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Celsius Fights Back: Appeals Court’s $444M Ruling in Heated FTX Battle

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Celsius has filed an appeal against a court ruling that denied its $444 million claim in the FTX bankruptcy case. The defunct crypto lender disputes the decision, which dismissed its damages claims and preferential transfer allegations. The appeal adds another layer to the two firms’ ongoing bankruptcy battle.

Court Ruling Dismisses Celsius’s Claims

In December, a U.S. judge dismissed Celsius’s claims for damages and preferential transfers against FTX. The court found that Celsius’s initial filing lacked sufficient detail to support the preferential transfer claim. Furthermore, the judge ruled that Celsius’s attempt to amend its claims in July 2024 was procedurally improper.

Celsius’s revised claims faced rejection because they were untimely and disrupted FTX’s reorganization process. The court also noted that Celsius provided no valid justification for the delayed filing. These rulings significantly weakened Celsius’s efforts to recover the contested funds.

Celsius has made substantial payouts to creditors as part of its bankruptcy resolution efforts. By August, the company distributed over $2.53 billion to 251,000 creditors, covering 93% of the total claim value. In November, Celsius announced an additional $127 million payout, addressing 60% of outstanding claims.

These payments aimed to restore confidence among creditors despite the firm’s ongoing legal battles. However, the company’s bankruptcy challenges persist, with the appeal against FTX adding complexity to its financial recovery.

Mashinsky Guilty Plea Clouds Celsius Recovery Plan

Celsius founder Alex Mashinsky pleaded guilty in December to fraud and market manipulation charges related to the Celsius token. He faces a maximum 20-year sentence, with sentencing scheduled for April 2025. The charges have cast a shadow over the company’s recovery efforts.

Mashinsky’s legal troubles, coupled with the firm’s appeal against FTX, highlight the extent of Celsius’s struggles. The appeal’s outcome will likely influence the broader trajectory of Celsius’s bankruptcy resolution.

FTX Bankruptcy Plan Finalized: 118% Return for Creditors

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  • A U.S. court has approved FTX’s bankruptcy plan, concluding two years of complex legal proceedings.
  • 98% of creditors will receive at least 118% of their claim value in cash.
  • FTX never had enough cryptocurrency to make in-kind distributions to creditors.

A US court has officially approved the bankruptcy plan for crypto exchange FTX, paving the way for the process of distribution of funds to its creditors and restructuring its remaining assets. This concludes two years of one of the most complex legal cases in the cryptocurrency industry.

During a court hearing on 7th Oct, Judge John Dorsey in the U.S. Bankruptcy Court for the District of Delaware finalized the plan where 98% of creditors will receive at least 118% of their claim value in cash. In a statement following the decision, Dorsey stated, “I want to say congratulations. This is a model case for how to deal with a very complex Chapter 11 bankruptcy.” ‘

FTX
Source: Radar

A majority of the creditors who voted on FTX’s bankruptcy plan voted in favor of the reorganization plan, However, some creditors criticized the plan because it didn’t pay them back in cryptocurrency, which was worth a lot when FTX went bankrupt.

David Adler, legal representative of some of the creditors stated that creditors would pay a lot in taxes if they got paid in cash instead of cryptocurrency. He also asked Steven P. Coverick, managing director at Alvarez & Marsal North America, LLC, about the FTX’s plan on in-kind distributions. Coverick said although the topic “was discussed at length” the plan did not include those in-kind distributions.

“The debtors do not have cryptocurrency that would be required to make in-kind distributions and, in fact, never had the cryptocurrency and the proportions in which customers believed they had in their accounts,” Coverick added.

When enquired why FTX didn’t pay creditors back in cryptocurrency, Judge Dorsey reaffirmed FTX never had enough cryptocurrency to do that. The judge also said the value of FTX’s cryptocurrency is now zero.

FTX Creditors’ Repayment Process

Following court’s approval, the bankrupt crypto exchange is set to initiate the repayment process which might extend over the next two to three years. According to Sunil Kavuri, a representative of the largest creditor group, roughly $5.5 billion in claims have been bought, with 50% of those claims not coming from crypto investors, meaning that these holders are unlikely to reinvest in the crypto market.

The update also hints at a possible timeline for distribution. Claims under $50,000 could see resolution by the end of 2024, while larger claims above $50,000 are projected to receive between 70% to 100% of their petition date value.

For claimants holding more than $50,000, Sunil indicated that if the recovery hits 100%, it would result in a $5.5 billion recovery for both claim buyers and original holders.

Celsius Pays Back $2 Billion In Crypto To Creditors After Bankruptcy

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Celsius, a crypto loan platform that went bankrupt in July 2022, has begun dispersing crypto assets with a value of $3bn among the creditors as part of a court-approved plan. The company has already paid back $2bn to its liabilities, including over 20k Bitcoin (BTC) and 301k Ethereum (ETH) owners, according to the latest court documents.

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A confirmation was made by Kirkland & Ellis law firm that about 75% of the BTC/ETH distribution will be done through such commonly used platforms as PayPal, Venmo, and Coinbase; Celsius has sent a total of 20,200 Bitcoins (BTC) and 301,300 Ether (ETH) to 171,672 creditors to date.

The rest of the creditors, who hold other crypto assets or live in areas where checks are not supported, will have different methods for being reimbursed by Celsius. From Odyssey Transfer and Trust Company, the transfer agent, those who have a right to the shares of Ionic Digital, which is a new mining company formed by Celsius, receive an email containing directions on how they can claim their own shares.

However, it is important to understand that not every creditor will be satisfied with this repayment program. Specifically, anyone who had withdrawn over $100,000 by the time bankruptcy was declared must pay back any excess amount they took out or risk facing sanctions. In particular, Celsius has claimed that these withdrawals were not legitimate and that they led to its insolvency.

Celsius Creditor Distribution Marks The End Of An Era

To pay off its creditors, Celsius is giving back 3 billion dollars in cryptocurrency, meaning that one of the first lenders in the digital lending services is now history. It was founded in 2017 and presented as providing high interest rates and low fees for its clients through lending its cryptos to the institutions that need them. In addition, they said that they had more than a million users with $17 billion in assets under management at its highest point.

However, Celsius’ business model has revealed itself to be unsustainable and dangerous in terms of exposing it and its users to high volatility and counterparty risk. As of the beginning of 2024, the company left bankruptcy proceedings, and now it is committed to debt settlement. The fintech firm is also due to shut down its mobile app and website by 28th February 2024, with all activities being stopped completely.

PayPal, Venmo, and Coinbase facilitate Celsius’s debt distribution. They promise to pay back the creditors’ money on time by using their most secure channels. The repayment plan has received mixed reviews from those who have waited for over a year to get their funds back. Some are relieved and thankful, while others are angry and let down.

Related Reading | Bitcoin Ownership Dynamics: $5.06B Accumulated By Whales In 2024

Celsius Exit from Bankruptcy After 18-Month Battle

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A new beginning awaits stablecoin issuer Celsius Network LLC as it officially exits bankruptcy, marking the culmination of an intense restructuring process. The crypto firm, which concluded its financial reorganization on January 31, 2024, disclosed this information in a press release. The achievement follows the implementation of the confirmed plan of reorganization [“Plan”], a strategy that garnered approval from an overwhelming 98% of the firm’s account holders. The Bankruptcy Court for the Southern District of New York, known as the “Bankruptcy Court,” officially confirmed the plan on November 9, 2023.

Our exit from bankruptcy is the culmination of an extraordinary team effort and extensive collaboration between Celsius, Hut 8, strategic partners, and our creditors.

Celsius Network portrayed this milestone as the culmination of a grueling eighteen-month journey. The crypto firm emphasized its success in building consensus among diverse stakeholders, resolving intricate legal matters, cooperating fully with regulatory investigations, and executing the transactions outlined in the plan.

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Celsius Exit from Bankruptcy After 18-Month Battle 4

The reorganization plan encompasses the distribution of over $3 billion in cryptocurrency and fiat to Celsius’ creditors. Additionally, a new Bitcoin mining entity, Ionic Digital, Inc., has been established as part of the restructuring. This new venture will be owned by Celsius’ creditors and will have its mining operations managed by Hut 8 Corp.

Celsius: Overcoming Regulator Roadblocks

The crypto lender faced considerable challenges post-bankruptcy as it fought to salvage its bitcoin mining and crypto lending operations. A crucial turning point came in December 2023, when a U.S. court approved the crypto firm to establish the aforementioned Bitcoin mining company, a move sanctioned by U.S. bankruptcy judge Martin Glenn. This decision allowed the debtors to initiate liquid cryptocurrency distributions on the effective date.

At that time, the Official Committee of Unsecured Creditors representing Celsius Networks expressed confidence in the bankruptcy process’s trajectory, affirming, “We believe the debtors remain on track for the effective date to occur at the end of January.”

Celsius overcame obstacles from creditors and regulators before the December ruling paved the way for the crypto lending platform’s emergence from bankruptcy in early 2024. As per the latest P.R., the firm will now pursue an orderly wind-down [OWD] of its operations, including discontinuing the Celsius mobile and web applications.

Terraform Labs’ Do-or-Die Battle With SEC

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Terraform Labs, currently entangled in a securities fraud case with the U.S. Securities & Exchange Commission [SEC], sees a potential lifeline in its recent bankruptcy filing. The firm, accused of conducting an unregistered securities offering for U.S. citizens, faces a crucial trial scheduled for March. Chris Amani, the head of company operations, conveyed in a court filing that the financial burden of the litigation was insurmountable, stating, “The exact size of a money judgment remains unknown, but it could very well outstrip the debtor’s assets.”

To pursue a critical “do-or-die” appeal, the firm would be required to post a bond equivalent to 110% of the total judgment value. However, Terraform Labs posits that filing for Chapter 11 bankruptcy would allow them to proceed with the appeal without having to provide a bond. Amani highlighted the significance of Chapter 11 protection, asserting that without it, the company might be forced to liquidate after the trial.

Terraform labs
Terraform Labs' Do-or-Die Battle With SEC 6

Despite the challenging circumstances, Terraform Labs remains resolute in its stance that the SEC lacks jurisdiction over the firm, arguing that its cryptocurrency tokens do not fall under the category of “securities.”

Terraform Debts

In terms of financial standing, the company, responsible for one of the most substantial crypto crashes in recent history, unveiled a snapshot in its recent court filing. The disclosure includes an estimated $28 million in Bitcoin, $7 million in various cryptocurrencies, and roughly $87 million in its proprietary token, Luna. The bankruptcy protection filing, dated January 21, reveals the company’s estimated liabilities and assets, ranging between $100 million and $500 million.

Terraform Labs, founded by Do Kwon and Daniel Shin, achieved prominence for its Terra blockchain protocol and algorithmic stablecoin payment platform before experiencing a dramatic crash that wiped out nearly $45 billion of market capitalization within a week. Amidst the backdrop of the challenging legal landscape, Chris Amani, the CEO, emphasized the resilience of the Terra community and ecosystem, framing the bankruptcy filing as a strategic move to address legal challenges while enabling the pursuit of collective goals.

SafeMoon Faces Liquidation: Initiates Chapter 7 Bankruptcy

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Beleaguered crypto venture SafeMoon has taken a drastic step in its tumultuous journey, applying for Chapter 7 bankruptcy, commonly known as “liquidation bankruptcy.” The official filing, dated December 14, was submitted to the United States Bankruptcy Court in the District of Utah, spearheaded by attorney Mark Rose, with Chief Judge Joel T. Marker assigned to oversee the case. Following the announcement, the cryptocurrency experienced a decline from $0.000065 at 8:24 p.m. UTC on December 14 to $0.000045 within five hours.

SafeMoon
SafeMoon Faces Liquidation: Initiates Chapter 7 Bankruptcy 8

Despite the absence of any mention on the official Twitter account, an alleged letter on Reddit, reportedly from the Chief Restructuring Officer to the SafeMoon team, sheds light on the operational and financial challenges that have led to this decision. These challenges have significantly impeded day-to-day operations, resulting in the filing for bankruptcy.

One crucial revelation in the letter is the difficulty in accessing bank accounts before filing, leading to the inability to meet payroll obligations. Consequently, the firm has been forced to terminate its workforce, urging the affected employees to file claims in the bankruptcy case for unpaid wages.

SafeMoon’s troubles escalated in October when the U.S. Securities and Exchange Commission [SEC] took legal action against key figures associated with the controversial cryptocurrency venture. The SEC’s indictment, filed on October 1, accused Kyle Nagy, 35; Chief Executive Braden John Karony, 27; and former Chief Technology Officer Thomas Smith, 35, of orchestrating an extensive fraudulent operation involving the unregistered sale of SafeMoon, a crypto asset security.

SafeMoon’s Rise and Fall

Founded in 2021 with the issuance of 1 quadrillion tokens, SafeMoon gained prominence in April of that year with a significant surge in its native token. The project aimed to incentivize long-term investors while imposing a 10 percent fee on sellers, part of which was intended to benefit existing holders. However, SafeMoon’s meteoric rise was short-lived, experiencing a staggering 99 percent decline from its peak value.

Legal challenges intensified as accusations were directed at celebrities endorsing the coin, alleging their involvement in manipulating investors. The Department of Justice [DOJ] prosecutors escalated the situation further, accusing the firm of perpetrating a fraud scheme that redirected investor funds for personal luxuries.

SafeMoon’s executives now face three criminal charges each, including conspiracy to commit securities fraud, wire fraud, and money laundering. The court documents reveal a stark contrast between promised value and actual losses for investors, as executives allegedly engaged in extravagant acquisitions, including sports cars, luxury travel, and opulent residences.

Genesis Bankruptcy Spurs DCG’s Pivotal Accord

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In a significant development within the crypto landscape, Digital Currency Group (DCG) has reportedly reached an in-principle agreement with Genesis creditors to address the claims stemming from the firm’s bankruptcy. The news, disclosed in a court filing on Tuesday, sheds light on the potential recovery prospects for both unsecured creditors and those with digital assets tied to Genesis.

According to the proposed plan, unsecured creditors stand to recoup between 70% and 90% of their investments in USD equivalent. For creditors with digital assets, the recovery could range from 65% to 90% depending on the denomination of the digital asset. However, it’s crucial to note that these anticipated recoveries are contingent upon market pricing and the finalization of precise documentation.

The genesis of this bankruptcy situation can be traced back to November of the previous year, when the lending arm of Genesis froze withdrawals following the collapse of FTX. Subsequently, in early 2023, Genesis sought refuge in bankruptcy protection. This situation prompted DCG, which holds a key position in the cryptocurrency sector, to engage in negotiations for a potential resolution.

To address its existing liabilities, primarily involving unsecured loans amounting to approximately $630 million due in May 2023, and an unsecured promissory note of $1.1 billion due in 2032, DCG and Genesis creditors have orchestrated a novel partial repayment agreement. The strategy involves two tranches of repayment – the first being about $328.8 million with a two-year maturity, and the second amounting to $830 million with a 7-year maturity.

Moreover, DCG has committed to making four installment payments totaling $275 million following the date of the partial repayment agreement, aimed at addressing the looming May 2023 maturities of $630 million in unsecured loans.

Genesis Collapse Unveils $3.5B Obligations to Creditors

Genesis’ journey into bankruptcy began in January 2023 when Genesis Global Holdco, LLC and its subsidiaries filed for bankruptcy protection under the U.S. Bankruptcy Court for the Southern District of New York. This action brought to light the extensive financial obligations the firm owed to its top creditors, which included notable entities like Gemini, Cumberland, Mirana, MoonAlpha Finance, and VanEck’s New Finance Income Fund. The total liabilities revealed in the filings amounted to over $3.5 billion.

The unfolding scenario signifies the evolving intricacies within the cryptocurrency sector, as major players grapple with unforeseen challenges and work towards stabilizing the ecosystem. While the in-principle agreement between DCG and Genesis creditors presents a promising path forward, the actual execution and its consequences within the volatile crypto market remain to be seen.

Voyager’s legal fees soar, creditors pay a hefty score

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Voyager Digital was scheduled to pay Kirkland & Ellis, its legal advisor, a sum of $1.1 million for services rendered during the bankruptcy proceedings in April. According to records, the law firm utilized a combined hourly rate of $1,313.18 for all the services provided during that month. The total fees amounted to over $1.4 million, with certain senior members of the firm charging an hourly rate exceeding $2,000.

Kirkland & Ellis has worked with several bankrupt crypto companies, including BlockFi and Celsius.

Voyager sought Chapter 11 bankruptcy protection in July following the severe impact of the crypto credit crisis, which also affected numerous lenders and brokers. Under the leadership of former E*Trade executive Steve Ehrlich, the publicly traded company in Canada disclosed liabilities ranging from $1 billion to $10 billion during its bankruptcy filing.

Voyager is not the only company facing substantial fees during its bankruptcy proceedings. As previously reported, FTX incurred over $120 million in financial and legal advisory fees from February 1 to April 30.

Legal battles surround Voyager

McDermott Will & Emery, a law firm, invoiced creditors of the bankrupt crypto brokerage Voyager Digital approximately $5.1 million for legal services rendered from March 1 to May 18.

In a court filing on Monday, the law firm submitted the bill to the “Official Committee of Unsecured Creditors,” bringing its overall compensation to $16.48 million for the period spanning from July 22, 2022, to May 18, 2023. Up to this point, creditors have paid the law firm a total of $8.97 million.

In July 2022, Voyager sought Chapter 11 bankruptcy protection following its involvement in the credit crisis that affected the cryptocurrency industry the previous year.

According to a recent court filing, Kirkland & Ellis, a law firm, billed Voyager and associated debtors a combined amount of $27.97 million for the legal services provided between July 5, 2022, and May 19 of this year.

As per the filing, the debtors have thus far paid a total of $23.38 million in compensation to Kirkland & Ellis.

It is worth noting that Kirkland & Ellis has also represented several bankrupt cryptocurrency firms apart from Voyager, including BlockFi and Celsius.

Crypto Lender Celsius Embarks On A Recovery Path

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Celsius Network LLC has submitted an updated bankruptcy plan after Fahrenheit’s successful acquisition. According to the filing, which was made public in the early hours of June 15th, the wind-up requires authorization from the New York bankruptcy court.

Fahrenheit is a group that includes the blockchain-based venture capital company Arrington Capital. In late May, the defunct crypto lender announced Fahrenheit’s proposal as the winning bid to manage a new entity to be owned by its creditors.

The venture capital firm will offer the funding, management team, and technology necessary to launch and operate the new company under the name NewCo.

As part of the Fahrenheit deal, the new firm will receive between $450 and $500 million in liquid cryptocurrency, and US Bitcoin Corp will build a range of crypto mining facilities including a new 100-megawatt plant.

New Jersey-based Celsius filed for Chapter 11 protection last July, one of several crypto lenders to go bankrupt during the COVID pandemic.

Two months later, Mashinsky, the CEO of Celsius, resigned from his position after acknowledging the organization’s poor asset deployment choices. Chris Ferraro, who had previously served as CFO was made the interim CEO.

The collapse of one of the leading crypto firms was attributed to problematic decisions and the then prevailing market conditions.

To recall, Celsius’ precarious condition was exacerbated by the LUNA’s fiasco coupled with an overleveraging issue, and the poorly executed WBTC and ETH/stETH positions that led to a total lockdown of their platform.

The firm made headlines again after kicking off an auction on April 22, as it looked for a buyer to save its bitcoin mining and crypto lending operations from bankruptcy.

Fahrenheit’s Acquisition Of Celsius- Terms & Conditions

Following Fahrenheit’s win, Celsius’s institutional loan portfolio, staked cryptocurrencies, mining units, and additional alternative investments would go to the former under the terms of the acquisition. Additionally, the group deposited $10 million to seal the deal.

As Celsius embarks on a new chapter with Fahrenheit, it’s vital for the two parties involved, the crypto industry, and especially others who are recovering from similar difficulties.

The Celsius Network bankrupt story nevertheless serves as a sobering reminder of how quickly things may turn out in the erratic world of cryptocurrency. After one year, the purchase of Fahrenheit gives the struggling business hope.

Binance and Voyager Deal Falls Apart Due To US Crypto watchdogs

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New York and Federal finance regulators have blocked a $1.02 billion transaction to Voyager by Binance.US in order to buy the assets of the bankrupt cryptocurrency lender, claiming in documents on February 22 that it may be discriminatory and illegal.

The action comes in response to the Securities and Exchange Commission’s (SEC) growing involvement in the cryptocurrency space. SEC investigations into possible unregistered security sales recently led Kraken, a cryptocurrency exchange, to halt its staking activities.

Given how the company envisions paying back Voyager’s former clients, the SEC warned that certain aspects of the proposed Binance.US-Voyager merger may also violate the law.

Citing, in particular, the VGX token issued by Voyager, SEC said,

“The transactions in crypto assets necessary to effectuate the rebalancing, the redistribution of such assets to Account Holders, may violate the prohibition in Section 5 of the Securities Act of 1933 against the unregistered offer, sale, or delivery after sale of securities.”

The SEC further stated that it is the Debtors’ responsibility to demonstrate that the Plan’s contents are realistic and do not conflict with any applicable laws. As further evidence that the purchase would become “unfeasible” and “difficult to conclude,” the regulator noted media reports that Binance is preparing to pay fines for prior violations of money laundering and corruption laws.

The New York State Department of Financial Services (NYDFS) and Attorney General Letitia James both opposed the purchase in two documents filed on February 22. The documents included claims that Voyager was unlawfully serving consumers in the state.

Did Voyager Operate Illegally?

According to the petition, even though none of the debtors hold a licence in New York, the Department is aware of claims and other details suggesting that one or more of the debtors may have operated in New York against the law and may still be doing so.

According to the lawsuit, Voyager onboarded New York consumers and operated a virtual currency business within the state illegally without a license, in violation of New York laws and regulations, denying its customers of protection. The scheme also unfairly targets New Yorkers, who will have to wait six months to get their cryptocurrency back from Binance.US increases support in the state, according to NYDFS.

However, Voyager has already maintained that the Binance.US deal provides the best result for creditors and that NYDFS complaints are “hypocritical” because the authorities themselves are restricting the availability of cryptocurrencies.