Crypto lender Celsius gets court order to sell bitcoin, but not stocks or debt

Celsius logo and representation of cryptocurrencies are seen in this illustration taken July 7, 2022. REUTERS/Dado Ruvic/Illustration

(Reuters) – Crypto lender Celsius Network LLC was cleared on Tuesday by a U.S. bankruptcy judge to mine and sell bitcoins during bankruptcy.

Top U.S. Bankruptcy Judge Martin Glenn in Manhattan expressed concern during a hearing that bitcoin mining would not be immediately profitable since Celsius would need to make additional investments to get the mining facilities operating at full capacity, but said he would respect the company’s business judgment and allow it to continue.

However, he blocked Celsius from selling equity or debt investments in other crypto companies until it provides more information about the assets it wants to sell.

Celsius’ spending has been under scrutiny in bankruptcy court since it filed for Chapter 11 on July 13 in the wake of its decision to freeze customer accounts. Its business model, like that of other crypto lenders, came under scrutiny after a sharp sell-off in the crypto market spurred by the collapse of major tokens terraUSD and luna in May.

Celsius lawyer Ross Kwasteniet of Kirkland & Ellis acknowledged that the initial phase of mining would lose money, but told the hearing that the company is close to turning the corner and making a profit after investing significant resources in buying computers and building facilities for the company . mining.

The US Department of Justice and the Texas State Securities Board had objected to Celsius’ spending on the mining operation, but Texas SSB withdrew its objection after Celsius clarified that it would only sell the mined bitcoin for cash, rather than use it as collateral for additional loans.

Celsius has previously said bitcoin mining is key to its restructuring efforts, and early in the bankruptcy case it was allowed to spend $5.2 million on mining.

Glenn did not grant Celsius’ separate request to make “de minimis” sales of assets it did not consider core to the business. Celsius was too vague about the assets it wanted to sell, only recently disclosing that those assets include up to $210 million in equity and debt investments in other crypto firms, Glenn said.

“I had absolutely no idea that Celsius was thinking about selling investments in the stocks and debt of other crypto companies,” Glenn said. “Those are not what I would ordinarily consider ‘de minimis’ assets.”

Celsius is exploring more substantial sales of some or all of its assets while in bankruptcy, and it will return to court on Sept. 1 to seek approval for a process and schedule for auctioning the assets.

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

For Celsius: Joshua Sussberg, Ross Kwasteniet and Heidi Hockberger 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:

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

Crypto lender Celsius defends bitcoin mining plans as bankruptcy begins

Ripple Labs is interested in bankrupt crypto lender Celsius’ assets

Reporting by Dietrich Knauth

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