Celsius Bankruptcy Investigated by Independent Examiner

key takeaways

The independent examiner will attempt to peer into the lender’s business practices, as well as the value and type of crypto it holds
A committee representing Celsius users has publicly objected to the appointment

The US Trustee’s office is seeking the appointment of an independent examiner to investigate crypto lender Celsius’ bankruptcy proceedings.

According to a court filing on Wednesday, the Office of the United States Trustee is attempting to address “a lack of transparency” surrounding the lender’s bankruptcy case.

“The addition of social media, in this case, has amplified [Celsius’] transparency issues because there is a lot of information on the internet, but it is not vetted or explained,” the filing reads. “The result has been confusion and anxiety. An examiner can fix this.”

The agency, part of the Department of Justice, is responsible for overseeing the administration of bankruptcy cases and private trustees in the US.

The Celsius Official Committee of Unsecured Creditors’ Twitter account voiced its concerns Thursday, claiming the appointment of an examiner would “run up millions in costs” for the lender.

“Let @CelsiusUcc do its job for account holders,” the account tweeted, tagging the Department of Justice’s Twitter handle in the process.

Celsius did not immediately return a request for comment.

The committee, formed in late July, represents Celsius users and consists of five individuals and two entities. It submitted its first official mission statement earlier this month, pledging to put the interests of Celsius’ account holders and unsecured creditors first.

Trust issues and transparency

There is no understanding among customers, interested parties and the public relating to the value or type of crypto held by the lender, the office argues. An independent examiner is “necessary” to investigate and report clearly on Celsius’ operations as well as its lending transactions, it said.

“The divergent interests of the various estates, the extreme financial irregularities that have taken place and the extensive mistrust of [Celsius’] customers, all make the appointment of an independent and disinterested examiner in the best interests of creditors, equity security holders, and the bankruptcy estates,” staff at the Trustee’s office wrote in their filing.

The appointment — mandatory for cases exceeding $5 million dollars under US law — would restore public confidence in the integrity of the bankruptcy system by addressing the “inherent distrust” creditors and associate parties have, the court document says.

“Numerous questions” in the New Jersey-based lender’s case also remain unanswered, the office said, including Celsius’ failure to “adequately collateralize” their loans as well as allegations relating to the offering of unregistered securities.

Celsius filed for Chapter 11 bankruptcy protection in mid-July in a bid to “stabilize” its business following a halt to withdrawals in the month prior where it cited “extreme market conditions” as its reason following a steep decline in cryptocurrency prices, partly fueled by the collapse of Terra.

The lender had resisted calls from its previous lawyers at Akin Gump Strauss Hauer & Feld LLP to file for bankruptcy before conceding on advice from its new counsel, Kirkland & Ellis LLP.

Prospects for customers to recover funds

On Sunday, the New Jersey-based firm released its budget over a three-month horizon, reporting that it anticipates its net cash flow would reach more than $137 million in negative territory by the end of October.

Last month, Celsius reported a deficit of $2.84 billion owing to a total of $6.7 billion in token liabilities with roughly $3.8 billion in token assets, including $761 million of its native token CEL.

At its height, Celsius managed around $8 billion in crypto loans with around $11.8 billion in assets for around 1.7 million users.

“The numbers will move around based on what happens in the court, but right now first day declaration looks like something like 50-60 cents on the dollar for a general Earn account,” bankruptcy specialist Thomas Braziel said on a livestream Wednesday.

“I don’t see how they’re ever going to get back to a crypto 100% repay, but I think it’s possible they could do a fiat 100% repay if the market picks up, mining goes well, they get some good bids for parts of the business or the whole business — and you could see some good outcomes,” he said.

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