Celsius Network’s Bankruptcy Mess Gets Even Messier

Welcome to Bloomberg Crypto, our twice-weekly look at Bitcoin, blockchain and more. If someone forwarded this to you, sign up here. In today’s edition,  goes to court — Celsius bankruptcy court, that is:

Disorder in the court

With each passing day, the plight of Celsius Network, its creditors and customers seems to get more complicated and costly.

To recap: The once high-flying crypto lender froze withdrawals in mid-June after being entangled in the fallout from the collapse of the TerraUSD stablecoin, a predicament that led to its seeking bankruptcy protection a month later. Since then, more than 300 angry customers have filed letters with the bankruptcy court to demand return of their funds, with some accusing Celsius CEO Alex Mashinsky of misleading them about the risks of investing in the lender. 

A further twist came last week, when a representative of the US trustee overseeing the case said there is “no real understanding” of the nature or value of Celsius’s crypto holdings — or where it keeps them. In a filing, she asked the court to appoint an examiner to dig into Celsius’s business model, its investments, lending transactions and any “irregularities,” particularly since the latter have become fodder for discussions on Twitter and Reddit.

“There is a lot of information on the internet, but it is not vetted or explained, thereby leaving hundreds of thousands of customers to form their own conclusions based on the missing facts in this case coupled with the information passed around as truth on the internet,” the filing said. “The result has been confusion and anxiety.”

And then there are other legal complications. Days before Celsius filed for bankruptcy, a former money manager for the company slapped it with a lawsuit, alleging the lender used customer funds to manipulate the price of its token and failed to properly hedge risk. On Tuesday, Celsius countersued, claiming the man had deceived the company about his investing abilities and lost or stole tens of millions of dollars in assets. Celsius also separately sued crypto custodian Prime Trust, claiming it hasn’t turned over $17 million worth of Celsius’s assets.

An examiner can be costly, and can cause delays. In the Lehman Brothers bankruptcy, a court-appointed examiner worked for more than a year, and cost more than $30 million. The Enron bankruptcy examiner charged $90 million in fees. That’s on top of all legal expenses that various parties — debtors and various creditor groups — will have to pay in the Celsius case. 

Whether the various creditors’ groups will support the appointment of an examiner is unclear, as is the resolution of the suits. What is clear is that the Celsius saga is far from over, and it’s shaping up to be a long and painful process for all.

Charting it out

Hearing them out

What we’re reading (and writing)

• Wall Street, Crypto Giants Line Up to Back Startup Prime Broker
• As Crypto Slumps, Goldman Sachs Aims for a Wall Street Built on Blockchain (Wall Street Journal)
• Ethereum Overhaul Risks Creating a New Class of Kingpins
• Crypto Is Tumbling, But in Argentina It’s Still a Safer Bet (New York Times)
• The Sleuths Who Protect Crypto From Hackers Are Raking in Money
• How Stablecoins Became a Powerful Force for Crypto (Bloomberg Odd Lots podcast)

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— With assistance by Joanna Ossinger, and Tanzeel Akhtar