The now-defunct crypto lender Celsius Network faces allegations that the supposed distinction between its UK and US entities was a "sham," according to new court filings.
According to analyses of the documents, a number of critical questions regarding the company's financial practices and potential fraudulent activities may be raised.
In June 2021, Celsius Network Limited (CNL) was issued a cease operation warning by the UK's Financial Conduct Authority. In response, Celsius Network set up a Delaware-based Limited Liability Company (LLC) to transfer its assets and avoid any negative repercussions. However, a May 1 court filing from the bankrupt firm claims that the migration led to "intercompany chaos," marked by ambiguous documentation and confusing transactions.
Everyday investors were left puzzled by the transfer, while "sophisticated" Series B investors allegedly understood the implications of the unclear recordkeeping. A separate court filing from the Celsius Official Committee of Unsecured Creditors (UCC) argues that the migration was a "sham," with potentially fraudulent transactions facilitating the transfer of billions of dollars in assets between the two entities.
Simon Dixon, who reportedly lost more than $8.8 million in Bitcoin due to the Celsius collapse, highlighted the poor documentation and lack of clear distinctions between the two entities in a series of tweets summarizing the UCC filing. In a March 9 memorandum opinion, Chief U.S. Bankruptcy Judge Martin Glenn ruled that customers only had claims against Celsius' Delaware-based LLC, suggesting that Series B investors are more likely to receive compensation.
The auction of Celsius' remaining assets is scheduled for May 3, with major firms such as Coinbase and Gemini vying for possession. NovaWulf Digital Management, the "stalking horse bidder," has proposed a direct cash contribution of $45-55 million, which could allow customers to recover up to 70% of their lost funds. This auction represents a significant step forward for Celsius' customers as they seek to reclaim their assets following the company's Chapter 11 bankruptcy filing in July 2022.
While the court proceedings unravel the intricacies of Celsius Network's financial dealings, the allegations of a "sham" separation between the UK and US entities cast a shadow over the crypto lender's operations. The case serves as a cautionary tale for the crypto industry, emphasizing the importance of transparency, proper documentation, and adherence to regulatory guidelines.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
