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The Caisse de dépôt et placement du Québec still has some explaining to do.

Canada’s second-largest pension fund manager has finally acknowledged that its US$150-million investment in Celsius Network is souring because the New Jersey-based cryptocurrency lender is mired in bankruptcy protection.

Now the Caisse needs to come clean about why its investment and risk management committee made such a bet in the first place, and the consequences those money managers will face for embarking on this costly misadventure.

Canadian pension funds are supposed to take a conservative view of investment risk. In fact, being boring is a badge of honour in their world.

So, how could the Caisse, which is entrusted with managing pension money for millions of Quebeckers, invest in a crypto lender that was already in trouble with U.S. state regulators?

Last September – more than two weeks before the Caisse announced that it was making an investment in Celsius Network – the crypto lender was ordered by the Kentucky Department of Financial Institutions to stop offering interest-bearing accounts in that state.

In fact, the Kentucky regulator’s emergency cease-and-desist order said Celsius was breaking state law by offering “unregistered securities,” stressing its accounts have led to “an unregulated market that represents an unprecedented risk to consumers.”

Kentucky wasn’t the first state to take regulatory action against Celsius. The crypto lender had already been targeted by securities regulators in Texas, Alabama and New Jersey, according to publicly available documents.

So, with all these red flags, why did the Caisse proceed with its investment? It’s baffling.

“We understand that our investment in Celsius raises a number of questions. This is something that we take very seriously and we will provide further comment at the appropriate moment,” Caisse spokesperson Maxime Chagnon said in an e-mailed statement.

“Celsius is currently engaged in a complex process that will take time to resolve. As always, our primary concern remains to protect the interests of our clients and we are making every effort to preserve our rights.”

Earlier this month, Celsius filed for Chapter 11 bankruptcy protection in a New York court. It is now under investigation by securities regulators in several U.S. jurisdictions. The crypto lender’s filing came about a month after it froze withdrawals and transfers between its nearly two million customers amid a sharp sell-off in cryptocurrencies, including bitcoin.

Of course, cryptocurrencies were still flying high when the Caisse decided to back Celsius last October.

Still, its investment immediately raised eyebrows because Canadian pension funds have largely eschewed significant investments in crypto companies owing to the outsized risk.

Although U.S. private-equity firm WestCap Group was the lead investor on the Celsius transaction, which was worth a total of US$400-million, the Caisse’s involvement lent legitimacy to the crypto lender. In fact, the Caisse originally said the financing gave Celsius a valuation of more than US$3-billion.

What’s more, Alexandre Synnett, the Caisse’s executive vice-president and chief technology officer, publicly gushed about the investment. “Celsius is the world’s leading crypto lender with a strong management team that puts transparency and customer protection at the core of their operations,” he said at the time.


Nine months later, Celsius is in bankruptcy protection and the Caisse is doing damage control because it’s unclear if it will recover any of its original investment.

Perhaps US$150-million is chump change for a pension fund with $420-billion in total assets. Even so, members of the Caisse’s investment and risk management committee have egg on their faces.

“It is important to remember that diversification is a significant part of our investment strategy,” the Caisse’s Mr. Chagnon said. “A very small portion of our overall portfolio is invested in new technologies, which feature innovative, high-growth companies in riskier sectors that offer the potential for superior returns – and have provided outstanding returns to our clients over a number of years. However, some of our investments, such as the one in Celsius, are not performing as expected.”

We get it – no risk, no reward. No one expects every investment to be a smashing success. But the signs of trouble with Celsius were apparent from the get-go. So, why did the Caisse’s due diligence process fail?

“Every transaction, even relatively minor ones, are subject to an exhaustive analysis and rigorous process by our teams,” Mr. Chagnon added. “In all its investments, CDPQ aims to continuously improve its business practices and will do so in this case.”


But heads also need to roll at the Caisse.

Quebeckers should demand it. That’s the only way to clean up this cringeworthy crypto mess.

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