Bankrupt crypto lender Celsius agrees to due diligence review

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(Reuters) – Crypto lender Celsius Network has agreed to the U.S. Justice Department’s demand that an independent investigator review its finances and operations in bankruptcy, after reaching an agreement that limited the proposed scope of the investigation.

Celsius said in a Thursday filing in U.S. Bankruptcy Court in Manhattan that it would agree to an independent review with a more limited scope than the DOJ’s original request.

The US Trustee, the DOJ’s bankruptcy watchdog, had argued that an investigator could provide an unbiased review of Celsius’ actions and finances, helping to dispel “widespread confusion” and “disbelief” that has surrounded the crypto lender’s bankruptcy. State securities regulators from Texas, Vermont and Wisconsin supported the DOJ’s request.

Celsius said in its filing that the DOJ had agreed to revise the scope of a censor’s review and that the new proposal would override state regulators’ requests for a censor.

The U.S. trustee and state regulators did not immediately respond to a request for comment Friday.

The company said it welcomed an independent investigation, but it argued the DOJ’s original proposal would have delayed the bankruptcy case for months and would have duplicated investigations already underway.

Celsius’ proposal would allow an independent examiner to review the company’s current cryptocurrency holdings, its transfer of some customer funds to different account types from April 2022, the energy costs of its bitcoin mining operations and its compliance with tax obligations.

Celsius’ proposed probe would not review intercompany loans, repayment of loans that occurred before the bankruptcy filing in July or the company’s compliance with state securities regulations.

At least 40 state securities regulators are investigating Celsius for potential unregistered securities activity, mismanagement, securities fraud and market manipulation. Another investigation would only duplicate ongoing efforts, Celsius said.

It has the support of the creditors’ committee appointed in the bankruptcy case, which said it is already examining many aspects of the DOJ’s initial request, including Celsius’ pre-petition lending activity.

Several parties had supported the DOJ’s request before Celsius submitted an amended proposal. Some had asked the probate court to approve more drastic supervision measures. A group of Celsius borrowers said the court should appoint a Chapter 11 trustee to take control of Celsius’ operations, while state securities regulators said the proposed investigation would look into Celsius’ alleged attempts to mislead customers about the safety of their accounts.

Top US Bankruptcy Judge Martin Glenn is scheduled to consider the request for an examiner at a hearing on September 14.

The case is In re Celsius Network LLC, US Bankruptcy Court for the Southern District of New York, No. 22-10964.

For Celsius Network: Joshua Sussberg of Kirkland & Ellis

For the DOJ: Shara Claire Cornell of the US Department of Justice

For the creditors’ committee: Michael Andolina and Gregory Pesce of White & Case

Read more:

State securities regulators seek more transparency in Celsius crypto bankruptcy

Crypto Lender Celsius Network Reveals $1.19 Billion Gap in Bankruptcy Filing

State securities regulators investigating freezing of Celsius accounts

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