Celsius: "The Dictionary Definition of a Ponzi Scheme"

Vermont Regulators Didn’t Use the Word, but I Will: Celsius Was a Ponzi

The present feels like a watershed moment in the prominence of ESG, [Kristyn] Noeth 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.”

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

Madoff-Inspired Whistleblower Program Stiffs Big-Money Tipsters

The Texas comptroller’s office rewarded Danon for his work, and the Securities and Exchange Commission twice filed legal briefs on his behalf, arguing that whistleblowers must be protected.

But when it came time to get paid, the SEC Office of the Whistleblower stopped returning his calls, according to a July federal court filing.

Danon’s allegations fit a pattern in the agency’s handling of several high-dollar cases involving banks, pharmaceutical companies, and investment houses, a Bloomberg Law review of lawsuits and agency documents shows. The agency has opened investigations and worked with whistleblowers for years, or passed their information on to other agencies that recouped money, then refused to provide details on why it denied their claims.

WeWork Founder Adam Neumann’s Flow Draws Crypto Interest

Within the crypto industry, which has had no lack of outlandish personalities and shameless hucksterism, Neumann’s past does not seem to be raising many concerns. He’s “a world-class founder,” says Michael Anderson, co-founder of crypto venture-capital firm Framework Ventures. After all, one of Neumann’s indisputable strengths is building hype: He raised billions from investors for WeWork and turned straightforward real estate subleasing into a headline-grabbing business adventure.

After a striking boom, the digital asset industry has been besieged this year by steep drops in token prices and dwindling interest from venture capitalists. It could use some of Neumann’s swagger right now. “If he can build something as big as WeWork again, I think that will be really positive for our industry if there is an element of Web3,” says Anderson.

SEC Warns Chinese Companies About Risks of Auditor Changes

The Securities and Exchange Commission on Tuesday warned Chinese companies not to violate legal and audit requirements as they switch to auditors based in the U.S. to comply with a law that threatens to delist the businesses from American stock exchanges.

More than 200 U.S.-listed Chinese companies are in danger of being booted off U.S. stock exchanges starting in early 2024 under the Holding Foreign Companies Accountable Act of 2020. It prohibits trading in companies whose auditors cannot be inspected by the Public Company Accounting Oversight Board—the U.S. audit watchdog overseen by the SEC—for three consecutive years.

Crypto Crash Gives U.S. Bank Regulators ‘Breathing Space,’ Official Says

Federal agencies have in recent months seen a less pressing need to publish planned interagency guidance on how banks should treat digital assets, Michael Hsu, acting comptroller of the currency, said Wednesday at a banking industry conference in New York.

The overall crypto market capitalization sat at about $960 billion Wednesday, down from about $3 trillion in November, according to data provider CoinMarketCap.

He highlighted the Terra collapse—the stablecoin TerraUSD, ostensibly pegged to the U.S. dollar, which plunged in value in May—as a major event that disrupted an industry that had been “running really rapidly.”

“Now there’s just a little bit more breathing space,” he said. “We have time.”

SPACs: Still Looking Bleak

Reuters reported yesterday that Digital World Acquisition Corp., the SPAC that’s attempting to merge with Donald Trump’s social media venture, has so far failed to get the approval from 65% of shareholders that’s necessary to extend the deadline to complete the deal.

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Per the playbook, the media company blames political bias for the regulatory scrutiny of this transaction. But what that statement misses is that the SEC and others are searching for ways to kill SPAC deals regardless of who’s involved. In a separate enforcement action announced yesterday, the Commission charged a New-York based investment adviser with failing to disclose conflicts of interest relating to SPAC sponsor compensation and failing to timely file a Schedule 13D. The investment adviser agreed to a censure and a $1.5 million penalty to settle the charges.

ESG Can’t Square With Fiduciary Duty

Second, both Mr. Landry’s and Mr. Rokita’s letters are warnings to public pension-plan trustees, who are under the same fiduciary duties that BlackRock is. Mr. Rokita’s opinion concludes that public pension boards are “prohibited” from retaining asset managers who “make investments, set investment strategies, engage with portfolio companies, or exercise voting rights appurtenant to investments based on ESG considerations,” which the Big Three all do.

This conclusion is logical. If BlackRock is violating its fiduciary duty, so is a pension-plan board member or investment staffer who knowingly invests with BlackRock. It’s well-settled law, as the Second Circuit Court of Appeals has stated, that where a “fiduciary was aware of a risk to the fund . . . he may be held liable for failing to investigate” or for not “protecting the fund from that risk.”