Firefighter Has Retirement Funds Locked Up In Bankrupt Crypto Lender
Chapman Shallcross had already been burned. father of the stream Bachelorette competitor Zach Shallcross, he spent 34 years in the fire service, retiring from his job as a fire captain for the city of Orange, Calif., after health issues caught up with him in 2020.
The eldest Shallcross considers himself a hands-on blue-collar guy, but when his reality TV star son tipped him off to the world of cryptocurrencies, he quickly became fascinated with the potential of the technology.
Today, the elder Shallcross is among nearly 1.7 million people worldwide whose assets are frozen in the Celsius Network, a cryptocurrency lender that promised to be safer than a bank. Celsius froze more than $4 billion in assets on June 12. A month later, it filed for Chapter 11 bankruptcy, making it one of the few crypto companies to implode in the latest stock market crash.
Many in the cryptosphere are referring to the fall of Celsius, Voyager and Three Arrows Capital as a “Lehman Brothers moment” for the industry, a nod to the investment bank that faltered during the 2008 subprime mortgage crisis. Prior to its crash, the subprime mortgage industry was worth $1.3 trillion. Today’s crypto industry is worth much more – and isn’t as regulated.
“I thought [Celsius] would be a solid place to put my cryptocurrency; and as it happens it doesn’t and it’s awful,” Shallcross told the Los Angeles Times.
Doctors, actors, crypto enthusiasts, working-class folks, and even Canada’s second-largest pension fund, Caisse de Depot et Placement du Quebec, which has about $150 million locked up in Celsius, are also caught. in the Celsius mess.
Shallcross started investing in cryptocurrencies in 2018. He started slowly, but after retiring in 2020, he withdrew all of his retirement savings from his state-run CalPers account and bought Ethereum and Cardano. , two cryptocurrencies. Shallcross first held his crypto on the BlockFi exchange, but in December 2021 moved it to the Celsius network, which promised a yield program with returns of up to 17%. He expected the investment to remain in his Celsius account for about five to seven years before withdrawing it. But on June 12, he found he was suddenly unable to withdraw funds from his Celsius account. He has over $400,000 blocked in his Celsius account.
“I just want to access my crypto,” Shallcross said over the phone as he returned home to Anaheim from a camping trip in Big Bear. “I want to be able to get by [Celsius]which, by the way, is what Celsius promised.
Celsius was founded in 2017 by Alex Mashinsky. Wearing a black t-shirt that read “Banks are not your friends,” Mashinky held weekly Q&A sessions with Celsius customers. He claimed that Celsius was able to achieve high returns for customers by operating similarly to a bank. Users can deposit various cryptocurrencies or the US dollar in Celsius. Celsius then lent the assets to financial institutions willing to pay high interest rates on short-term loans. It was called the “earning service” for Celsius users.
Celsius urged international users to take the interest payment in the form of their own cryptocurrency, the CEL token, for higher returns. CEL is not legally marketed in the United States. Under the terms and conditions of the Celsius network, users did not simply deposit their money as they would in a bank. Technically, they were lending digital assets to Celsius, essentially making user deposits unsecured loans. Buried in its terms of service, Celsius said that if the company were to file for bankruptcy, users’ assets “may not be recoverable” and users “may have no legal remedies or rights.”
James Murrow also found Mashinsky compelling. Murrow and his wife, Hui, have over $60,000 locked up in their combined accounts. The two recently moved from the Bay Area to Oklahoma due to the high cost of living in California. Murrow’s main concern with Celsius is that the “little guys” will once again be stuck with the bill.
“Alex Mashinsky really tells a great story,” Murrow told the Time. “Unfortunately for him, he lied. He lied a lot. It turned out that there were all kinds of risky investments that [Celsius was] do with our money.
The California Department of Financial Protection and Innovation has also become aware of Mashinky’s actions. In a cease and desist order issued Aug. 8, DFPI says more than 48,000 Californians with assets worth $650 million are implicated in Celsius’ frozen assets. DFPI ordered Celsius to stop offering securities to California-based customers while making “misrepresentations of material facts or omissions of material facts.”
The order also alleges that Mashinky himself misled users. “Mashinsky has repeatedly represented that even in the worst case scenario, investors would earn rewards would be able to withdraw their investments in a timely manner and would not suffer losses on their investments, and continued to make statements that it was safe to deposit assets with Celsius even in the days leading up to the firm’s June 12, 2022 decision to suspend client withdrawals,” the order reads.
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Asked to respond to Murrow’s comment and the DFPI’s order, Celsius pointed to the Time on his blog and Twitter account, which update all users on the status of Celsius’ bankruptcy proceedings.
There is little the government can do to combat unstable financial advice. A plethora of YouTubers, TV pundits, and Twitter users offer all kinds of financial advice around the clock. The laws governing crypto companies like Celsius are rather piecemeal and left mostly to the states. The FDIC, which insures bank deposits up to $250,000, does not offer such protection for investments in crypto institutions.
Celsius is currently under investigation in Texas, Alabama, Kentucky, New Jersey and Washington. New Jersey issued a cease and desist order against Celsius that went into effect November 1, 2021, alleging the company sold unregistered securities in violation of New Jersey law. Celsius is headquartered in New Jersey, where at least one class action lawsuit has already been filed against the company. In New York, State Attorney General Letitia James is reaching out to New Yorkers who believe they have been cheated by Mashinsky or other cryptocurrency platforms.
On August 3, a bill was introduced in the Senate that would submit crypto regulation to the Commodities Futures Trading Commission. The much better-funded Securities and Exchange Commission currently does most crypto trading. The SEC does not comment on the existence or non-existence of any investigations, a spokesperson told the Time.
Shallcross is torn over the possibility of regulation of the crypto industry. He loves and believes in the decentralized and anti-government aspects of cryptocurrencies and blockchain technologies. He does not plan to sell his crypto even if he manages to recover it. He’s in it for the long haul, he said. In the cryptosphere, it’s “HODLing” or “hanging on for dear life”.
“I think decentralization is good and I think blockchain technology and cryptocurrency can be great,” Shallcross said. “But when you’re slapped around losing all your retirement savings, you can’t help but say, ‘Hey, I wish there were some kind of regulation that would have prevented that. “