Crypto lender Celsius Network is seeking to mingle its U.K. and U.S. entities as court filings allege the distinction between the two was a “sham.”
The bankrupt crypto firm is the latest to face allegations of poor record-keeping in its corporate structure, in a court fight pitting its customers against Series B investors.
In 2021, the firm – whose Celsius Network Limited arm had been warned to cease U.K. operations by the country's Financial Conduct Authority – set up a Limited Liability Company in Delaware and sought to transfer assets through a series of financial transactions.
“The migration resulted in intercompany chaos,” a May 1 filing by Celsius said, adding that internal records are “sorely lacking,” making it hard if not impossible to disentangle each entity’s affairs.
Regular customers, misled by management, didn’t understand the implications of this transfer – but more sophisticated Series B investors were well aware of deficient record keeping, the filing added, arguing that the two entities should be treated as one for bankruptcy purposes.
Parallel filings by a committee of Celsius’ creditors say the reorganization was a “sham” and a “facade,” and that the billions of dollars transferred between the two entities were fraudulent – implying they should be disregarded by the New York court that is attempting to restore funds to creditors.
That echoes claims made about FTX, whose attorneys described the bankrupt crypto exchange as a “digital Potemkin village,” whose slick front-end disguised a messy and ill-governed reality.
In a March 9 opinion, Judge Martin Glenn found that customers only had claims against the Delaware LLC entity – a finding which increases the chances that Series B preferred equity holders could recoup some of their investment, which would normally be downgraded under bankruptcy law.
In the week of July 24, Glenn will now consider Celsius’ argument that the two entities should be “substantively consolidated,” merging assets and customer claims.
Celsius filed for bankruptcy protection in July 2022. An auction of Celsius’ assets is scheduled to continue on Wednesday, with favored bidder NovaWulf now facing competition from Fahrenheit LLC and the Blockchain Recovery Investment Committee.
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