The beleagured cryptocurrency lender Celsius Network said Wednesday night that it had filed for bankruptcy, giving another blow to depositors who had spent the past month wondering if they would ever see their money again.
Celsius Crypto Company Files for Chapter 11 Bankruptcy Protection
Shortly afterwards, the company confirmed the news, saying it had “filed voluntary reorganization petitions under Chapter 11 of the U.S. Bankruptcy Code in the Southern District of New York.” The state is home to several of the company’s leaders.
Celsius said they would “continue to operate,” noting that they have “$ 167 million in cash on hand, which would provide ample liquidity to support certain operations during the restructuring process,” but said they “did not ask for authority. “To allow customer withdrawals at this time. Time. Customer claims will be processed through the Chapter 11 process,” it added.
The move hopes that a large number of depositors will be made whole – most retail investors are considered unsecured creditors in a bankruptcy and thus low priority to be repaid.
Celsius is estimated to have more than 500,000 depositors. Among the creditors, it said in the lawsuit, was an investment company based in the Cayman Islands, to which it owes nearly $ 300 million, a digital marketing company owed more than $ 13 million, and a digital trading company to which it owes $ 12.7 million.
An email sent to the company’s press account requesting comment was not returned Wednesday night, but a separate request to the company’s PR agency, C Street Advisory Group, provided a “no comment” response.
For several years, Celsius was a crypto-golden child under co-founder Alex Mashinsky, giving more than a 20 percent return on what he and other executives said was a disruptive plan that avoided the fees and greed of traditional banks. The company elicited some skeptics, who asked how it was able to handle such a high return without taking unsustainable risk. But it also generated a lot of fans, and depositors poured in.
The company froze deposits on June 12 and said that “Due to extreme market conditions, we are announcing today that Celsius will stop all withdrawals.” “Market conditions” alluded to falling cryptocurrency values as well as the crash of Terra, a company with a stable currency and token that had quickly lost almost all of its value in just a few days in May.
But Celsius also said that “We are taking this action today to put Celsius in a better position to respect, over time, his withdrawal obligations.”
One week later, the company posted updates on the website that indicated that a termination and resumption of business was possible. “We want our society to know that our goal continues to stabilize our liquidity and operations. This process will take time,” he wrote on June 19.
Many of the depositors had hoped that a white knight could help Celsius get a safer foothold. A depositor named Alan who spoke to The Post last month said that “At the moment, I still think Alex and the team at Celsius are figuring out ways to allow withdrawals at a specific time,” he said.
He and others clung to the hope when FTX chief Sam Bankman-Fried poured money and credit into other offensive crypto borrowers.
But as the weeks went by, it seemed less likely that a rescue operation and dissolution of freezing were less likely. Skeptics doubled the criticism of the company, including the decision to tie up much of their money in a potentially profitable but illiquid plan called “staking” currency, as well as investing in a platform called BadgerDao which had been subjected to a major hack. They also noted the interdependence of the cryptocurrency world, with many lending from and lending to each other, which increases the exposure in a crash.
Last week, a decentralized financier who had been among those who managed deposits for Celsius, Jason Stone, sued the company, saying that Celsius not only took unnecessary risk, but manipulated markets. The case claimed that leaders “actually ran a Ponzi scheme.”
Several days ago, Celsius replaced its legal team with an eye on a bankruptcy notice.
Mashinsky maintained on Wednesday that the outlook for Celsius was bright. “I am convinced that when we look back at Celsius’ history, we will see this as a crucial moment, where acting with determination and confidence served society and strengthened the future of the company,” he said in the statement.
The company has repaid hundreds of millions of dollars in loans to its own lenders in the last two weeks in the middle of its efforts to avoid bankruptcy, but has not made that gesture to its depositors.
In its statement, it also quoted members of the “special committee of the board” as saying that the freeze was necessary to level the playing field.
“Without a break, the acceleration of withdrawals would have allowed certain customers – those who were the first to trade – to be paid in full, while others have had to wait for Celsius to reap the benefits of illiquid or long-term asset distribution activities.”
State regulators in Texas, Alabama, New Jersey and elsewhere have been working with Celsius attorneys over the past month to investigate the company’s practices. Rotunda said in a message to The Post on Wednesday night that “we will continue to work with lawyers for Celsius Network and we will welcome their cooperation to develop a solution for investors.”
However, he added that “our investigation begins and does not end in negotiations with a lawyer” and that regulators will use “their investigative authority to independently develop evidence and other information relevant to the custody account scheme.”
He said his views on Celsius have not changed since they came across his and other regulators’ radars last year, prompting several states to issue cessation and refrain from letters.
“I stand by our public allegations – that Celsius Network illegally offered custody accounts and did not disclose important, essential information such as its assets and liabilities and the risks associated with the scheme,” he said.
