Celsius Network Ends Bankruptcy Case—Will Pay Back Customers Through New Company

Topline

Celsius Network, the former cryptocurrency lender, ended its bankruptcy case on Thursday after a judge ruled in favor of its plan to become a creditor-owned bitcoin mining company, over a year after the company’s bankruptcy filing came amid an unstable period for cryptocurrency firms.

The failed crypto lender owes about $4.7 billion to more than 100,000 creditors.

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Key Facts

Judge Martin Glenn issued an opinion on Thursday in support of Celsius’s plan, which will create a new company around Celsius’s crypto mining and staking activities to repay its creditors.

Celsius will partially repay customers whose accounts have been frozen since the company filed for bankruptcy in July 2022, according to the opinion, in addition to repaying those customers through a combination of cryptocurrency and stock in the new company.

The new company, NewCo, will be funded by $450 million in crypto held by Celsius and a $50 million investment by Fahrenheit, an investment group that purchased the right to manage NewCo’s mining and staking operations earlier this year.

The plan still needs to be approved by the Securities and Exchange Commission, though Glenn has previously urged for the agency to issue a quick decision on the plan, according to Bloomberg.

Big Number

$4.7 billion. That’s how much Celsius owes to more than 100,000 creditors, according to its initial bankruptcy filing.

Surprising Fact

Alameda Research, the sister trading firm for the failed cryptocurrency exchange FTX, is listed as one of Celsius’s creditors with an unsecured claim of $12.7 million. Sam Bankman-Fried, founder of both FTX and Alameda, was convicted earlier this month of multiple fraud and conspiracy charges stemming from FTX’s collapse. He faces a maximum possible sentence of up to 110 years in prison.

Key Background

Celsius filed for bankruptcy last year, after co-founder Alex Mashinsky argued the cryptocurrency lender was less of a risk for customers than traditional banks, according to the Wall Street Journal. Celsius held investments that would make it difficult for the company to survive if a large number of customers withdrew their funding, the Journal reported. Mashinsky was arrested and charged in July with securities fraud, commodities fraud and conspiracy to manipulate the price of Celsius’ token CEL. Chris Ferraro, the company’s former CFO, was appointed as interim CEO. That same day, the Federal Trade Commission reached a settlement with Celsius and permanently banned the company from handling consumer assets. The agency said Celsius tricked customers into transferring cryptocurrency onto the platform by promising their deposits would be safe and available. The Justice Department alleges Mashinksy “orchestrated a scheme to defraud” Celsius customers from 2018 to June 2022, a month before Mashinksy was arrested.

Tangent

A challenging period for the crypto market last year resulted in a record number of withdrawals for crypto lenders, which then filed for bankruptcy. Voyager Digital filed for Chapter 11 bankruptcy a week before Celsius. Genesis Global filed for bankruptcy in September 2022, two months after the company halted withdrawals. Both BlockFi and FTX filed for bankruptcy in November 2022. Each company shut down their businesses to close their filings, though FTX’s case is ongoing.