Home / Celsius CEO Found Guilty — Should Creditors be Worried About Getting Funds Back?
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Celsius CEO Found Guilty — Should Creditors be Worried About Getting Funds Back?

Last Updated July 7, 2023 8:29 AM
Omar Elorfaly
Last Updated July 7, 2023 8:29 AM
By Omar Elorfaly
Verified by Darryn Pollock

Key Takeaways

  • CFTC says Celsius and founder Alex Mashinsky broke the rules
  • Will Celsius carry out its distribution plan?

In May 2023, failed crypto lender Celsius filed for Bankruptcy following a disastrous collapse, resulting in billions of dollars in losses for its customers. The company has since been under investigation by both the US Securities and Exchange Commission and the Commodity Futures Trading Commission.

The CFTC now concluded  that Celsius and its CEO Alex Mashinsky broke US rules before the company collapsed. CFTC Enforcement unit members say that the company misled investors and failed to register with regulating bodies. On top of that, attorneys say the company broke US regulations.

Should a majority of the commission support the incriminating claim, the company’s CEO may face federal charges. But, what would that mean for the company’s own token, CEL? More importantly, what does it mean for investors who still have their funds stuck in the company’s accounts?

Celsius’ Crypto Recovery Distribution Plan

When Celsius first filed for bankruptcy in June, the bankruptcy court ordered the company to refund 74.2% of Holders of Withhold Claims. Moreover, the company was ordered to refund 72.5% of the Cryptocurrency coins for Holders of General Custody Claims (creditors who accept the Custody Settlement).

But, the ruling left out the majority of Celsius customers in limbo. Celsius owes a total of $4.7 billion to its customers. However, most of the money owed belongs to Earn account holders. Earn accounts were supposed to help their owners make a profit on their accounts by utilizing the company’s lending features.

Understandably, the judge’s decision caused an outroar among Celsius customers, claiming that they were left with nothing.

Last month, the company announced on Twitter that board members have devised a plan to repay all of its clients. The plan involved three steps: 

  • Liquidate all altcoins in customer accounts and convert them into BTC and ETH. 
  • Repay around 70% of what is owed to customers in the form of liquid BTC and ETH, shares in a new company, and litigation fees.
  • Set up NewCo, a new organization led by the same Celsius directors

While most stakeholders expressed their dismay at the plan on Twitter, the general consensus was that people wanted to get whatever is left of their money back and move on.

The company even put the plan to a vote where customers had the choice to move on with it or not.

Celsius has since not announced the results of that vote. With the recent news about the possible indictment of the company and its former CEO, there’s a risk that plan might not see the light of day. Should that happen, Earn account holders would find themselves left stranded once more.

As for CEL, the company’s native token, it has been in a downward spiral ever since the crash in 2022. CEL is now trading at less than 5%  of its value pre-collapse.