DOJ demands more insight into Celsius’ severance, bitcoin sales

Celsius logo and cryptocurrency representation are shown in this illustration. REUTERS/Dado Ruvic/Illustrations

(Reuters) – The U.S. Justice Department has demanded more judicial oversight of Celsius Networks’ plans to make severance payments to employees and sell bitcoins during the cryptocurrency lender’s bankruptcy.

The US Trustee, the DOJ’s bankruptcy watchdog, filed an objection in US Bankruptcy Court in Manhattan on Wednesday to Celsius’ proposed $409,000 severance payments to 19 employees, following a separate objection on Tuesday to the company’s bitcoin mining proposal. In both objections, the DOJ urged the bankruptcy court to require more transparency from Celsius about its assets and plans to repay creditors before allowing it to proceed.

The DOJ said it may request a court-appointed examiner to ensure Celsius is providing creditors with accurate information in the bankruptcy case, according to the filings.

New Jersey-based Celsius did not respond to a request for comment Wednesday.

Celsius filed for Chapter 11 protection on July 13, listing a $1.19 billion deficit on its balance sheet. Its business model, as well as 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.

The DOJ said Wednesday that 12 of Celsius’ proposed severance payments exceed the norms for bankruptcy cases, with some as high as $80,000. One former employee is set to receive more than $20,000 in severance pay after just six weeks with the company, according to the DOJ’s objection.

The former employees should not necessarily be paid before Celsius’ customers, who are creditors in the bankruptcy case, the DOJ said. Celsius froze customer accounts in June, preventing them from withdrawing cryptocurrency assets held on the platform.

The DOJ also opposed Celsius’ request to sell bitcoin during the bankruptcy case. Before Celsius is allowed to sell mined bitcoin, the court must require the company to provide a clearer picture of its assets, the need for the sales and how it will use any sales proceeds, the DOJ argued.

For example, Celsius could use the bitcoin sales to repay a $750 million loan to a non-bankrupt affiliate, according to the DOJ filing. In that case, the money would not be available to creditors in the bankruptcy, including customers whose accounts were frozen, the DOJ said.

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

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:

Crypto lender Celsius Network reveals a $1.19 billion hole in its bankruptcy filing

Crypto lender Celsius defends bitcoin mining plans as bankruptcy begins

Ripple Labs is interested in bankrupt crypto lender Celsius’ assets

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