The New York Bankruptcy Court has confirmed Celsius’ restructuring plan, unlocking around $2 billion worth of digital assets to be distributed to creditors.
Over 98% of Celsius creditors approved the plan on September 27. The $2 billion of assets set to be distributed among them consists primarily of BTC and ETH. It accounts for between 67% and 85% of the customer assets deposited with Celsius before it went bust. Holders of Celsius’ own CEL token will also be paid 25 cents per token.
After its formulation, the plan was opposed by the Department of Justice (DOJ) official in charge of bankruptcy cases, William Harrington (who is acting as the U.S. Trustee in the bankruptcy), and the Securities and Exchange Commission (SEC). The Trustee objected on the basis that the proposed plan failed to provide creditors with sufficient information to allow them to make an informed choice as to whether or not to accept the plan. In particular, it says that the plan contains ‘over broad’ releases with respect to parties that should be left liable for the Celsius mismanagement and that the circumstances under which creditors are deemed to consent to the releases under the Plan are such that the creditors can not be said to be giving informed consent.
The SEC also objected to a plan to use Coinbase (NASDAQ: COIN) as the distribution agent for the assets to be released under the agreement. That’s unsurprising given that the SEC is currently bringing enforcement action against Coinbase for massive law-breaking in connection with digital asset securities being listed on the exchange. They say the agreement goes “far beyond the services of a distribution agent, contemplating brokerage services and master trading services that implicate many of the concerns raised in the SEC’s District Court action against Coinbase.”
At the confirmation hearing in October, caretaker Celsius CEO Christopher Ferraro was also forced to defend the proposed 25-cent payments to CEL holders. Though creditors had objected on the basis that CEL was valued at 81 cents per token on the day Celsius stopped accepting deposits and withdrawals, CEO Ferraro noted that the price had been artificially inflated by Celsius executives, including by CEO Alex Mashinsky, who was arrested in July for fraud and the manipulation of the CEL token. He will face trial in September 2024.
This week, the Bankruptcy Court approved the plan, albeit with some modifications to take into account the objections raised by the Trustee. For example, the Judge made modifications that preserved the ability of the U.S. Trustee to take action against members of the unsecured creditors’ committee who had acted (or improperly instructed a professional to act) on behalf of the committee without authorization.
The Judge, in approving the plan, also carved out a reminder that nothing in the plan or its approval has any implications as to whether Celsius (and its founders) were offering illegal securities. To that end, the Judge ordered Celsius to retain all records and to refrain from destroying any records without providing advance notice to the SEC.
Regarding the CEL token payment, the Judge affirmed the proposed payment of 25 cents per token, accepting evidence submitted on behalf of Celsius that the tokens were effectively worthless at the time of Celsius’ collapse regardless of the price listed on exchanges. The Judge chided one creditor’s objections to this, in which the creditor had submitted an error-filled report on CEL’s appropriate valuation, which had apparently been compiled via AI.
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