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Failed Crypto Lender Celsius To Create New Company for Creditors as US Judge Approves Bankruptcy Plan

Failed Crypto Lender Celsius To Create New Company for Creditors as US Judge Approves Bankruptcy Plan

A US judge has approved a bankruptcy plan for a crypto lender that filed for bankruptcy in July 2022 after its token plummeted by 99% and it was unable to fulfill withdrawals. According to a recent court filing, the new plan from Celsius Network will generate funds for a new mining and staking corporate spinoff […]

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Bankrupt Digital Asset Lender Celsius Plans To Repay $2,000,000,000+ in Crypto to Creditors Before End of 2023

Bankrupt Digital Asset Lender Celsius Plans To Repay ,000,000,000+ in Crypto to Creditors Before End of 2023

Bankrupt digital asset lender Celsius Network intends to start repaying creditors using billions of dollars in crypto assets before the end of the year. In a recent US bankruptcy court filing, Celsius has presented a restructuring plan that will generate funds for a new corporate spinoff, dubbed “NewCo,” and repay customers. Says the filing, “Notably, […]

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Celsius creditors vote in favor of reorganization plan

The majority of Celsius creditors have voted in favor of a plan that will see approximately $2 billion worth of Bitcoin and Ethereum returned to creditors.

The creditors involved in the Celsius bankruptcy case have voted in favor of a plan that will see funds returned to them as well as distributing equity through a new company.

According to a Sept. 25 filing from bankruptcy firm Stretto, most of the classes voted in favor of the plan by more than 98%.

While voters have made a near-unanimous decision on the plan, the plan still needs final approval at a confirmation hearing in the United States Bankruptcy Court for the Southern District of New York scheduled for Oct. 2.

Celsius network creditor class vote breakdown. Source: Stretto

According to a disclosure statement filed on Aug. 17, the current plan will see approximately $2 billion worth of Bitcoin (BTC) and Ether (ETH) redistributed to Celsius Network creditors. The plan will also distribute equity in a new company, temporarily dubbed “NewCo.”

“NewCo will operate and further build out the Debtors’ Bitcoin mining operations, stake Ethereum, monetize the Debtors’ other illiquid assets, and develop new, value-accretive, regulatory-compliant business opportunities," it wrote.

Notably, the new company will be managed by the Fahrenheit Group — a consortium of crypto-native individuals and organizations including former Algorand CEO Steven Kokinos, venture capital firm Arrington Capital, crypto miner US Bitcoin Corp, Proof Group Capital Management and Arrington Capital advisor Ravi Kaza.

Related: Celsius creditors flag renewed phishing attacks ahead of bankruptcy plan

Celsius Network was one of the first major casualties of the 2022 bear market, with the now-defunct crypto lender filing for bankruptcy on July 14, 2022.

On July 13, 2023, the SEC sued Celsius and its former CEO Alex Mashinsky for allegedly raising billions of dollars through unregistered and fraudulent offers involving “crypto asset securities.”

Mashinsky was then arrested on the same day, following an indictment from the U.S. Department of Justice, which accused the former CEO of fraudulent financial activity, misleading investors and a number of other similar charges.

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Celsius Network files ‘adversary complaint’ against EquitiesFirst

Bankrupt crypto lender Celsius Network is attempting to recover assets from a private lender called EquitiesFirst Holdings, which reportedly owes $439 million in cash and crypto.

Bankrupt crypto lender Celsius Network has filed a complaint against lending firm EquitiesFirst Holdings in a bid to recoup assets.

According to a sealed adversary complaint filed on Sept. 6, Celsius is seeking injunctive relief and a declaratory judgment associated with the "recovery of money/property" — according to the title of the docket.

The filing named both EquitiesFirst and its CEO Alexander Christy as defendants. Additionally, Celsius filed a summons on the same day, requiring that the private lender provide a motion or answer within 35 days.

The sealed adversary complaint filed against EquitesFirst Holdings. Source: Stretto

EquitiesFirst Holdings is an Indianapolis-based private lending company that reportedly owed Celsius Network $439 million as of July 2022.

Celsius first began taking collateralized loans from EquitiesFirst in 2019 to “support its operations” owing to what Alex Mashinsky described in a subsequent bankruptcy filing as a “lack of institutional lending available to cryptocurrency companies,” at the time.

However, in July 2021, Celsius Network sought to retrieve the collateral it had pledged to EquitiesFirst but was informed that the lender could not return the amount Celsius had provided.

As of July 2021, Celsius was owed a total of $509 million by EquitiesFirst. The increase from $439 million to $509 million was due to the loans being over-collateralized. Since September 2021, the debt has been slowly repaid at a rate of $5 million per month.

As of July 2022, EquitiesFirst owed Celsius $439 million, with the debt being comprised of $361 million in cash and 3,765 Bitcoin (BTC).

Related: Alex Mashinsky's assets frozen by US court as part of criminal case

Celsius Network was among the major casualties of the 2022 bear market, filing for Chapter 11 bankruptcy protection on July 14, 2022.

Celsius’ former CEO Alex Mashinky was arrested on July 13 this year, with authorities accusing him of misleading Celsius users and defrauding investors out of billions of dollars.

Notably, The Federal Trade Commission issued Celsius with $4.7 billion in fines for allegedly “duping” users, but suspended the judgement in order for the platform to use the assets as part of its bankruptcy proceedings.

Celsius creditors are currently voting on a settlement plan that — if approved — would see a consortium called Fahrenheit buy Celsius’ assets and return Celsius creditors funds by way of launching a new company.

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US Court Seizes Alex Mashinsky’s Bank Accounts and Texas House: Unsealed Order

US Court Seizes Alex Mashinsky’s Bank Accounts and Texas House: Unsealed Order

New court documents reveal that authorities have seized assets and a house from Alex Mashinksy, the former chief executive of bankrupt crypto lending company Celsius. According to an unsealed court order, several bank accounts and a Texas home belonging to Mashinksy have been seized as the Department of Justice (DOJ) continues its criminal case against […]

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CFTC investigators conclude ex-Celsius CEO Mashinsky broke US rules: Report

If the majority of CFTC commissioners agree with that conclusion, the regulator could file a case in federal court.

Investigators from the Commodity Futures Trading Commission have reportedly determined that bankrupt crypto lender Celsius and its former CEO Alex Mashinsky broke a number of U.S. rules before the company's implosion.

According to a July 5 report from Bloomberg, attorneys from the CFTC's enforcement division found that Celsius misled investors, failed to register with the regulator and that Mashinsky broke a number of regulations, citing people familiar with the matter. 

If the majority of the CFTC commissioners agree with the investigators’ findings, the agency could file a case against the collapsed crypto lender in U.S. federal court as early as this month, according to the sources.

The CFTC investigators' findings add to a growing pile of regulatory action against the now-defunct crypto lending platform. The New York Attorney General sued Mashinsky on Jan. 5, alleging that the former CEO misled investors and caused billions of dollars in losses. 

Related: Celsius Network approved to convert altcoins into BTC or ETH

On June 16 last year, securities regulators from five different U.S. states opened an investigation into Celsius three days after the firm abruptly halted user withdrawals on June 13. 

The Securities and Exchange Commission (SEC) along with federal prosecutors from Manhattan also launched a series of probes into the firm, according to May court filings. Bloomberg notes that both the SEC and representatives from the U.S. Attorney's Office for the Southern District of New York have declined to comment on the status of the investigations.

Cointelegraph contacted the CFTC and Alex Mashinsky but is yet to receive a response. 

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Core Scientific moves for September bankruptcy exit, expects $46M boost

Core Scientific said favorable market conditions have increased its liquidity position and its bankruptcy restructuring plan has been revised.

A restructuring plan for bankrupt Bitcoin (BTC) miner Core Scientific could be finalized by September and it expects to exit proceedings with an additional $46 million due to recent favorable market conditions.

In a May 22 filing in a Texas Bankruptcy Court, Core Scientific’s lawyers said its liquidity position has improved considerably since it filed for bankruptcy and as a result, it plans to file a reorganization plan in the near future.

The plan is currently being negotiated with key stakeholders, and according to the filing, the firm is “seeking to build as much consensus as possible” about how a new Core Scientific would look after emerging from its bankruptcy proceedings.

The next steps in Core Scientific’s Chapter 11 proceedings. Source: Stretto

A Chapter 11 bankruptcy allows a firm to continue operating until stakeholders are able to agree on a restructuring plan which could involve measures such as the downsizing of business operations to reduce debt or the liquidation of assets to repay creditors.

The firm pointed to decreasing power costs, increasing Bitcoin prices and an increase in the blockchain’s hashrate as the primary market factors contributing to its liquidity boost.

Core Scientific’s initial liquidity estimates vs current. Source: Stretto

On Dec. 21, 2022, when Core Scientific filed for bankruptcy, Bitcoin’s price was $16,904, according to CoinMarketCap. Since then, the price has shot up by over 60%, currently sitting at around $27,000.

Additionally, power prices have decreased by 24% since the petition date according to the filing, while the network hashrate has jumped by 54%.

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As a result of more favorable market conditions, Core Scientific estimates it will have an additional $46 million in funds once a restructuring plan is finalized, despite delays in the bankruptcy proceedings.

The miner is also expecting a significant windfall from Celsius Network claiming the bankrupt crypto lender owes it some $11 million.

The two firms are currently engaged in a lengthy court battle that began on Oct. 19, 2022, when Core Scientific first accused Celsius of failing to pay its power bills.

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‘Unjustly enriched:’ Core Scientific knocks back $4.7M claim from Celsius

Core Scientific has rejected a multi-million-dollar administrative claim from Celsius Network, arguing it's owed an even higher amount from the crypto lender.

Bankrupt Bitcoin (BTC) mining firm Core Scientific has objected to paying a $4.7 million administrative claim put forward by crypto lender Celsius Network, leading to a battle between the firms over contractual obligations.

According to the objection, which was filed in Texas bankruptcy court on May 5, Core Scientific has asked that Celsius Network’s $4.7 million administrative claims be rejected as the firm cannot prove it is entitled to one.

“Celsius’ request for allowance and immediate payment of the Celsius alleged admin claim ignores that Core has substantial claims against Celsius, which Core believes exceed the Celsius alleged admin claim,” wrote the objection.

For context, Core first signed a contract with Celsius in 2020 to host its cryptocurrency holdings in Core’s data centers. However, due to an increase in the price of power, Core passed these additional costs on to Celsius, an allowance that was reportedly stipulated in the original contract.

Core Scientific’s 2020 contract with Celsius Network. Source: Court Filing.

Despite Celsius initially paying these costs, the crypto lender ceased payments after it filed bankruptcy, Core Scientific claimed in the objection.

“If anyone has been unjustly enriched here, it is Celsius,” wrote Core Scientific in the objection. According to the now-defunct Bitcoin miner, Celsius has been “sitting on almost $8 million of money it owes to Core'' due to a “blatant post-petition violation” of the agreed-upon dispute resolution mechanism.

Related: Bittrex files for Chapter 11 bankruptcy just weeks after SEC charges

In total, Celsius now allegedly owes Core Scientific approximately $11 million, a sum that accrues an additional $28,000 in fees and interest with each passing day, the Bitcoin mining firm's lawyers argued.

The conflict between the two firms has been raging since Oct. 19, when Core Scientific first accused Celsius of failing to pay its power bills, citing the non-payments as a significant factor in the liquidity issues that led to the embattled Bitcoin miner filing for Chapter 11 bankruptcy on Dec. 21.

“The millions of dollars Celsius shortchanged Core after Celsius’s bankruptcy filing plus the millions of dollars in litigation…significantly contributed to Core’s liquidity drain and eventual chapter 11 filing.”

On Dec. 28, Core Scientific filed a motion seeking approval to reject Celsius’ contracts, claiming the firm’s failure to pay its power bills constituted a material breach of contract. On Jan. 3 Celsius agreed to let Core Scientific shut down more than 37,000 Bitcoin mining rigs the miner was hosting for the crypto lender.

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Former Celsius CEO Fights Back Against Fraud Complaints From New York Attorney General

Former Celsius CEO Fights Back Against Fraud Complaints From New York Attorney General

Former Celsius Network founder Alex Mashinsky is asking the courts to dismiss the New York State complaint against him that alleges he defrauded investors out of billions of dollars. According to a new filing with the New York Supreme Court, Mashinsky argues that the complaint should be tossed out because it relies on misinformation, among […]

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Celsius eyes merge of entities as creditors claim distinctions were a ‘sham’

New court filings are pushing to straighten out the issue in a bid to help recover lost funds for customers.

Defunct crypto lender Celsius Network is looking to combine its United Kingdom and United States entities as new court filings allege that any supposed distinction between the two companies was a “sham.”

The central point of dispute is focused on a decision made by the crypto lender in June 2021, when Celsius Network Limited (CNL) was issued with a warning to cease operations in the U.K. from the country’s Financial Conduct Authority.

To avoid fallout, CNL set up a Limited Liability Company — Celsius Network LLC — in the state of Delaware and looked to transfer its assets to the new company.

According to a May 1 court filing from the now-bankrupt crypto firm, the migration of the two entities “resulted in intercompany chaos.” The filing adds that formal documentation of the intercompany relationship was “not completed for several months” and when it was “it remained ambiguous” what transactions the agreements affected.

The filing claims that for everyday investors the result of this transfer was too confusing to make sense of, however, the more “sophisticated” Series B investors were well aware of the implications of such dubious record keeping.

As a result, the two entities should be treated as one and the same in subsequent bankruptcy proceedings, so that smaller creditors are not ignored in favor of Series B investors when it comes to the recovery and return of lost funds.

According to a corresponding court filing from the Celsius Official Committee of Unsecured Creditors (UCC), the migration was a “sham” and the transactions that facilitated the transfer of billions of dollars worth of assets between the two were likely fraudulent.

Simon Dixon, who reportedly lost more than $8.8 million worth of Bitcoin (BTC) as a result of the Celsius collapse, summarised the UCC filing in a series of tweets on May 2 saying “Celsius acted as if the migration never occurred” and was given “poor documentation” and “no clear distinctions” to distinguish between the two entities.

In a March 9 memorandum opinion, Chief U.S. Bankruptcy Judge Martin Glenn found that customers only had claims against Celsius’ Delaware-based LLC, meaning that Series B investors stand to be more likely to receive recompensation.

Related: Celsius creditors demand transparency on ‘suspicious’ FTX transactions

The auction of the remaining Celsius assets is scheduled to go ahead on Wednesday, May 3, with a number of major firms including the exchanges Coinbase and Gemini vying for possession of the defunct firms’ assets.

NovaWulf Digital Management currently stands as the “stalking horse bidder,” a term used to describe the first mover that sets the bar for the ensuing bids. NovaWulf’s proposal includes a direct cash contribution in the range of $45 million to $55 million. If NovaWulf’s proposal is accepted, customers can expect to recover up to 70% of their funds.

The auction marks a significant step forward for Celsius’ customers in recovering their funds, after the firm filed for Chapter 11 bankruptcy protection on July 14, 2022.

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