Advisers overseeing the wind-down of Celsius Network LLC are demanding major customers who collectively withdrew more than $2 billion from the crypto platform just before it filed bankruptcy return those funds to avoid potential litigation.
An administrator overseen by a committee formed during Celsius’s Chapter 11 case has begun contacting customers who withdrew more than $100,000 from the platform in the lead-up to the company’s July 2022 bankruptcy. Assets recovered through this process will help repay creditors who didn’t withdraw funds from Celsius, according to a letter the committee is sending targeted customers.
The committee said the recovery process will only affect about 2% of Celsius users who, collectively, withdrew roughly 40% of the platform’s assets in the 90 days before the company filed Chapter 11. Celsius said at the time it filed bankruptcy that it had about $6 billion in assets, 1.7 million registered users and 300,000 active users with account balances of more than $100.
Bankruptcy law gives companies the ability to claw back funds paid just before a bankruptcy filing, even if the recipients did nothing wrong. The point is to make sure customers who didn’t take money off the platform ahead of the bankruptcy aren’t worse off than those who did.
The committee said Wednesday they’re offering customers who could be targeted by claw back suits “a favorable rate” if they opt to settle.
Celsius, like most bankrupt crypto firms, valued its digital assets based on the time the company filed Chapter 11. Back then, the industry was experiencing a so-called crypto winter amid a pullback in digital assets.
The administrator is giving customers the option to settle their potential liabilities based on what their assets were worth at the time they made withdrawals in 2022, meaning settling customers would retain any appreciation their digital assets experienced over the past year thanks to surging crypto prices.
The committee said in its letter that customers who choose not to settle could be forced to return a substantially higher amount through potential litigation.
The settlement offers are being announced after a bankruptcy judge in November approved Celsius’ plan for distributing billions of dollars in assets and transforming into a creditor-owned Bitcoin mining firm. Celsius lawyers said in a Wednesday court filing that the company has so far distributed about $2 billion in assets.
The bankruptcy is Celsius Network LLC, 22-10964, US Bankruptcy Court for the Southern District of New York (Manhattan).
(Adds role of administrator in second and seventh paragraphs.)
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Michael B. Marois, Dawn McCarty
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