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Celsius Network Sues to Reclaim $100M from Pre-Bankruptcy Withdrawals Aims to Aid Creditors

Last Updated 6 days ago
Teuta Franjkovic
Last Updated 6 days ago

Key Takeaways

  • Celsius Network sues account holders who failed to settle liabilities from preferential transfers made before the bankruptcy filing.
  • Lawsuits target individuals with Withdrawal Preference Exposure exceeding $100,000.
  • Celsius previously recovered nearly $100 million through settlements with over 1,500 account holders.
On July 1, 2024, the Celsius Litigation Administrator started filing complaint s in the United States Bankruptcy Court for the Southern District of New York.

These complaints target Celsius account holders who have more than $100,000 in Withdrawal Preference Exposure (“WPE”) and who have not settled their preference liability. The Litigation Administrator is seeking to recover preferential transfers made in the 90 days prior to Celsius initiating its bankruptcy proceedings, specifically between April 14, 2022, and July 13, 2022.

Celsius Network Sues Account Holders for Unfair Gains Before Bankruptcy

The litigation administrator for the bankrupt crypto lender Celsius Network has started suing account holders who have failed to settle liabilities stemming from preferential transfers made within the 90 days prior to the company’s bankruptcy filing.

These lawsuits , filed with the US Bankruptcy Court of Southern New York, focus on persons whose Withdrawal Preference Exposure(WPE) is over $100,000.

The previous settlement offer by Celsius led to the recovery of nearly $100 million and resolved over half a billion dollars in preference liabilities. This was achieved through settlement agreements with more than 1,500 account holders.

According to  Celsius Litigation Administrator Mohsin Meghji :

“Account holders who withdrew funds just before Celsius’ bankruptcy have benefitted unfairly, impacting other account holders. These individuals had ample opportunity to settle at favorable rates. Now, we will pursue the full value of cryptocurrency transferred during the preference period as stipulated by the Bankruptcy Code.”

Celsius Network Recovers and Settles with Creditors

During the preference period from April 14, 2022, to July 13, 2022, substantial withdrawals significantly destabilized Celsius Network’s financial position, ultimately leading the firm to file for bankruptcy shortly after this period.

Former CEO Alex Mashinsky and other executives at Celsius are now facing allegations of fraud and market manipulation, which are believed to have played a role in the company’s collapse. In February this year, the company declared that it will distribute over $3 billion to its creditors. The substantial settlement included not only cash payouts but also equity shares in Ionic Digital Inc., a newly established mining enterprise.

Celsius has made a remarkable recovery, effectively securing its cryptocurrency assets, reaching agreements with creditors, and strategically restructuring its viable business segments. The firm has successfully resolved its legal issues with major US regulatory authorities, including the Department of Justice, (DoJ) the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC).

Creditor Repayments and Fair Treatment in Ongoing Restructuring Efforts

The initial plan was designed to return up to 65% of holdings  to creditors but the new plan includes returns of up to 85%. The reorganization plan  has also made provisions for creditors who participated in Celsius’ interest-bearing Earn program, allowing them to receive a portion of their assets in cryptocurrency and shares in the newly restructured company.

Fairness in Bankruptcy: Understanding the 90-Day Rule and Fund Redistribution

The principle of “fairness” in bankruptcy  proceedings addresses how funds are handled when a company goes bankrupt. If individuals withdraw their money more than 90 days before the bankruptcy, they can keep their money. However, withdrawals made within 90 days before the bankruptcy date are considered part of the bankruptcy estate. This means that someone who withdrew 89 days before, 3 days before, or even attempted to withdraw after the bankruptcy, are all treated equally under the law.

To ensure fairness, the bankruptcy administrator, typically a law and accounting firm, will claw back funds withdrawn within this 90-day period. The recovered funds are then redistributed among all creditors based on what is deemed a “fair” amount, ensuring everyone receives a portion of their owed money.

Following the recent legal actions taken by Celsius Network, several key developments are expected going forward. The company has already successfully exited bankruptcy, distributing over $3 billion in assets and establishing the new mining venture Ionic Digital Inc., which is managed by Hut 8 Corp​. If successful, Celsius Network will succeed in recovering funds from preferential transfers made before its bankruptcy, and enhance creditor returns up to 85%.

However, Celsius faces a tough legal battle as account holders hire top law firms to defend against retail clawbacks. One Redditor confirmed  involvement in a large group that has secured a top law firm for representation.

Reddit comment
Credit: Reddit

According to this individual, Celsius will collect money from individuals who either lack the knowledge or resources to fight back, but asserts that strong defenses will make any lawsuit a waste of creditors’ money. The Redditor expressed confidence in setting a precedent for the industry against such actions.

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