The morning of Monday, June 13, 2022, started badly for Fred Shanks.
In his inbox was an email from Celsius Network, telling him it had issued a margin call on a $10,000 loan he had taken out with the company. The crypto lender requested about $3,000 from Shanks or the company would liquidate his collateral — meaning it would keep all the Bitcoin he posted to get the loan, and charge him a 3% fee on top for doing so.
Shanks, 61, was eager to meet the margin call, but on that day, Hoboken, New Jersey-based Celsius froze his account and refused to let him use CEL, its native token currency, to pay off the interest he owed.
What he didn’t know was that Celsius was on the verge of collapse - it filed for bankruptcy protection one month later, on July 13. Shanks, a retired Air Force IT worker in Colorado Springs, Colorado, was one of hundreds of thousands whose accounts had been frozen, preventing customers from withdrawing their crypto from the platform.
Conversations with Shanks, as well as emails between him and Celsius employees obtained from US federal bankruptcy court, give a glimpse into the personal hell experienced by 1.7 million Celsius customers whose crypto is in limbo.
The correspondence details the unfolding drama as Celsius demanded money from Shanks to secure his loan, and as Shanks desperately tried to access and transfer the money from his Celsius accounts.
At each step, Celsius refused to resolve the margin call because his accounts were frozen. And yet Celsius repeatedly renewed a demand for the money.
Behind the scenes, a former Celsius executive told DL News that the company was scrambling to stem a bank run. As regulators investigate, the company, along with cofounder and CEO Alex Mashinsky, face lawsuits. Kirkland & Ellis, the law firm advising Celsius, said in a filing that Celsius had a near $1.2 billion hole in its balance sheet. Kirkland & Ellis did not respond to a request for comment.
$100,000 trapped in a frozen account
For Shanks, 61, the margin call was just the beginning. He had about $100,000 in cryptocurrency stashed on Celsius — a quarter of his savings from his days in the military before he retired in 2000. He was suddenly unable to access any of it.
The stress of dealing with Celsius has made Shanks lose weight, he told DL News.
Solving the problem should have been simple: As part of the loan agreement, Shanks had initially posted collateral, $20,000 in Bitcoin, to receive the $10,000 loan. “I needed the money to pay for some medical stuff. I knew I could pay it off in six to 12 months,” he told DL News. “I just saw the loan as leveraging the Bitcoin I had instead of selling it.”
But in May of that year, Bitcoin plummeted. It had been sitting at about $46,000 in late March. As spring turned to summer, the price fell toward $20,000.
That meant the value of his Bitcoin collateral had fallen below $7,000, and the margin between the $20,000 loan and the collateral was now greater than $13,000, or 65%. The margin was supposed to be 50%. If he could just add about $3,000 or more in Bitcoin, the margin call would be resolved and he would not risk losing all the Bitcoin he posted as collateral.
‘How can a margin call be resolved if all accounts are locked?’
But Celsius had frozen his accounts without informing him, court documents allege. That included about $100,000 of his Bitcoin.
“How can I resolve this,” Shanks replied on the day he received the margin call. He wrote again later that day: “How can a margin call be resolved if all accounts are locked. NO transfers are allowed.”
On June 14, at 2.41 p.m., Shanks received what looked like good news. An email from Celsius staffer Nicoletta Koursari said: “The easiest way to balance your loan LTV level and close the margin call is to add additional crypto as collateral directly through your Celsius mobile app.”
She closed her message with, “Best regards and HODL on!”
But Shanks couldn’t do that. He replied: “Celsius is missing the point. I have excess BTC in my account that I could transfer to cover the required amount... Celsius needs to lift this freeze.”
Celsius halts withdrawals
Nine minutes later, Koursari replied, “We are pausing all withdrawals, Swaps, and transfers between accounts. This necessary action has been taken to stabilise liquidity and operations. Our intent is to honour, over time, our withdrawal obligations.”
“Therefore, in order to resolve the margin call by adding collateral to your loan, additional funds are required to be transferred to the Custody account,” she added. “Alternatively, you can close the loan.” DL News was unable to reach Koursari for comment.
Shanks was outraged. Not only was his $100,000 in Bitcoin stuck in a frozen account, but the company now demanded he send them even more to cover the margin call.
‘Your account is not frozen’
“I was betrayed, I was lied to, I felt deceived,” he told DL News. “This mainly was over email because I know if it’s not in writing, you have nothing to back up your statement.”
“They would say, ‘Oh, your account is not frozen, we can help you.’ But whenever I put it in writing, it came back with the typical social-media script.”
Shanks says he hopes to demonstrate to the court that he tried to close out his accounts before the company filed for bankruptcy, and that therefore his assets should not be distributed as part of the bankruptcy estate — creditors generally get pennies on the dollar once a company’s assets are sold and distributed to those who are owed money.
On June 14, the messages from Celsius grew even more confusing. At one moment, a staffer would insist that Shanks could pay off his loan. At another, he was told his accounts were frozen.
Shanks wrote to one of them: “Celsius has frozen all accounts preventing me from transferring the required number of coins to cover the margin call. Unless Celsius unfreeze the account, I CAN NOT meet the requirements of the loan for the margin call.”
The staffer who replied said, “We would love to help out, but I’m afraid your inquiry is not clear to us as your account is not frozen.”
Shanks sent them another email:
“Do you NOT see the issue… I have provided a screenshot to try and explain.”
Another Celsius staffer, identified only as Bojan, appeared to offer Shanks a lifeline.
He told Shanks in an email later on June 14: “We can initiate a transfer of assets from the Earn service [an interest-bearing account] to your Custody Wallet in order to respond to your prior Margin Call. … If you wish to proceed, please confirm by indicating below that you ‘Confirm’ the transfer.”
“Please note that, if you proceed, your account may be temporarily placed on HODL mode while we process these transactions,” Bojan also said. “HODL mode” was the company’s way of disabling an account temporarily.
Shanks approved the transfer 19 minutes later, the emails show.
At this point, Shanks thought he had resolved the margin call. Bojan emailed him to confirm: “Your request for internal transfer has been escalated to our dedicated team, and we will notify you as soon as the action is completed.”
Celsius declines to accept its own tokens
But he also added a technicality: “In addition, recently the CEL token has been paused, and currently, we can’t accept it for the loan interest payments.”
CEL was the native crypto on Celsius that the company had suggested customers use to pay off interest on their loans, according to Shanks’ complaint in US federal bankruptcy court. Shanks sent another email, boiling with frustration: “WHY is cel no longer an option to be able to pay the interest. i have purchased cell for this is [sic] exact purpose”?
At this point, Shanks changed his mind. With the price of Bitcoin continuing to crash, he decided to pay off the loan entirely, not just the margin call.
Celsius staffer Kira Airy offered to help him do it. “Do you need assistance with closing your loan? I’d be more than happy to help,” she wrote.
Shanks replied three minutes later: “Yes, please do help… I need to swap the all cel coins to usdc coins. The [sic] what ever is needed to swap from BTC to usdc coin to pay off the loan.”
But 23 minutes after that, Airy declined to let him pay the loan: “Currently, withdrawals, swaps, and transfers between accounts have been stopped,” she wrote.
On June 16, at 8:45 a.m., she elaborated: “We need to receive the loan principal in one of our approved Stablecoins,” which included USDC and USDT, among others.
Notably, Celsius wouldn’t accept CEL, its native token, in payment.
‘We can’t swap coins on your behalf’
Shanks persisted. At 11:20 a.m. on June 16 he told her: “As I stated, swap cel coins for usdc coins. Swap BTC FOR USDC COIN for the required amount to pay off the loan.”
Airy wasn’t having it: “Hi Fred, We can’t swap coins on your behalf. Best, Kira.”
Shanks became sarcastic: “Then how does Celsius plan to resolve this issue. As celsius created the enigma of preventing account holders from managing their funds to resolve payments and closing of loans.”
Airy kept it professional. “Hi Fred, Our operations continue and we will continue to share information with the community as it becomes available,” she wrote. “Please let us know how you’d wish to proceed with your current loan.”
Four minutes later, Shanks said: “I wish to close the loan with the funds I have available in my account… Why would I send more funds to a company that is hold [sic] over 100k dollars of mine hostage?” Airy did not respond to DL News’ request for comment.
That was the last email between Shanks and Celsius.
Behind the scenes
Behind the scenes, Celsius executives were trying to make customers whole, said Rohit Sabhlok, who at the time was the lead for crypto trading architecture at Celsius.
“The company was not trying to steal people’s money,” Sabhlok told DL News. He has since left Celsius to cofound KYAX.com, which helps crypto companies with audit, tax, and regulatory requirements.
As crypto prices plummeted, “that started a bank run on the institution — and no one withstands a bank run. Once you crush that liquid reserve,” it’s over, he said.
Internally, Celsius executives noticed that some institutional customers were taking out funds. But retail customers — ordinary individual investors — were moving more slowly. Rather than leave the retail customers to bear the full brunt of the withdrawals, a decision was made to stop all withdrawals, Sabhlok said.
“We started working out where our assets were liquid and selling them, to pay customers’ returns. But there’s only so much we can take. We were selling out to pay people back. We then decided, ‘That was it, we can’t really go on.’”
Shanks told DL News: “I felt violated. I felt like they literally stole my money and stole my rights, as if they didn’t have to abide by the laws. The contracts were useless.”