Fresh allegations against Celsius renew calls for EU crypto compensation fund

A petition to the European Parliament for the creation of a crypto compensation fund is gathering steam following recent scandals, in particular happenings at Celsius Network.

The petition organizer, Jonathan Levy, wrote that the EU must create a fund paid for by “taxing” transactions to provide restitution for victims of crypto crime.

Although Celsius is not under criminal investigation, Levy alleged the company is guilty of criminal wrongdoing.

Celsius is repaying its debt

On June 13, the crypto lending and borrowing platform suspended withdrawals due to “extreme market conditions.” Weeks before, rumors the company was insolvent were floating around social media — a claim CEO Alex Mashinsky denied at the time.

It later emerged that Celsius was engaging in risky high leveraged trading with users’ funds and had come unstuck during the market downturn.

Since July 1, on-chain data shows the company paid off $183 million of its collateralized debt to Maker. Crypto Twitter posted more instances of Celsius paying down other debts over the past few days.

Co-founder of Onchain Captial Ran Neuner asked the Twitterverse if anyone knew where Celsius was getting the money.

As a private company, details of Celsius’s financial situation are unknown. However, these active measures give hope to users with funds locked up on the platform.

Fresh allegations emerge

Levy initially submitted the compensation fund petition to respond to losses incurred through criminality. Previously, he had been lobbying the European Commission, on behalf of his clients, over matters regarding the OneCoin scandal.

The petition claims victims of crypto crime cannot seek restitution via usual methods — like “legal proceedings in national courts, criminal complaints to national authorities, bank transfers, credit card reversals” — due to the multijurisdictional nature of cryptocurrencies.

Therefore, a compensation fund is necessary to directly help victims of crypto crime and fulfill the EU’s obligations in overseeing the digital asset market.

At this stage, happenings at Celsius are not under criminal investigation. The consensus is that woes at the company were the result of mismanagement rather than a deliberate attempt to defraud investors.

Nonetheless, Levy alleged in an email sent to CryptoSlate that Celsius, in conjunction with its custodian Fireblocks, had been complicit in covering up “risky rehypothecation practices” for more than a year.

It’s further alleged that both parties misled users on insurance by issuing confusing and conflicting reports, thus giving customers a false sense of security.

“The claims about the existence of insurance by Celsius is a classic misdirection by Mr. Mashinsky, such insurance as may exist does not protect investors from the reckless lending practices of Celsius nor the nonfeasance of its custodian Fireblocks.”

Celsius states it does not operate an insurance plan. However, Fireblocks does provide insurance cover for digital assets held by Celsius in cold storage.

“However, we generate interest rewards by deploying assets. When these assets are out of Celsius’s control, they can’t be insured by such insurance.”

In other words, those crypto-assets are not covered for losses when “deployed” for yield generation by Celsius.

Establishing a crypto compensation fund

Representing a network of individuals and companies, who have collectively lost €10 billion, including a client with “several million euros” frozen by Celsius, Dr. Levy proposes an industry-funded “superfund” to compensate victims of crypto crime.

The fund would be paid for by implementing “an unnoticeable .0001 cent per €” on each crypto transaction. Dr. Levy stated that the proposal is feasible considering “daily crypto asset volume has been as high as €2 trillion recently.”

According to CoinMarketCap, the last 24 hours saw $64.2 billion in volume globally.

At this stage, it’s unclear whether the proposal is intended for transactions conducted within the EU only. If so, there may be a shortfall between expectations and the actual “taxation” fee should EU lawmakers implement this proposal.

Levy was contacted for clarification, but a response has yet to be received.

The post Fresh allegations against Celsius renew calls for EU crypto compensation fund appeared first on CryptoSlate.

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