State Securities Regulators Seek More Transparency In Celsius Crypto Bankruptcy

The Celsius logo and representation of cryptocurrencies are seen in this illustration taken July 7, 2022. REUTERS/Dado Ruvic/Illustration

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  • The U.S. bankruptcy watchdog says an independent review would dispel customer ‘mistrust’ and ‘confusion’
  • At least 40 state securities regulators are investigating Celsius for potential violations

(Reuters) – State securities regulators in Texas, Vermont and Wisconsin on Wednesday pushed for greater transparency in the bankruptcy of cryptocurrency lender Celsius Network LLC, joining the U.S. department’s call of Justice to have a court-appointed reviewer ensure that Celsius provides creditors with accurate information.

State regulators said they support appointing an examiner in filings in U.S. Bankruptcy Court in Manhattan, noting they are particularly concerned about protecting retail investors who may have filed claims. university funds or retirement accounts with Celsius based on false promises.

New Jersey-based Celsius did not respond to a request for comment on Wednesday. The company filed for bankruptcy on July 13, following losses related to the collapse of major tokens TerraUSD and Luna in May.

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The US trustee, the DOJ’s bankruptcy watchdog, argued that an examiner could provide an unbiased review of Celsius’ actions and finances, helping to clear up the “widespread confusion” and “mistrust” that surrounded the bankruptcy of the crypto lender.

The DOJ alleged that Celsius failed to provide clear information about the type and value of crypto it holds, where its assets are held, and its lending and investing activities.

In their filings, the states said Celsius misled customers for months before seeking Chapter 11 protection.

For example, Celsius CEO Alex Mashinsky told clients that “all funds are safe” in a May 11 tweet, when in fact Celsius suffered losses of around $454 million between May 2 and May 12, according to the Vermont filing. Mashinsky also told clients that regulators approved Celsius’ business model at a time when the company was facing multiple investigations related to potential securities law violations, according to Vermont.

Texas made similar arguments in its filing, pointing out that Celsius froze customer accounts just five days after it published a blog post saying it would have no problem honoring withdrawal requests.

According to filings in Texas and Vermont, at least 40 state securities regulators are investigating Celsius for potential unregistered securities activity, mismanagement, securities fraud and market manipulation. .

A shareholder group opposed a DOJ reviewer’s request, saying it was too broad. The DOJ’s current request would require the examiner to “investigate and report almost anything relating to debtors’ affairs,” a task that would cost tens of millions of dollars and consume the majority of Celsius’s attention “for at least least several months,” shareholders said Wednesday.

U.S. Chief Bankruptcy Judge Martin Glenn is due to consider a DOJ examiner’s request at a September 14 hearing.

The case is In re Celsius Network LLC, US Bankruptcy Court for the Southern District of New York, No. 22-10964

For Celsius Network: Joshua Sussberg of Kirkland & Ellis

For the DOJ: Shara Claire Cornell of the US Department of Justice

For Vermont: Jennifer Rood of the Vermont Department of Financial Regulation

For Texas: Layla Milligan of the Texas State Securities Board

Read more:

Crypto lender Celsius Network reveals $1.19 billion hole in bankruptcy filing

State securities regulators investigate freezing of Celsius accounts

Crypto lender Celsius gets court approval to sell bitcoin, but not stocks or debt

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Reporting by Dietrich Knauth

Our standards: The Thomson Reuters Trust Principles.

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