One year after investing in a cryptocurrency lender, the Quebec Pension Plan lost all of its investment.
In October 2021, the Caisse de dépôts et placements du Québec (CDPQ), the organization responsible for investing the funds of the Quebec Pension Plan and other public sector plans in Quebec, invested nearly $150 million US in cryptocurrency Celsius Network, calling it “the world’s leading crypto lender with a strong management team that puts transparency and customer protection at the core of [its] operations.”
Not even one year later, CDPQ had to write off the entire investment.
For those unfamiliar, cryptocurrency works as a decentralized currency (meaning no central authority, such as a government, controls it). All of the information, such as user exchanges of the currency, is held on a digital ledger called a blockchain, which is duplicated and distributed on computers across the planet. There are several types of cryptocurrency, the largest ones being Bitcoin and Ethereum.
Celsius, founded in 2017, planned to become the premier lending and borrowing company for cryptocurrencies. Depositors earned high interest rates, way higher than any bank could afford. Users received an 18-per-cent interest rate if they agreed to be paid in CEL, Celsius’ own cryptocurrency. They said they could pay such high rates because they passed along most of their earnings to their customers.
It has later been described as the very definition of a Ponzi scheme — a form of fraud that generates returns for existing investors with money taken from new investors — hidden under slick marketing and crypto hype. Its assets grew to more than $25 billion in October 2021, but there were storms on the horizon for Celsius and its backers.
In 2022, the crypto market crashed. Celsius began attracting significant scrutiny from securities regulators and its executives were in hot water for their association with individuals accused of money laundering and fraud.
Despite early denials, it was revealed that Celsius had been making high-risk investments with its users’ money through a worldwide trading team. A lawsuit was filed by a former business partner in New York, alleging that Celsius failed to perform basic accounting, endangering customer funds. Their investments did not pan out and it became clear the company was paying more in interest than it could generate. Celsius was insolvent.
In May 2022, all user withdrawals were paused. In July, Celsius filed for bankruptcy. It had $5.5 billion in total liabilities.
In September, financial authorities in Vermont alleged that Celsius had already been in financial trouble throughout 2020 and 2021. The company had been using new deposits to pay for existing clients’ yields. There are no indications that the CDPQ was aware of these issues at the time, but questions about its lack of due diligence have surfaced.
For its part, CDPQ has said it is looking at its legal options and a senior adviser told the Financial Post that “some of our investments, such as the one in Celsius, are not performing as expected.”
Some would call that an understatement. Meanwhile, Federal Retirees actively monitors the Canadian pension landscape. To our knowledge, the CPP and PSPIB have not invested in or plan to invest in cryptocurrency. The CDPQ invests funds for 46 pension plans, including the Quebec Pension Plan. It’s one of the largest funds in Canada, with more than $390 billion in net assets and the recent writeoff impacts the pension fund of more than two million Quebecers.