Bankrupt crypto lender Celsius agrees to examiner review

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  • Celsius, DOJ agree to more limited scope for investigation
  • Celsius creditors’ committee says its investigation will complement examiner’s review
  • State regulators and some Celsius borrowers have pushed for stronger oversight

(Reuters) – Crypto lender Celsius Network has agreed to the U.S. Department of Justice’s demand for an independent examiner to review its finances and operations in bankruptcy, after reaching a deal that limited the proposed scope of the investigation.

Celsius said in a Thursday filing in U.S. bankruptcy court in Manhattan that it would agree to an independent review with a more limited scope than DOJ’s initial request.

The U.S. Trustee, the DOJ’s bankruptcy watchdog, had argued that an examiner could provide an impartial review of Celsius’ actions and finances, helping to dispel “widespread confusion” and “distrust” that has surrounded the crypto lender’s bankruptcy. State securities regulators from Texas, Vermont and Wisconsin supported the DOJ’s request.

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Celsius said in its filing that DOJ had agreed to revise the scope of an examiner’s review and that the new proposal would override the state regulators’ requests for an examiner.

The U.S. Trustee and state regulators did not immediately respond to a request for comment Friday.

The company said it welcomed an independent investigation, but it argued the DOJ’s initial proposal would have delayed the bankruptcy case for months and would duplicate investigations already underway.

Celsius’ proposal would allow an independent examiner to review the company’s current cryptocurrency holdings, its transfer of some customer assets to different account types beginning in April 2022, the energy costs of its bitcoin mining business and its compliance with tax obligations.

Celsius’s proposed examiner would not review intercompany loans, loan repayments that occurred before its bankruptcy filing in July or the company’s compliance with state securities regulations.

At least 40 state securities regulators are investigating Celsius for potential unregistered securities activity, mismanagement, securities fraud and market manipulation. Another investigation would only duplicate those ongoing efforts, Celsius said.

It has the support of the creditors’ committee appointed in its bankruptcy case, which said it is already investigating many aspects of the DOJ’s initial request, including Celsius’ pre-petition loan activity.

Several parties had backed DOJ’s request before Celsius submitted a modified proposal. Some had asked the bankruptcy court to approve more drastic oversight measures. A group of Celsius borrowers said the court should appoint a Chapter 11 trustee to take control of Celsius’s operations, while state securities regulators said the proposed investigation should look into Celsius’ alleged efforts to mislead customers about the security of their accounts.

Chief U.S. Bankruptcy Judge Martin Glenn is scheduled to consider the request for an examiner at a Sept. 14 hearing.

The case is In re Celsius Network LLC, U.S. Bankruptcy Court for the Southern District of New York, No. 22-10964.

For Celsius Network: Joshua Sussberg of Kirkland & Ellis

For the DOJ: Shara Claire Cornell of the U.S. Department of Justice

For the creditors committee: Michael Andolina and Gregory Pesce of White & Case

Read more:

State securities regulators seek more transparency in Celsius crypto bankruptcy

Crypto lender Celsius Network reveals $1.19 bln hole in bankruptcy filing

State securities regulators investigating Celsius accounts freeze

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