- Amid allegations of a facade between its UK and US entities, the crypto lending company seeks to merge them, facing claims of inadequate record-keeping in its corporate structure.
- Customers and Series B investors are engaged in a legal battle, with customers misled about the asset transfer while investors were aware of poor record-keeping practices
- Celsius filed for bankruptcy protection in 2022, and an auction of its assets continues, with NovaWulf, the preferred bidder, facing competition from Fahrenheit LLC and the Blockchain Recovery Investment Committee.
Celsius Network, a crypto lending firm, seeks to integrate its UK and US entities while dealing with accusations of insufficient record-keeping and a “sham” reorganization. Celsius Network is facing a legal battle with customers and Series B investors claiming a lack of transparency in its corporate structure.
After being warned by the UK’s Financial Conduct Authority to halt operations, Celsius Network Limited formed a Limited Liability Company in Delaware in 2021 and began a series of financial transactions to move assets. Celsius acknowledged in a filing dated May 1 that this has led to “intercompany chaos,” which has left the company’s records with significant gaps, making it difficult to distinguish between each entity’s transactions.
While regular customers reported feeling misled by management, the document stated that Series B investors were aware of the inadequate record-keeping situation. The filing noted that the two entities must be considered one entity for bankruptcy purposes.
Celsius’ creditors presented parallel submissions claiming the reorganization was a “sham” and a “facade,” alleging that the transfers between the entities were fraudulent. They encouraged the New York court to work to compensate creditors to nullify these transactions. This is similar to the allegations against FTX, another bankrupt crypto exchange referred to as a “digital Potemkin village.”
Judge Martin Glenn ruled on March 9 that regular customers should only make claims against the Delaware LLC entity, potentially boosting the chances that Series B preferred equity owners will be able to recover some of their investments, usually depreciated in bankruptcy law.
Judge Martin Glenn is set to review Celsius Network’s request for “substantive consolidation” of its two companies, which would merge their assets and client claims. Celsius Network filed for bankruptcy protection in July 2022. The leading bidder, NovaWulf, now faces fierce competition from Fahrenheit LLC and the Blockchain Recovery Investment Committee. The review will take place in late July of the same year.
Celsius Creditors Want Transparency
The crypto lending company has been in the hot seat ever since its customers lost their money. Over millions of US dollars have yet to be returned to the respective customers. Creditors of Celsius have raised concerns about suspicious trading activities involving FTX users, which may have impacted the price of the Celsius token in 2022.
To address these concerns, they seek assistance from a bankruptcy judge to reveal the individuals’ identities. The information from FTX is expected to help the creditors establish whether these trades were valid or involved market manipulation tactics, such as wash trading.
On April 26, court documents revealed the request for subpoenas and inquiries into any short positions held on CEL, which could have negatively affected its price.
