The Caisse de depot et placement du Quebec in Montreal on Feb. 20, 2020.Paul Chiasson/The Canadian Press
The chief financial officer of Celsius Network – a crypto lending company that has received hundreds of millions in investment dollars from Canada’s second-largest pension fund – has been suspended by the company after he was implicated in a fraud investigation by Israeli police.
In a Nov. 26 statement on Twitter, the British company said that it was “recently made aware of a police investigation in Israel involving an employee.” It added that the investigation was in “no way related to the employee’s time or work at Celsius Network,” but that the employee was “immediately suspended.”
The tweet did not identify Yaron Shalem, who has been Celsius Network’s CFO since March, as the suspended employee.
Mr. Shalem did not respond to multiple requests, through social media, for comment surrounding his suspension. The company did not respond to The Globe and Mail’s request for comment either.
But in a statement to The Globe, Caisse de dépôt et placement du Québec, which led a US$400-million funding round for Celsius Network in October, confirmed that Mr. Shalem was involved in a police investigation in Israel.
“We are aware that the CFO of Celsius Network, a portfolio company, is implicated in an investigation relating to a matter that occurred prior to him joining the business,” the Caisse said. “He was immediately suspended, and we have been in communication with management around the matter.”
From 2014 to 2018, Mr. Shalem was CFO of Tel Aviv venture capital firm Singulariteam VC, which invested primarily in crypto startups. Since 2018, he has also been CFO of Sogur Currency, which created the now-defunct crypto token Saga.
Major Canadian institutional investors, especially pension funds, have shied away from investing in crypto companies mostly because of regulatory uncertainty and cryptocurrency’s long-standing reputation as a tool for money laundering. But the explosive growth of the sector and digital asset innovations that have moved beyond just buying bitcoin have prompted some large and reputable institutional investors to explore the space.
The Caisse made its inaugural crypto investment by participating in the US$400-million funding round for Celsius Network alongside San Francisco-based private equity firm WestCap Group. The firm did not respond to The Globe’s request for comment about the Celsius Network employee’s suspension.
The same week as the Caisse invested in Celsius Network, Teachers’ Innovation Platform, the venture capital arm of Ontario Teachers’ Pension Plan, was among 69 investors that participated in a financing of crypto exchange FTX Trading Ltd. The Ontario Municipal Employees Retirement System pension fund, or OMERS, has a stake in Purpose Investments, which launched a bitcoin ETF earlier this year.
In an interview with The Globe in October, Caisse chief technology officer Alexandre Synnett called Celsius Network “the bank of the future,” and said part of the reason why the pension fund invested was because it “really liked” the company’s management team and the cryptocurrency expertise they offered.
Celsius Network was co-founded by New York-based tech entrepreneur Alex Mashinsky in 2017 and is headquartered in London. Its main line of business is facilitating the lending and borrowing of cryptocurrency by investors through the Celsius app, which is accessible globally. When users deposit cryptocurrency, the company loans the funds out to borrowers at yields as high as 17 per cent. Celsius also owns bitcoin miners, and invests in various bitcoin mining operations.
Quebec’s securities regulator, Autorité des marchés financiers, told The Globe it had not made any inquiry to Caisse about its investment in Celsius Network, but it is making inquiries on “the type of activities, if any, conducted by Celsius in Quebec.”
The circumstances surrounding why Mr. Shalem is being investigated by Israeli police, and whether he was arrested, are still unclear.
CoinDesk, a popular crypto-focused online publication, reported that Mr. Shalem was among seven people arrested in Tel Aviv last week as part of a police operation targeting Israeli crypto entrepreneur Moshe Hogeg, chairman of the Blockchain Research Institute at Tel Aviv University, and co-founder of Singulariteam VC.
On Nov. 18, the Hebrew and English-language Israeli newspaper Haaretz, quoting Israeli police, reported Mr. Hogeg and seven others were arrested on suspicions of “fraud, money laundering and other crimes.” The newspaper quoted Israeli police as saying that each of those arrested was suspected of “pocketing tens of millions of shekels and conspiring to mislead potential investors on a number of projects involving cryptocurrency.” Mr. Hogeg was the only one identified by the police by name.
Celsius Network’s Nov. 26 statement on Twitter regarding an employee’s suspension was released just three days after short-seller Nate Anderson, of Hindenburg Research, asked Mr. Mashinsky – during a Twitter Spaces ask-me-anything session – to confirm whether the company’s CFO was arrested on allegations related to the Moshe Hogeg case. Mr. Mashinsky said he had “no information” on the matter and could not “confirm or deny” the rumours.
Around the same time, Celsius Network announced on its LinkedIn page it had increased the US$400-million funding round led by the Caisse and WestCap to US$750-million, after the round was oversubscribed. The financing values Celsius at about US$3.25-billion.
Crypto lending, Celsius Network’s core business, has come under heavy pressure by U.S. regulators recently, who insist the services do not comply with securities laws. Last month, the U.S. Securities and Exchange Commission blocked the crypto exchange giant Coinbase from offering a new crypto lending product that would allow users to earn interest on their investments in a stablecoin called USDC.
Celsius Network has also been targeted by regulators in U.S. states, with Texas and New Jersey recently accusing the company of offering residents unregistered securities. They argued that Celsius Network markets its products as an alternative to bank savings accounts, and therefore should be registered with the right regulators for proper oversight.
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