Celsius Reaches Settlements To Exit Bankruptcy, Return User Funds

Table of Contents

• A Resolution In Sight 
• Unpacking The Settlements 
• What Comes After The Settlements 
• SEC Action Against Celsius 

Bankrupt crypto lender Celsius Network has reached two crucial settlements to end its bankruptcy proceedings and clear a path for the return of customer assets, revealed court filings.

Any responses or objections to the settlements must be submitted in court by the 3rd of August. 

A Resolution In Sight 

Celsius Network filed for Chapter 11 Bankruptcy in 2022, and customers have been waiting in anticipation of the outcome of its bankruptcy proceedings. While the settlements that will allow the bankrupt crypto lender to return customer assets have been reached, they still have to be analyzed by Judge Martin Glenn at a hearing scheduled for the 10th of August. If agreed, the settlements will allow Celsius to conclude bankruptcy proceedings and see the long-awaited return of customer assets. 

Additionally, there is also a confirmation hearing on Celsius’ reorganization plan that has been scheduled for October. This means customers could begin to see the disbursements of their crypto and assets before the end of the year. Lawyers representing Celsius Network have argued that customers are owed no more than the initially deposited amount. However, users have filed several claims seeking additional damages for alleged misconduct by the firm’s former management. 

Unpacking The Settlements 

The first settlement addresses several claims related to fraud and misrepresentation allegedly committed by the previous Celsius management. Under the agreement, Celsius has committed to increase customer recoveries by 5%. Those account holders who do not want to participate in the settlement can opt-out and pursue individual claims against Celsius. Those who wish to remain part of the settlement will be eligible to receive a claim amount equivalent to 105% of their scheduled claim. This would also override any Proof of Claims filed earlier. 

“Any eligible Account Holder who does not opt out of the settlement will receive a claim in the amount of 105% of their scheduled claim, which will supersede and extinguish any related Proofs of Claim filed by such Account Holder. “

The second settlement addresses claims by customers that had funds locked in Celsius’ interest-bearing Earn program. Under this agreement, Celsius customers that borrowed crypto can receive a portion of their funds in the form of crypto assets. Furthermore, customers of the Earn program will also be compensated with shares of the new company that would be created once the bankruptcy proceedings have concluded. With these resolutions, it is hoped that impacted customers of the bankrupt crypto lender can have some restitution, along with a stake in the company’s future operations. Court documents state, 

“[...] creditors have agreed to support an amended Plan that will provide Holders of Retail Borrower Deposit Claims with (a) the option to repay their principal balance of their loan [...] in exchange for an equivalent amount of cryptocurrency (which could lead to tax benefits for such Holders as compared to the Setoff Treatment) and (b) priority in electing a preference to exchange the NewCo Equity for Liquid Cryptocurrency at a 30% discount [...].”

What Comes After The Settlements 

Celsius is hoping to return user assets by the end of the year. The reorganization plan involves a partial return of crypto assets deposited on the platform. As compensation for the assets not returned, customers will receive shares of the new entity, which will be managed by a group of investors led by the founder of TechCrunch, Michael Arrington. The new firm will oversee the bankrupt crypto lender’s mining business and illiquid assets. 

SEC Action Against Celsius 

Despite the developments, Celsius is not out of the woods yet, with the United States Securities and Exchange Commission (SEC) filing a lawsuit against the company and its CEO, Alex Mahshinsky, earlier this month. The SEC accused Mahshinsky and other Celsius executives of raising billions of dollars through fraudulent and unregistered offers and selling crypto asset securities. Additionally, the Federal Trade Commission (FTC) has also announced action against Mashinsky, issuing a fine of over $4.5 billion for squandering user assets and duping users. 

Celsius had filed for Chapter 11 bankruptcy in July 2022 after halting all withdrawals following the collapse of the Terra ecosystem and the resulting market carnage. Mashinsky, the former CEO, was arrested under criminal and civil charges and under charges of intending to manipulate the markets. However, he has pleaded not guilty to all charges.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.