Anil Hansjee first expressed worry he was throwing $8 million into a black hole at 7:07 am on the morning of Monday, June 6, 2022, according to his emails.
Hansjee is the London-based general partner at Fabric Ventures, a firm that makes investments in crypto startups. He was right to be anxious. Earlier in the year, he had committed to investing $8 million in Celsius, the cryptocurrency exchange. But by June, rumours were spreading that Celsius had been hit by the total collapse of the TerraUSD stablecoin, which wiped about $45 billion off the crypto market.
Hansjee wanted to know if his $8 million was going to be safe.
His emails have been published as exhibits in the litigation around the bankruptcy of Celsius. The “debtors-in-possession” — the lawyers appointed to recover as much money as possible from the wreckage — are suing Fabric for $6 million in US federal bankruptcy court.
Fabric had paid $2 million of its $8 million investment commitment, but Hansjee and his colleagues refused to pay the remaining $6 million when it became obvious that Celsius was going under. The Celsius debtors now want all the money to be paid. They claim the investment contract Fabric signed remains binding, even if Celsius no longer exists as a functioning company.
The investment may be small by crypto VC standards. And the core of the dispute will turn on the dry technicalities of contract law. But the emails give a rare glimpse at the behind-the-scenes panic that unfolds when a VC firm realises it has invested in a crypto company that is going bankrupt and is going to lose all its money. The tone of the emails is both polite and desperate, by turns casually anxious ,and then brutally formal. They also discuss matters that were supposed to be the subject of non-disclosure agreements, the emails state.
A difficult and sudden U-turn
Back in April 2022, Fabric was bullish on all things crypto and Hansjee couldn’t move fast enough to invest in Celsius. At its peak, Celsius had $12 billion in assets under management.
Hansjee practically begged to put money into the company. He wanted to buy $8 million in “series B” preferred shares but needed time to come up with the cash. Celsius general counsel Ron Deutsch initially told him they were going to stick to their funding deadlines — which Fabric couldn’t meet.
On April 6, Hansjee asked for 90 days to gather the financing. He was happy to sign whatever commitment or contract was required, he said, as long as he was given time to get the cash from his limited partner investors.
Deutsch was accommodating: “As long as we sign the subscription documents/commitments soon we can provide more time for funding,” he told Hansjee.
On April 7, Hansjee wrote to Deutsch: “Firstly thanks for your understanding. Highly appreciated. Second, whatever we sign for we are making a HARD commitment for as professionals in this industry. So if we sign for 8m now, even if you were to allow a delayed funding, we would be good for this 8m. I just want to make sure there is no misunderstanding here and we don’t treat it as an option.”
Just two months later, the weather had changed. With cryptocurrency prices in widescale freefall, Hansjee was starting to have doubts.
‘Tough times I know!!’
On June 6, he emailed Deutsch and Michael Greenblatt, Celsius’s corporate counsel, to ask what was going on.
“Michael and Ron how are you? Tough times I know!!”
Then he expressed his fears for the first time.
“I would like to ask for some investor reporting to be sent our way. Especially in times like this it’s critical to share some insights so we don’t get hung up on social media news which has been overwhelmingly negative to Celsius, unfortunately.”
He had meetings with partner investors the following week, he said, “and I will be expected to be able to comment at a high level in our portfolio companies and I’m afraid I have no real insights on key matters such Celsius wrt [with relation to] market impact to $ inflows and AUM [assets under management], expected rev [revenue] and user and AUM growth for the year, timing of the IPO of the mining business in this current market, the CEL token collapse and the UST [stablecoin] story.”
“It would be useful for me to also know what elements are for my ears only,” he wrote.
He then noted, also for the first time, that he doubted he could meet a deadline for investing the next $2 million of his $8 million commitment, which was due at the end of the week. “I would like to ask if we can delay this to accommodate a slight delay in our paper work,” he said.
He got his meeting with the executives at Celsius but remained worried.
‘Damn the Torpedoes’
The next day, Celsius posted a long essay on Medium, titled, “Damn the Torpedoes, Full Speed Ahead,” in which the company argued that “It’s unfortunate that vocal actors are spreading misinformation and confusion.”
“They have tried unsuccessfully, for example, to link Celsius to the collapse of Luna and falsely claim that Celsius sustained significant losses as a result,” the company wrote. It also addressed the fact that some customers’ accounts had been frozen — or placed in “HODL mode” — making it impossible for them to withdraw their funds.
“They have stirred confusion around HODL mode and the importance of protecting user accounts,” the essay said.
Internally, Celsius executives believed they had escaped damage from the Luna fiasco. But customers were nonetheless withdrawing funds from the platform. Celsius’s native token, CEL, had become nearly worthless, creating a potential run on the bank.
But denying the rumours in such detail only gave them further life. Customers were freaked out that their accounts were locked as crypto prices crash all through the spring and summer.
‘Liquidity crisis’
Four days later, on June 10, Hansjee emailed Deutsch and Greenblatt again, requesting an update. This time, Hansjee used the phrase “liquidity crisis” — suggesting he believed Celsius might not survive.
“What are the current short term assets (cash and cash equivalents) vs equivalent liabilities? what are current withdrawals and what sort of withdrawal level will lead to a liquidity crisis?” he wrote.
On June 13, Celsius froze all customer accounts in an attempt to halt withdrawals so that the platform could be stabilised. Over the next few weeks, it became clear to Hansjee and his colleagues at Fabric that Celsius was not going to make it.
The immediate problem for Fabric was that the firm had signed paperwork committing them to invest a further $6 million, imminently.
Fabric decided not to throw good money after bad.
‘Please can you therefore return the initial advance of 2m USDC’
On July 8, Julien Thévenard, an associate at Fabric, sent a formal letter to Greenblatt. They were pulling the investment. And they wanted their money back:
“Regrettably we are not in a position to proceed with our previous offer of investment. Please can you therefore return the initial advance of 2m USDC sent on 10th May 2022, which was sent pending closure of our fundraising and allotment of equity.”
The meaning of ‘irrevocably’
At the time, Hansjee probably thought he was doing the right thing. He may have lost $2 million, but at least he had saved the remaining $6 million. How could he possibly be expected to “invest” in a company that was imminently and publicly going out of business? (He and other Fabric executives involved did not return requests for comment.)
Celsius’s debtors-in-possession see it differently, of course. The investment contract between Celsius and Fabric was clear: it committed Fabric to the investment “irrevocably”. Fabric “hereby irrevocably applies to subscribe for 391 Preferred B Shares of £0.00001 each in the capital of the Company for cash at a price of $20,469 per share on the terms and subject to the conditions of the articles of association of the Company.” Lawyers for Celsius did not return multiple requests for comment.
It is the Celsius debtors’ job to recover as much money as possible in order to pay back as many people as possible. To them, the Fabric contract is simple: You promised to pay us $8 million, and you still owe us $6 million.
Where, exactly, is Fabric’s investment?
The court will now be asked to decide whether Fabric’s contractual promise to pay is binding, despite the fact that Celsius was collapsing even as it was due.
But it’s not as simple as that.
Before the bankruptcy, Fabric also accused Celsius of mishandling its investment, which had been transmitted in the form of the USDC stablecoin.
Thévenard’s email said Celsius had agreed to keep Fabric’s first $2 million in a “segregated” investment account. But blockchain data showed that the money had immediately been moved to a different wallet. “The chain data shows that within 24 hrs of confirming receipt of our funds, these were then moved onto ‘Celsius Network: Wallet 5′,” he wrote.
Worse, it was no longer clear where Fabric’s $2 million in stablecoins was now. The USDC had been transferred into “an on-chain wallet controlled by Celsius with high volumes of transaction (several hundred thousand transactions), presumably a “hot wallet” of Celsius and not a segregated investment account. We note that the USDC balance on this Wallet (”Celsius Network: Wallet 5) is now only 31,367.734793; so the funds have been moved again. We deem this to be a serious breach of the commitment.”
The court will therefore have to decide whether Celsius broke the terms of Fabric’s agreement, if it turns out the money was not segregated.
Five days after Thévenard’s email, on July 13, 2022, Celsius filed for bankruptcy. Fabric has yet to respond to the complaint.