Jack Kubinec

<div id="highlights-block_62d84d2557d92" class="highlights">
 <ul>
 <li>Voyager and Celsius’ court filings list the same lead attorney and contain several identical paragraphs</li>
 <li>The insolvent crypto lenders may be using Chapter 11s as a “delay tactic”</li>
 </ul>
 
</div>



The longer crypto’s <a href="https://cms.blockworks.co/crypto-bear-market-may-drag-on-another-8-months-grayscale/" target="_blank" rel="noreferrer noopener">bear</a> market lingers, the more evident the tight-knit ties between the industry’s biggest players becomes.&nbsp;



That co-dependence now seems to apply to their legal travails of late.&nbsp;



Insolvent crypto lenders <a href="https://cms.blockworks.co/tag/celsius/" target="_blank" rel="noreferrer noopener">Celsius</a> and <a href="https://cms.blockworks.co/tag/voyager/" target="_blank" rel="noreferrer noopener">Voyager Digital</a> have <a href="https://cms.blockworks.co/celsius-hires-new-restructuring-lawyers-amid-debt-repayments/" target="_blank" rel="noreferrer noopener">both filed for Chapter 11 bankruptcy</a> via Kirkland &amp; Ellis, while Babel Finance has retained the behemoth corporate law firm to advise its restructuring.



The crypto lenders chose Kirkland for its past successes in Chapter 11, legal experts say, and <a href="https://www.kirkland.com" target="_blank" rel="noreferrer noopener">Kirkland</a> took on the three cases to give itself a reputation as a leader in crypto firm restructurings — which appear to just be getting started. 



Lawyers told Blockworks it makes sense the three bankrupt lenders would each hire Kirkland, given its sterling reputation. Kirkland led the two shortest Chapter 11 restructurings in history, both clocking in under 24 hours.



But in other cases, such as its ongoing representation of Toys R Us, Kirkland has engaged in years-long negotiations on behalf of its clients. Celsius and Voyager may be hoping their cases fall on the latter end of the spectrum, experts say.



“My guess is they’ve chosen Chapter 11 because they’re hoping the price of crypto goes back up, which takes them out of the situation they’re in. It&#8217;s like a delay tactic,” Kimberly Houser, a clinical assistant law professor at the University of North Texas, told Blockworks.



If the lenders pursue the same wait-it-out restructuring strategy, choosing Kirkland should make legal operations easier.



Firms commonly handle multiple cases in a given specialty because it is “more efficient as the attorneys often do not have to duplicate research,” Carol Goforth, law professor at the University of Arkansas, said in an email.&nbsp;



Voyager and Celsius’ initial court filings both list Joshua Sussberg as their lead attorney. The portions that explain crypto terminology are identical. Large swaths of the two companies’ overviews of their Chapter 11 filings are directly copied.



The first day declarations, from Celsius and Voyager CEOs <a href="https://pacer-documents.s3.amazonaws.com/115/312902/126122257414.pdf" target="_blank" rel="noreferrer noopener">Alex Mashinsky</a> and <a href="https://cases.stretto.com/public/x193/11753/PLEADINGS/1175307062280000000036.pdf" target="_blank" rel="noreferrer noopener">Stephen Erlich</a>, respectively, both say factors largely beyond the companies’ control caused a “run on the bank.”



Celsius and Voyager each filed for Chapter 11 bankruptcy in the Southern District of New York — despite operations in multiple jurisdictions. 



Kirkland likely expects “some sort of favorable treatment” from the district court if it filed each bankruptcy there, Houser said, adding that future Chapter 11s may be filed elsewhere, such as Delaware, if the court rules unfavorably toward the crypto lenders.



The court will rule on practices without much precedent in bankruptcy proceedings, Will Brannan, partner at Lowenstein Sandler, told Blockworks in an email, citing “on and off-platform custodied cryptocurrency assets, rehypothecation activities, cryptocurrency lending implications, as well as the ramifications of customer participation in ‘earn’ and ‘yield’ product offerings” as novel issues for the court.



Successfully navigating the complexities of the three lenders’ financial woes would give Kirkland “a chance to be at the forefront of these emerging issues,” Brannan said. 



Kirkland taking on the three lenders’ cases to establish its reputation in crypto would seem a partial vindication of Celsius, which last week was sued by a former investment manager <a href="https://cms.blockworks.co/celsius-accused-of-market-manipulation-by-ex-employee/" target="_blank" rel="noreferrer noopener">alleging financial mismanagement and fraud</a>.



Kirkland would not want to represent Celsius if the law firm “believes there’s fraud involved,” according to Houser.



“Even though people are really upset about this, I don&#8217;t see any indication that this is fraud,” she said.&nbsp;



Given the volatility of the crypto market, Houser is uncertain whether rising cryptoasset values will save Celsius and Voyager. But a prolonged crypto market slide could also benefit the companies in their Chapter 11 negotiations.



“If the creditors realize crypto values are not increasing, the creditors could see that the longer they wait the less value the crypto has and agree to pennies on the dollar” in repayment from the lenders, Houser said.



Kirkland &amp; Ellis, Celsius, Voyager and Babel did not immediately respond to requests for comment.



Updated July 24, 2022, 3:05 pm — Correction: Babel Finance has not filed for bankruptcy and has retained Kirkland &amp; Ellis to advise its restructuring.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Babel Finance

The Same Law Firm Is Representing Celsius, Voyager and Babel Finance

Sebastian Sinclair

<div id="highlights-block_62cb90bc0dd93" class="highlights">
 <ul>
 <li>Celsius has tapped a new law firm to help steer the firm&#8217;s restructuring as it stares down a lawsuit</li>
 <li>The move comes as the lender is attempting to repay its debt to DeFi protocols Aave and Compound totaling $213 million</li>
 </ul>
 
</div>



Troubled crypto lender Celsius has reportedly tapped a new law firm to advise its restructuring efforts as it continues to resolve its outstanding debts.



According to a report by the <a href="https://www.wsj.com/articles/troubled-crypto-lender-celsius-hires-new-restructuring-lawyers-11657473712?mod=Searchresults_pos1&amp;page=1" target="_blank" rel="noreferrer noopener">Wall Street Journal</a> on Sunday, the ailing company has replaced its former lawyers at Akin Gump Strauss Hauer &amp; Feld LLP with new ones from Kirkland &amp; Ellis LLP.



Kirkland &amp; Ellis LLP is the same law firm representing <a href="https://cms.blockworks.co/tag/voyager/" target="_blank" rel="noreferrer noopener">Voyager</a> — another troubled lender — helping it to navigate its <a href="https://cms.blockworks.co/voyager-files-for-bankruptcy-days-after-freezing-withdrawals/" target="_blank" rel="noreferrer noopener">Chapter 11 bankruptcy</a>, filed last week.



Celsius, which had managed up to $11.8 billion in assets for around <a href="https://celsius.network/" target="_blank" rel="noreferrer noopener">1.7 million users</a> as of May, halted withdrawals last month, citing &#8220;<a href="https://cms.blockworks.co/celsius-lending-platform-suspends-withdrawals-and-transfers/" target="_blank" rel="noreferrer noopener">extreme market conditions</a>&#8221; as the reason for its move. 



A former crypto money manager has also sued Celsius over allegations the firm <a href="https://cms.blockworks.co/celsius-accused-of-market-manipulation-by-ex-employee/" target="_blank" rel="noreferrer noopener">misappropriated user funds</a> to cover its shortfalls in its lending business. That manager is said to have cost Celsius $61.2 million in liquidations, according to data from <a href="https://cms.blockworks.co/celsius-farmed-out-funds-to-defi-degen/" target="_blank" rel="noreferrer noopener">Arkham Intelligence</a>.



The lender has since made several attempts to honor its debt obligations to decentralized finance lending and borrowing protocols Aave and Compound in recent days, potentially in a bid to free up $950 million in locked collateral, <a href="https://www.coindesk.com/markets/2022/07/08/celsius-pivots-toward-paying-off-aave-compound-debt-with-950m-collateral-as-prize/" target="_blank" rel="noreferrer noopener">CoinDesk reported</a>. The move resembles its repayment to DAI stablecoin issuer and DeFi platform Maker last week.



Celsius repaid its final outstanding debt to Maker on Thursday, paying back <a href="https://defiexplore.com/tx/0xea97f1dee874f21636dfce49382e68b890c51ec045fd0eae7df41a0b5f62e573" target="_blank" rel="noreferrer noopener">41.2 million</a> in DAI that unlocked 21,962 in WBTC (wrapped bitcoin), worth approximately $440 million at the time.



According to a crypto wallet identified as Celsius&#8217; by blockchain intelligence firm Nansen, Celsius has a total of $213 million outstanding debt to both platforms, down from $258 million on Friday. Out of $213 million, Celsius owes 63% to Aave and 35% to Compound, data from DeFi data dashboard <a href="https://zapper.fi/account/0x8aceab8167c80cb8b3de7fa6228b889bb1130ee8?tab=history" target="_blank" rel="noreferrer noopener">Zapper</a> shows.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Kirkland & Ellis

Newsletter

Blockworks Research