Celsius customers to vote on new company formation, settlement plan

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Defunct crypto lender Celsius Network has received permission from a U.S. bankruptcy court to poll account holders on its plan to restart as a new user-owned company.

The company will send ballots and voting materials explaining the plan to account holders. In addition, Judge Martin Glenn of the Southern District of New York also let customers vote on a settlement plan involving Celcius’ Earn program.

The settlement will increase customers’ recoveries by five percent, resolving fraud and misrepresentation claims. Besides settlement information, the proposed ballot will contain details on cryptocurrency volatility and the challenges Celsius’ mining operations could face.

Crypto consortium Fahrenheit — led by Web3 venture capital firm Arrington Capital — won the bid to acquire Celsius’ assets in May. These investors will form a new company called NewCo to manage Celsius’ assets, which include institutional loan portfolio, mining business and alternative investments. The vote determines how NewCo will distribute the assets and equity to account holders.

Celsius also obtained a backup bid from the Blockchain Recovery Investment Consortium (BRIC), a holding company affiliated with Gemini Trust. The new company will receive $500 million in liquid crypto as part of the deal. However, this amount could be lowered to $450 million if secondary market purchases are involved.

While some creditors oppose the plan, the committee representing junior creditors supports it. This committee will also likely support Celsius customers’ participation in the program. Customers who do not wish to participate must opt out of the settlement.

If the court approves in October, Celsius will distribute an estimated $2 billion of Bitcoin and Ether to customers. The company is also on track to repay creditors by the end of 2023.

Celsius’ bankruptcy case

Celsius halted withdrawals on June 13, 2022, following the collapse of sister tokens TerraUSD and Luna. In July, the company filed for bankruptcy. According to court documents, the company had around 600,000 customers with approximately $4.4 billion in interest-bearing accounts when it filed for Chapter 11.

Former CEO Alex Mashinsky was arrested for fraud in August 2022. A court-appointed examiner’s report also found that Celsius had engaged in risky investments with customer funds.

“As the former CEO of Celsius, Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” said New York Attorney General Letitia James.

Since the company filed for bankruptcy, Bitcoin’s price has fluctuated significantly. In November 2022, it reached a low of $15,797 but rebounded to $31,454 in July 2023. As of this writing, the token is trading at $29,340.

The Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC) also filed lawsuits against Celsius and its executives, totaling a $4.7 billion fine.

Other bankruptcy cases

Celsius is one of several crypto lenders to go bankrupt in 2022. Other major crypto firms to file for bankruptcy last year include Genesis Global Capital, Core Scientific, Blockfi, Voyager Digital and Three Arrows Digital. These companies previously experienced rapid growth during the COVID-19 pandemic.

Among many bankruptcy cases during crypto last year, the FTX case remained one of the most notable. The Bahamas-based exchange shocked the crypto community in November when it filed for bankruptcy after suffering withdrawals of $6 billion in just 72 hours.

The company’s rival, Binance, had previously considered a rescue package for FTX but ultimately decided against it. At the same time, FTX’s affiliated hedge fund, Alameda Research, also filed for bankruptcy.