After a month of turbulence, crypto firm Celsius initiated the process of applying for Chapter 11 bankruptcy protection. The Celsius Network issued a statement on Wednesday indicating that the company will try to restore its operations by reorganizing in a way that would maximize the value for all of the company’s stakeholders. The company stated that it had a total of $167 million in cash on hand to keep the company running in the meantime. It was stated earlier that the firm’s attorneys were in the process of contacting various state regulators in the United States as of Wednesday evening.
The firm, which has its headquarters in Hoboken, New Jersey, gained attention about a month ago after it froze the accounts of its customers and blamed the action on harsh economic conditions. The disclosure on Wednesday represents the most recent high-profile cryptocurrency bankruptcy as values tumble. Last week, Voyager filed for protection under Chapter 11 of the United States Bankruptcy Code after incurring losses as a result of its exposure to the now-defunct hedge fund Three Arrows Capital. This Monday, a judge in the New York bankruptcy court froze the remaining assets of Three Arrows Capital. The fund is currently undergoing liquidation processes.
According to Alex Mashinsky, co-founder and CEO of the Celsius Network, “This is the right decision for our community and company. I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company.”
Reasons Behind The Sudden Downfall Of The Celsius Network
According to the bankruptcy petition, the business has more than 100,000 creditors, which might include consumers as well as financing counterparties. Its claim against Pharos Fund, situated in the Cayman Islands, is its highest unsecured claim and is worth $81 million. Alameda Research, the trading firm of billionaire FTX CEO Sam Bankman-Fried, is listed as a creditor with a $12 million unsecured loan in the statement.
As of the month of May, Celsius was one of the most significant companies in the cryptocurrency lending industry, has extended more than $8 billion in loans to customers, and has approximately $12 billion in assets under management. Celsius reported that as of June it had 1.7 million users and was contesting its interest-bearing deposits with rates of up to 17%. The company would lend consumers’ cryptocurrency to competitors prepared to pay exorbitant interest rates. After that, Celsius would share a portion of its profits with its customer base. However, the structure collapsed due to a liquidity shortage in the industry.
A former investment manager has filed a lawsuit against the Celsius Network, alleging the business failed to hedge risk, fraudulently raised the price of its own virtual currency, and participated in conduct that amounted to deception. The lawsuit was filed a week ago. Six state regulatory agencies have already begun investigating Celsius. Vermont was the most recent state to do so on Wednesday morning. According to the Department of Financial Regulation of the state, Celsius engaged in a variety of high-risk and illiquid investments, trading, and lending operations using its customers’ funds.
According to Joseph Rotunda, director of enforcement at the Texas State Securities Board, “Unfortunately, this was expected. It was anticipated. It does not, however, stop our investigations. We will continue investigating the company and working to protect its clients, even though it’s insolvent.”
A Bleak Time For Celsius Customers
According to Adam Levitin, a legal professor at Georgetown University and the principal at Gordian Crypto Advisors, clients of the Celsius Network may not be entitled to more than a few pennies on the dollar and may have to wait years before they can see their money again. Customers who participated in Celsius’s high-yield deposit offer may be considered unsecured debts by the court.
According to the Vermont regulator, Celsius clients did not receive crucial disclosures about the company’s ability to repay its commitments to depositors and other creditors, as well as its financial position, investment operations, risk factors, and other relevant information. Apparently, the company’s assets and investments are insufficient to pay its commitments.
According to Adam Levitin, the situation appears to be handled in such a way that the customer’s crypto is in fact the property of the corporation, and because you are an unsecured creditor, you will not receive your coins back. He stated that he does not believe Celsius is the last company to fail. The tide is still receding, and we are merely observing its progression.
