Bankrupt crypto lender Celsius selects NovaWulf in deal to restart operations
Bankrupt cryptocurrency firm Celsius Network LLC reached an agreement to sell its lending platform to NovaWulf Digital Management LP as part of a plan to distribute its coins and other assets to customers.
The proposed deal, if accepted by a majority of Celsius customers and approved by the bankruptcy court, would provide a way out for users whose billions of dollars of digital assets have been frozen on the platform since July.
The crypto firm went bankrupt last year with a $1.2 billion hole in its balance sheet, with digital assets owed to retail customers making up the majority of its debts. Under the company’s Chapter 11 plan, an estimated 85% of users will get back a 70% share of their account balances in the form of liquid cryptocurrency, including bitcoin, ether and stablecoins, according to court papers filed Wednesday.
Customers who have more than $5,000 in deposits in yielding accounts with Celsius will also receive equity, in the form of a digital token, in a new company that will manage the firm’s mining operations, its illiquid crypto holdings and loans it has made to institutional and private borrowers, according to a filing in US Bankruptcy Court in New York. These users will also share in any revenue from pursuing legal claims against Celsius insiders.
NovaWulf, founded in 2022 by former executives of private equity and investment firms Blackstone Group and King Street Capital Management, would make a direct cash contribution of $45 million to $55 million to the new company under the bankruptcy plan.
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Celsius customers have been trying to get as much of their digital assets off the platform as quickly as possible since the firm filed for bankruptcy, and many have grown impatient with the progress of the Chapter 11 case. The firm has explored closing itself, but chose the offer from NovaWulf over a controlled liquidation.
Celsius announced that high returns on its crypto savings accounts would be paid from profits earned from deploying customer deposits in various investments. Many of the firm’s loans were risky and undercollateralized, and it failed to set up proper controls to segregate individual users’ crypto, according to an investigator’s investigation into the bankruptcy case. Insiders also cashed out their holdings on the platform when the firm used customer funds to prop up its proprietary CEL token, the investigator found.
Customers who held CEL tokens would get back 20 cents each under the bankruptcy plan, a fraction of their trading value before the firm filed for Chapter 11. The reason for the lower recovery on CEL tokens is that the price of those coins was manipulated and artificially high, said a corporate lawyer in court on Wednesday. CEL tokens held by Celsius insiders would be wiped out completely.
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Write to Soma Biswas at [email protected]
