Embattled crypto lender Celsius files for bankruptcy protection

Celsius on Thursday was sued by former investment manager Jason Stone as pressure continues to mount on the company amid a crash in cryptocurrency prices. Stone alleged, among other things, that Celsius CEO Alex Mashinsky (above) was ‘capable of becoming very rich’.

Piaras Ó Midheach | Sportsfile for the Web Summit | Getty Images

Crypto firm Celsius has deposit for Chapter 11 bankruptcy protection after a turbulent month.

In a statement on Wednesday, Celsius said it would seek to stabilize its business by restructuring in a way “that maximizes value for all stakeholders.” Celsius said it has $167 million in cash to support operations in the interim.

Earlier, CNBC reported that attorneys for the company were notifying individual U.S. state regulators as early as Wednesday evening, according to a source, who asked not to be named because the proceedings were private.

“This is the right decision for our community and our business,” said Alex Mashinsky, co-founder and CEO of Celsius, in a statement. “I am confident that when we look back on the history of Celsius, we will see this as a defining moment, where acting with determination and confidence served the community and strengthened the future of the business.”

The Hoboken, New Jersey-based company hit the headlines a month ago after freezing customer accounts, blaming “extreme market conditions”.

Wednesday’s news marks the latest high-profile crypto bust as prices plummet.

Voyager filed for Chapter 11 bankruptcy last week after suffering losses from exposure to now-defunct hedge fund Three Arrows Capital. A New York bankruptcy court judge froze the remaining assets of Three Arrows Capital this week. The fund is currently in the process of liquidation.

“Unfortunately, this was planned. This was anticipated. This does not stop our investigations, however. We will continue to investigate the business and work to protect its customers, even in the event of insolvency,” Joseph said. Rotunda, Director of Law Enforcement at the State of Texas. Securities Board said of Celsius’s bankruptcy filing.

Celsius did not immediately respond to CNBC’s request for comment.

The company has more than 100,000 creditors, which could include both customers and counterparty lenders, according to the bankruptcy document. Its largest unsecured claim is $81 million from the Cayman Islands-based Pharos Fund. The filing also lists billionaire FTX CEO Sam Bankman-Fried’s business company, Alameda Research, as a creditor of a $12 million unsecured loan.

Celsius was one of the biggest players in the crypto lending industry with over $8 billion in client loans and nearly $12 billion in assets under management as of May. Celsius said it had 1.7 million customers in June and was competing with its interest-bearing accounts and yields of up to 17%.

The company would lend customers’ crypto to counterparties willing to pay exorbitant interest rates to borrow it. Celsius would then share a portion of that revenue with users. But the structure collapsed amid an industry liquidity crunch.

The company was sued last week by a former investment manager who alleged Celsius failed to hedge risk, artificially inflated the price of its own digital coin and engaged in activities that constituted fraud. .

Six state regulators have already launched investigations into Celsius. Vermont became the latest to do so earlier on Wednesday. The state’s Department of Financial Regulation said Celsius “deployed client assets in a variety of risky and illiquid investing, trading and lending activities.”

“Celsius customers have not received critical information about its financial condition, investment activities, risk factors and ability to repay its obligations to depositors and other creditors,” the Vermont regulator said. in a press release. “The company’s assets and investments are likely insufficient to cover its outstanding obligations.”

Adam Levitin, a Georgetown law professor and director of Gordian Crypto Advisors, said Celsius clients could have to wait years to see their money again and only be entitled to pennies on the dollar. Customers who have participated in Celsius’ High Yield Deposit Program may be considered unsecured creditors in the eyes of the court.

“The treatment here seems to be that the customer’s crypto is actually the property of the company, and as an unsecured creditor, you don’t get your bitcoins back,” Levitin told CNBC, adding that he doesn’t think so. that Celsius is the latest of the crypto bankruptcies. “The tide is still falling, we’re just waiting to see how far it goes.”

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