A step forward towards the return of customer assets
Collapsed cryptocurrency lender Celsius Network reached a key settlement in its bankruptcy lawsuit today.
The settlement brings Celsius one step closer to obtaining court approval for its plans to return assets to its customers.
By way of background, Celsius’ customers were suing for damages, alleging that former Celsius management had deceived and misrepresented products. One of the proposed settlements would address this by increasing the amount that Celsius pays its customers by 5%.
Court documents submitted by Celsius said the agreement could settle 30,000 claims totaling about 11 trillion yen ($78 billion).
Lawyers for Celsius have argued that Celsius has no obligation to pay more than what customers deposit on its platform. However, many customers have filed lawsuits seeking damages over alleged misconduct by the company’s former management.
The court is expected to make a decision on the proposed settlement at a hearing on August 10.
If the settlement is approved, a confirmatory hearing on Celsius’ restructuring plans is planned before a U.S. bankruptcy court judge in October. In that case, assets such as cryptocurrencies could begin to be paid out to Celsius customers by the end of the year.
Celsius stopped withdrawing customer funds in June of the same year following a chain of defaults in the cryptocurrency market in 2022. In July of the same year, Chapter Eleven filed for bankruptcy in the United States, and is in the process of proceeding with the premise of corporate restructuring.
Chapter 11 of the U.S. Bankruptcy Code (Chapter 11)
A reconstruction-type bankruptcy legal system similar to the Civil Rehabilitation Law of Japan. The company will be restructured by reducing debts while continuing to operate. Debt collection will be suspended after the application, and the debtor will work on debt consolidation and formulate a reconstruction plan within 120 days in principle.
New company to restructure management
In May, after discussions with the company’s unsecured creditors’ committee, Celsius was acquired by Fahrenheit, an investor group led by TechCrunch founder Michael Arrington.
Under this group of investors, the plan is to rebuild Celsius as a new company and distribute its liquid assets to account holders. The new management team will also manage illiquid assets such as the loan portfolio, cryptocurrency mining operations and alternative investments.
Fahrenheit will receive about ¥4.9 billion ($35 million) in management fees annually, according to court filings. Meanwhile, Celsius creditors will own 100% of the shares in the new company.
Co-Founder Arrested and Indicted
On the 13th of this month, the US Department of Justice, US Securities and Exchange Commission (SEC), US Commodity Futures Trading Commission (CFTC) and Federal Trade Commission (FTC) each sued Celsius Network.
The company’s co-founder Alex Mashinsky was also arrested on the 13th. The U.S. Department of Justice has charged him with defrauding customers and manipulating the price of Celsius’ proprietary token, CEL.
According to the Justice Department, Celsius used customer funds to fund market purchases of CEL without permission to support the price of CEL. Mr. Mashinsky and others are said to have made a large profit by selling the CEL they owned.
The SEC is also suing Celsius for securities fraud, while the CFTC is suing Celsius for violating the Commodity Exchange Act and making false statements. The FTC fined Mashinsky and others about ¥660 billion ($4.7 billion) for misappropriating client assets and concealing financial information.
connection: SEC and other US authorities sued Celsius, CEO Mashinsky arrested