Celsius bankruptcy

Celcius reportedly prepping litigation against creditor for leaking internal info

Creditor Tiffany Fong has argued that she hasn’t done anything wrong, asserting that she didn’t break any non-disclosure agreements by reporting on the leaked information.

A court filing indicates that bankrupt crypto lender Celsius Network either intended to, or is potentially looking at taking legal action against crypto blogger and Celsius creditor Tiffany Fong over leaking internal information.

A screenshot shared by Fong shows that she currently has roughly $119,000 worth of crypto assets such as Bitcoin (BTC), Ether (ETH) and Polygon (MATIC) locked on Celsius, after the firm paused withdrawals in mid-June 2022, prior to filing for Chapter 11 bankruptcy the following month.

Since then, she has been actively reporting on the bankruptcy case as it unfolds via YouTube and other social media platforms. On multiple occasions, Fong has shared leaked internal information, which she claims was given to her privately by disgruntled former Celsius employees.

In an itemized sixth monthly fee statement from Celsius’ counsel Kirkland & Ellis International submitted to the bankruptcy court of the Southern District of New York on April 14, the law firm reported that it had worked 77 billable hours worth roughly $72,000 on an invoice titled “Tiffany Fong litigation.”

The law firm’s work on this case started on Jan. 26, with the last recorded hours of work being reported on Feb. 6.

While a concrete legal action doesn’t appear to have been formulated as of yet, the filing shows Celsius’ legal counsel was specifically looking into the leaked information Fong reported on via her social media accounts.

In the filing, Celsius law firm also outlined that it was drafting cease and desist letters for Fong, and also a motion to compel, which generally asks courts to enforce a request for information relevant to a case.

To name a few examples, Fong has reported on leaked internal information relating to company bids on Celsius assets, alleged audio of private company discussions and alleged transaction activity of execs such as former CEO and founder Alex Mashinsky.

Speaking with Cointelegraph, Fong didn’t mince her words as she alleged that Celsius is “using customer funds in an attempt to sue a creditor” over something that she asserts isn’t a legal issue to begin with:

“It’s bullshit I didn’t do anything illegal. I’m not an employee so I didn’t break an NDA [non-disclosure agreement]. I’m a creditor and they owe me 3.1 BTC & 11.6 ETH.”

Cointelegraph has also reached out to Celsius for comment on the potential litigation, and will update this article if the company responds.

Related: Celsius Network to make April 12 filing, including info on voting for restructuring plan

Adding fuel to the fire, Fong is currently in New York attending the 2023 NYC NFT event, and posting on Twitter on April 15, she revealed that found Alex Mashinsky and his wife Krissy Mashinsky out in public, and approached them.

A video posted to Twitter also shows the Mashinsky couple hurriedly walking away as other crypto content creators such as BitBoy Crypto (Ben Armstrong) approach alongside Fong in an attempt to engage them in conversation.

Magazine: Crypto Twitter Hall of Flame: Pro-XRP lawyer John Deaton ‘10x more into BTC, 4x more into ETH

Celsius reportedly prepping litigation against creditor for leaking internal info

Creditor Tiffany Fong argues she hasn’t done anything wrong, asserting that she didn’t break any nondisclosure agreements by reporting on the leaked information.

A court filing indicates that bankrupt crypto lender Celsius Network either intended to or is potentially considering legal action against crypto blogger and Celsius creditor Tiffany Fong over leaking internal information.

A screenshot shared by Fong shows that she currently has roughly $119,000 worth of crypto assets, such as Bitcoin (BTC), Ether (ETH) and Polygon (MATIC) locked on Celsius, after the firm paused withdrawals in mid-June 2022, before filing for Chapter 11 bankruptcy the following month.

Since then, she has been actively reporting on the bankruptcy case as it unfolds via YouTube and other social media platforms. On multiple occasions, Fong has shared leaked internal information, which she claims was given to her privately by disgruntled former Celsius employees.

In an itemized sixth monthly fee statement from Celsius’ counsel Kirkland & Ellis International submitted to the bankruptcy court for the Southern District of New York on April 14, the law firm reported that it had worked 77 billable hours worth roughly $72,000 on an invoice titled “Tiffany Fong litigation.”

The law firm’s work on this case started on Jan. 26, with the last recorded hours of work reported on Feb. 6.

While a concrete legal action hasn’t been formulated yet, the filing shows Celsius’ legal counsel specifically looked into the leaked information Fong reported on via her social media accounts.

In the filing, Celsius’ law firm also outlined that it was drafting cease and desist letters for Fong and a motion to compel, which generally asks courts to enforce a request for information relevant to a case.

To name a few examples, Fong has reported on leaked internal information relating to company bids on Celsius assets, alleged audio of private company discussions, and alleged transaction activity of executives such as former CEO and founder Alex Mashinsky.

Speaking with Cointelegraph, Fong didn’t mince her words as she alleged that Celsius is “using customer funds in an attempt to sue a creditor” over something that she asserts isn’t a legal issue, to begin with:

“It’s bullshit, I didn’t do anything illegal. I’m not an employee, so I didn’t break an NDA [nondisclosure agreement]. I’m a creditor, and they owe me 3.1 BTC and 11.6 ETH.”

Cointelegraph has also reached out to Celsius for comment on the potential litigation but received no response by publication time.

Related: Celsius Network to make April 12 filing, including info on voting for restructuring plan

Adding fuel to the fire, Fong is currently in New York attending the 2023 NYC NFT event. Posting on Twitter on April 15, she revealed that she found Alex Mashinsky and his wife, Krissy Mashinsky, out in public and approached them.

A video posted to Twitter also shows the Mashinsky couple hurriedly walking away as other crypto content creators, such as BitBoy Crypto (Ben Armstrong), approach alongside Fong in an attempt to engage them in conversation.

Magazine: Crypto Twitter Hall of Flame: Pro-XRP lawyer John Deaton ‘10x more into BTC, 4x more into ETH

DOJ objects to Celsius plans to reopen withdrawals and sell stablecoins

The objection is seeking a deferral on Celsius motions until the independent examiner report on the company is filed over the next couple of months.

The Department of Justice (DOJ) has submitted an objection to Celsius’ motion to reopen withdrawals for select customers and sell its stablecoin holdings.

The DOJ is asserting that the state of Celsius’ financials is lacking transparency and that key decisions like this should not be considered until the independent examiner report has been filed.

The move by the DOJ adds to the objections filed last week by the Texas State Securities Board, the Texas Department of Banking, and the Vermont Department of Financial Regulation. All three are opposed to Celsius selling its stablecoin holdings, asserting there’s a risk the firm could use the capital to resume operating in violation of state laws.

In a Sept. 30 filing with the Bankruptcy Court for the Southern District of New York, a U.S. Trustee for the DOJ, William Harrington, outlined an objection to Celsius opening up withdrawals to its “custody” and “withhold” customers, citing a lack of transparency over the firm’s financials.

Harrington argues in the filing that such withdrawals should not be opened up until the independent examiner report on Celsius business operations has been completed:

“The Motions are premature and should be denied until after the Examiner Report is filed. First, the Withdrawal Motion seeks to impulsively distribute funds to one group of creditors in advance of a fulsome understanding of the Debtors’ cryptocurrency holdings.”

The DOJ has also opposed a potential stablecoin sell off, highlighting similar concerns held by Texas and Vermont regulators that Celsius’ motion doesn’t concretely outline “what impact such a distribution or sale would have” on the business moving forward.

“Second, the Stablecoin Motion seeks to liquidate stablecoins held by the Debtors without providing information regarding ownership, segregation, or the impact of such sale on later distributions to creditors who may have stablecoins on deposit with the Debtors,” the filing reads.

Independent examiner appointed

According to Harrington, the “United States Trustee appointed Shoba Pillay” the examiner on Sept. 29, with the New York Bankruptcy court approving the appointment on the same day.

Pillay will have roughly two months to prepare and file an examiner’s report on Celsius, hopefully providing a clear breakdown of its assets and liabilities.

Harrington essentially asserted that Celsius’ motions should not even be considered until well after the examiner report has been filed, noting that “any distribution or sale should be deferred until interested parties, the United States Trustee, and the Court are able to make a determination” on the value of Celsius liabilities, claims against it, its assets and what “the debtors intends to actually pay its creditors.”

Related: Crypto Biz: The Voyager Digital auction is over — What now?

Simon Dixon, the founder of crypto investment platform BnkToTheFuture — which was the lead investor in Celsius — predicted via Twitter on Oct. 1 that Celsius will look to repay its creditors in Celsius (CEL) tokens as part of a reorganization plan that ultimately “won’t get past regulators & regulators will file motions to reject” it.

If such occurs, Dixon sees it sparking a bidding war for Celsius assets, similar to that of Voyager Digital’s recent $1.3 billion asset auction that was won by FTX US.


Texas, Vermont regulators object to Celsius stablecoin sale plan

A key concern is that the firm hasn’t explicitly outlined what it will do with the stablecoin sale proceeds.

State regulators from Texas and Vermont have filed a motion objecting to embattled crypto lender Celsius’ plans to sell off its stablecoin holdings.

Separate motions from both regulators filed on Sept. 29 argue that there’s a risk the firm could use the capital to resume operating in violation of state laws.

The filings come after a Sept. 15 notice from Celsius’ legal team asking the United States Bankruptcy Court for the Southern District of New York for permission to sell its stablecoin holdings, reportedly worth around $23 million. A hearing to accept or decline the motion will occur on Oct. 6.

However, the move has not gone down well with the Texas State Securities Board (SBB), the Texas Department of Banking, and the Vermont Department of Financial Regulation, who filed objections on Sept. 29.

The two Texan regulators in a joint filing outlined that “more than 40 states” are currently investigating Celsius’ pre-bankruptcy activities in relation to potential unregistered securities offerings.

Texas regulators also highlighted a concern that if Celsius sells off its holdings, the firm may resume non-compliant offerings in the state, given that it is still not registered with the Texas SBB. At the same time, the Vermont regulator also highlighted similar concerns in its own objection. 

A key concern across the regulators is that the firm hasn’t explicitly outlined what it will do with the funds after it sells the stablecoins.

“It is not at all clear what the debtors intend to do with the proceeds of any such sales, whether the relief requested extends to Stablecoin-denominated assets such as retail loans to consumers, and the degree to which Debtors’ use of sale proceeds will be supervised by the Court,” the Vermont regulator’s filing reads, while the Texan filing notes that:

“Texas is extremely concerned by the Debtors’ request for an order that allows ambiguously broad authority to sell and/or exchange the assets.”

As such, the state regulators are requesting that Celsius’ motion be denied, with the Texan regulators asserting that it would “only act to confound the examination and further muddy the already opaque waters that are the Debtors’ cryptocurrency assets.”

Related: FTX reportedly considers bailing out Celsius via asset bid

However, the Texan regulators also said that should the motion in question be approved, the “relief granted to the Debtors should be limited to selling stablecoin and holding the proceeds of such sale solely for the benefit of creditors of the bankruptcy estate.”

The Celsius bankruptcy case has been highly complicated thus far, given the cloudy nature of the firm’s balance sheet. Earlier this month, the United States Bankruptcy Court of the Southern District of New York granted a motion for Celsius to appoint an independent examiner to investigate aspects of its business.

Bombshell allegations of fraud as KeyFi takes Celsius to court

KeyFi Inc.’s complaint alleges that Celsius failed to honor a multi-million dollar profit-sharing agreement after deploying numerous successful staking and DeFi strategies for the firm.

Staking software and investment firm KeyFi Inc. has filed a complaint against beleaguered crypto-lending firm Celsius, alleging the company had been operating in a Ponzi-style fashion and that it failed to honor a profit-sharing agreement “worth millions of dollars.”

The complaint, filed on Thursday, alleges that Celsius has refused to honor a “handshake agreement” in which KeyFi would receive various percentages of the profits it made on Celsius’s behalf via a number staking and decentralized finance (DeFi) strategies.

The complaint also accuses Celsius of “negligent misrepresentation” over its risk management controls and “fraud in the inducement” via misleading information of its business operations, which were deployed to induce KeyFi to work with Celsius.

The plaintiff is Jason Stone, CEO of KeyFi. He founded the company in January 2020 and has a background as an investor/investment adviser.

According to the court documents, KeyFi served as an investment manager to Celsius between August 2020 and March 2021, during which the duo entered into a Memorandum of Understanding (MOU) which saw the KeyFi work under a special purpose vehicle to be owned by Celsius, dubbed Celsius KeyFi.

While a specific figure owed to KeyFi is not outlined in the complaint, it states the sum is worth “millions of dollars,” and that the companies had agreed on profit shares ranging from 7.5% to 20%, depending on the investment strategy.

Notably, there is also a lengthy section of the complaint alleging that Celsius was running a Ponzi-style operation by luring in new depositors with high-interest rates as a way to “repay earlier depositors and creditors.”

The complaint seeks a trial by jury and an award of damages in “an amount to be determined at trial,” along with punitive damages in the same vein, pre and post-judgment interest and an accounting of all assets/funds generated via KeyFi trading activities.

Further claims from Oxb1

A person claiming to be Stone revealed himself to be the leader of the group of pseudonymous DeFi traders behind the Oxb1 address and Twitter account on Thursday. The account provided a long rundown of Celsius’ alleged dealings with KeyFi since 2020.

Celsius was said to have struck a business partnership with KeyFi in mid-2020, which saw the creation of the Oxb1 address for KeyFi to receive, manage and invest customer deposits from Celsius. The assets under management (AUM) totaled almost $2 billion by the end of their partnership in March 2021, according to the account.

The account also stated that Celsius’ risk management team, who monitored the activity of Oxb1, assured KeyFi that “their trading teams were adequately hedging any potential” impermanent loss (IL) and fluctuations in token prices relating to KeyFi investment activities.

However, Oxb1 alleges that this was not true, and they “had not been hedging our activities, nor had they been hedging the fluctuations in crypto asset prices.”

“The entire company’s portfolio had naked exposure to the market,” he said.

Oxb1 claims that KeyFi opted to terminate the partnership as a result and gradually unwind its investment positions over the course of a few months. KeyFi was said to have increased total AUM by $800 million during the partnership.

However, when the firm exited its positions, Celsius allegedly suffered impermanent loss and blamed Stone. 

Related: Celsius pays down 143M in DAI loans since July 1

Oxb1 stated that he filed the lawsuit and took the matter public after a year of trying to privately settle the dispute with Celsius. To date, he claims KeyFi is owed a “significant amount of money,” and that Celsius has “refused” to acknowledge its lack of risk management and honor the initial profit-sharing terms of the deal:

“Despite our reasonableness, and due to what I believe was motivated by the massive hole in their balance sheet, Celsius has refused to acknowledge the truth or their failures in risk management and accounting. They have tried to deflect blame to me instead.”

BnkToTheFuture unveils 3 proposals to rescue Celsius from oblivion

BnkToTheFuture’s three proposals include two different ways to restructure and relaunch the firm or an option to co-invest in the firm with a bunch of Bitcoin whales.

Celsius’ lead investor BnkToTheFuture has outlined three proposals to save Celsius from bankruptcy while finding a good outcome for shareholders and depositors with funds stuck on the platform.

Shared on Twitter by BnkToTheFuture CEO Simon Dixon on Thursday, the three distinct proposals include either two options of restructuring and relaunching Celsius or potentially co-investing in the platform alongside wealthy Bitcoin (BTC) whales.

“Proposal #1: A restructuring to relaunch Celsius and allow depositors to benefit from any recovery through financial engineering.”

“Proposal #2: A pool of the most influential whales in Bitcoin to co-invest with the community.”

“Proposal #3: An operational plan that allows a new entity and team to rebuild and make depositors whole.” 

Dixon previously referred to “financial innovation” being needed to be applied to Celsius, similar to the issuance of equity debt tokens like in the case of Bitfinex in 2016, which were designed to represent $1.00 of debt per token.

“We believe all attempts should be made to make depositors whole in order to maintain shareholder value,” the team wrote, adding it will be calling for a shareholder meeting that “legally cannot be ignored by the Celsius board:”

“Bnk To The Future Capital SPC holds over 5% of Celsius shares and therefore we believe that this allows us to call a shareholder meeting as part of our statutory shareholder rights that legally cannot be ignored by the Celsius board.”

BnkToTheFuture also suggested that after first submitting these proposals to Celsius and its advisers, it is now looking to “apply pressure” on the firm after getting “worried that time was running out” with its lack of a distinct plan of action. These sentiments were also echoed by Dixon in a Digital Assets News Interview on the same day:

“You have to move really fast, because the longer you go on, the more FUD comes out, bad PR comes out, more predatory offers come out, the more the community stops believing in what they originally believed in.”

Celsius’ users have been unable to withdraw assets from the platform since June 13 amid the firm’s ongoing liquidity issues. Meanwhile, there are fears that users may never get their funds back if the company were to go bankrupt.

Celsius may have its own solution

In a blog post on Friday, Celsius stated that it is working as fast as it can to stabilize its liquidity problems so that it can be “positioned to share more information with the community.”

While the firm did not reveal much about what this entails, Celsius stated that it is exploring options to protect its assets such as pursuing strategic transactions as well as a restructuring of our liabilities, among other avenues.

“These exhaustive explorations are complex and take time, but we want the community to know that our teams are working with experts from many different disciplines,” the blog post read.

FTX walked away from Celsius deal over bad financials

Related: Contagion: Genesis faces huge losses, BlockFi’s $1B loan, Celsius’s risky model

Reports surfaced on Thursday that Sam Bankman-Fried’s crypto exchange FTX recently walked away from a deal to purchase Celsius after finding a $2 billion hole in the company’s finances.

According to two unnamed sources close to the matter, FTX had entered talks with Celsius to either provide financial support or acquire the firm outright. However, apart from having $2 billion, an account for Celsius was said to be difficult to deal with.