Bankruptcy judge orders $44M in crypto to be returned to Celsius customers

December 8, 2022 Coin Telegraph

Bankruptcy judge orders M in crypto to be returned to Celsius customers

Account

The funds are made up crypto held within custody accounts on Celsius that had not been transferred from earn accounts.

A federal judge has ordered crypto lender Celsius to return crypto worth around $44 million to the platform’s custody program customers.

According to Bloomberg, the verbal order was delivered by United States Bankruptcy Judge Martin Glenn in a Dec. 7 hearing, with the judge noting:

“I want this case to move forward. I want creditors to recover as much as they possibly can as soon as they possibly can.”

The amount — which applies only to crypto held within custody accounts — is a tiny fraction of the billions Celsius owes creditors, and the latest decision comes after an agreement was reached between Celsius advisers and stakeholders that crypto deposited in the custody accounts belonged to its users and not the platform.

It is important to note that this order only applies to pure custody assets — those that have never touched Celsius’ Earn accounts and have only ever been held in the custody program.

Celsius held over $210 million in custody accounts as of Aug. 29, but only around $44 million of funds fit within the latest order's criteria.

On the other hand, Celsius' Earn accounts, which are the accounts that enabled depositors to earn interest is where the majority of the $4.7 billion worth of user funds is currently being locked up.

Celsius has argued that users who deposited funds within its earn accounts gave up ownership of the funds when they agreed to the company’s terms of service, and a Dec. 5 Bloomberg report suggests that Celsius is looking to sell $18 million of stablecoins held in these accounts to fund its reorganization with Glenn set to address the issue of fund ownership on Dec. 12.

Meanwhile, on Dec. 5 the lender received approval from the judge for a $2.8 million key employee retention program (KERP) which it filed on Oct. 11.

#CELSIUS HEARING LIVE: KERP is approved. Discussing Celsius Exclusivity now. K&E talking about the Feb 15 compromise. Expanding that the auctions and plan formation are all in coordination with the UCC and they are cognizant of the level of frustration in the community.
— Simon Dixon (Beware Impersonators) (@SimonDixonTwitt) December 5, 2022

The bonuses will be payable to select employees, and are intended to ensure its employees remain with the firm so that it may continue its limited business operations.

Celsius employees have been quitting in droves, with only 170 remaining with the firm compared to the 370 it had when it first started the bankruptcy proceedings.

Judge orders probe to investigate whether Celsius was a Ponzi

November 2, 2022 Coin Telegraph

Celsius

The Federal judge overseeing the Celsius case has asked for an investigation to look into whether the firm acted like a Ponzi scheme and has asked for additional details before approving a $3 million bonus scheme.

The judge overseeing the Celsius bankruptcy case has ordered the examiner and the official committee of Celsius creditors to determine who will head a probe into whether the firm was operating like a Ponzi scheme.

The order during the Nov. 1 hearing comes in response to allegations from customers that Celsius had used assets of new users to pay yields and facilitate withdrawals to existing users, and as a result, fits the legal definition of a Ponzi scheme.

The judge had approved the appointment of an independent examiner on Sep. 9 to look into aspects of Celsius’ business following calls for greater transparency into its operations, such as its tax payment procedures and why some customers were moved to different accounts.

It is not the first time the embattled lender has been accused of operating like a Ponzi scheme, with decentralized finance (DeFi) protocol KeyFi having alleged that Celsius acts like one when it sued Celsius on Jul. 7.

Celsius had filed for chapter 11 bankruptcy on Jul. 13, citing a crash in crypto values and poor asset deployment decisions, and the case has been proceeding through the court system since.

In the Nov. 1 hearing, the Federal judge, Martin Glenn, also told Celsius that they would have to include more details in its Oct. 11 motion to pay nearly $3 million to 62 employees as part of a key employee retention plan (KERP), with Law360 quoting the judge as saying:

“I was shocked when I saw the redactions. I had never seen anyone try to redact everything,”

Glenn is referring to a section within the motion that outlines the participants of the bonus, where every detail relating to the individuals available to the public had been redacted, including their salaries and job descriptions.

The U.S. Trustee had filed an objection on Oct. 27 to the KERP, taking issue with the lack of identifiable metrics within the motion to warrant such an expensive bonus scheme and that it prevented interested parties from arguing whether some participants could be considered insiders and therefore ineligible for a KERP.

Celsius bankruptcy case Trustee slams $3M employee bonus motion

October 28, 2022 Coin Telegraph

Celsius

The Trustee has objected to the retention bonus, citing a lack of sufficient information within the motion to warrant such a high payout and a lack of clarity around whether any recipients should be considered insiders.

The U.S. Trustee overseeing the Celsius chapter 11 bankruptcy case, William Harrington, has objected to a Celsius motion that would see 62 of its 275 employees paid a retention bonus totaling $2.96 million.

The Trustee has blasted Celsius in its supporting statement for the objection filed on Oct. 27, noting:

“It defies logic, not to mention the Bankruptcy Code, that a company where the majority of its functions are no longer providing services, would now propose a multi-million dollar bonus scheme.”

For the “bonus motion”, as it is aptly named, to receive approval, the Trustee claims that Celsius must show that the bonuses are reasonable based on the facts of the case. Without any identifiable metrics, the Trustee says Celsius has failed to do so.

While the objection does not infer that Celsius employees are not deserving of an essential employee retention program (KERP), it points to the information provided by Celsius as being insufficient to justify such a high amount.

KERPs are designed to motivate employees to advance a successful restructuring outcome. While adding to executive pay ahead of a potential restructuring may seem counterintuitive, it can often be in the best interest of stakeholders.

Unlike the personal information of Celsius creditors, details of the KERP recipients have been kept out of the public eye, with an unredacted breakdown provided only to the court, the Official Committee of Unsecured Creditors, and the Trustee.

The Trustee has taken issue with that as well, claiming other interested parties are unable to argue whether the participants could be considered insiders, which would render them ineligible for a KERP.

Celsius had filed the bonus motion on Oct. 11, with a hearing on the proposal and related relief set to take place on Nov. 1.

Meanwhile, the lender is also being blamed for causing financial distress at Bitcoin (BTC) miner Core Scientific, who claimed on Oct. 19 that Celsius has refused to pay its bills since it filed for chapter 11 bankruptcy on Jul. 13, resulting in Core Scientific losing approximately $53,000 per day.

KERP