, thus complicating the reimbursement process.
Meanwhile, Celsius will discuss its Custody and Withhold accounts in the court hearing scheduled for December 5.
