December 6, 2023

Bankrupt cryptocurrency lender Celsius Network has reached two important settlements to end its bankruptcy proceedings and clear the way for the return of client assets, according to court documents.

Any responses to or objections to the settlement must be submitted to the court by August 3.

The solution is at hand

Celsius Network filed for Chapter 11 bankruptcy in 2022, and customers have been awaiting the outcome of its bankruptcy proceedings. While settlements have been reached that allow bankrupt cryptocurrency lenders to return client assets, Judge Martin Glenn still has to analyze the agreements at a hearing scheduled for Aug. 10. If agreed, the settlement would allow Celsius to end bankruptcy proceedings and see the long-awaited return of client assets.

Additionally, a confirmation hearing for Celsius’ restructuring plan is also scheduled for October. This means customers can start seeing payments in their cryptocurrencies and assets before the end of the year. Lawyers representing Celsius Network argued that customers were owed no more than the amount originally deposited. However, users have filed multiple claims seeking additional compensation for alleged wrongdoing by the company’s former management.

Unpacking settlements

The first settlement resolves several claims related to alleged fraud and misrepresentation by Celsius’ former management. Under the agreement, Celsius pledged to increase customer recovery rates by 5%. Those account holders who do not want to participate in the settlement can opt out and file individual claims against Celsius. Those who wish to remain in the settlement will be eligible to receive a claim amount equal to 105% of their scheduled claim. This will also override any previously submitted proof of claim.

“Any eligible account holder who does not opt ​​out of the settlement will receive a claim of 105% of their scheduled claim amount, which will supersede and extinguish any related proof of claim submitted by that account holder.”

The second settlement resolves claims by customers whose funds were locked in Celsius’ interest-bearing earning scheme. Under the agreement, Celsius customers who borrow cryptocurrencies can receive part of their funds in the form of crypto assets. In addition, customers of the Earn plan will be compensated with shares in new companies created after bankruptcy proceedings. Through these resolutions, affected customers of the hopeful bankrupt cryptocurrency lender will be able to receive some compensation and a stake in the company’s future operations. Court documents state that,

“(…) creditors have agreed to support a revised scheme that would provide holders of retail borrower deposit claims with (a) the option to repay the loan principal balance(…) in exchange for an equivalent amount of cryptocurrency (which may result in tax advantages for such holders compared to an offset treatment), and (b) a preferential option to exchange NewCo equity for liquid cryptocurrency at a 30% discount (…).”

what happens after the settlement

Celsius hopes to return user assets by the end of this year. The restructuring plan involves the partial return of crypto assets deposited on the platform. As compensation for outstanding assets, clients will receive a stake in the new entity, which will be managed by a group of investors led by TechCrunch founder Michael Arrington. The new company will oversee the mining operations and illiquid assets of the bankrupt cryptocurrency lender.

SEC Actions Against Celsius

Despite these developments, Celsius is not out of the woods yet, with the SEC suing the company and its CEO, Alex Mashinski, earlier this month. The SEC accused Mahsinski and other Celsius executives of raising billions of dollars through fraudulent and unregistered offers and sales of crypto asset securities. Additionally, the US Federal Trade Commission (FTC) announced action against Mashinsky, imposing a fine of more than $4.5 billion for squandering user assets and defrauding users.

Following the collapse of the Terra ecosystem and the resulting market carnage, Celsius halted all withdrawals and filed for Chapter 11 bankruptcy in July 2022. MashinskiThe former CEO was arrested on criminal and civil charges, as well as charges of attempting to manipulate the market. However, he pleaded not guilty to all charges.

Disclaimer: This article is for informational purposes only. It does not provide or be intended to be used as legal, tax, investment, financial or other advice.