Defunct crypto lender Celsius Network is looking to combine its United Kingdom and United States entities as new court filings allege that any supposed distinction between the two companies was a “sham.”
The central point of dispute is focused on a decision made by the crypto lender in June 2021, when Celsius Network Limited (CNL) was issued with a warning to cease operations in the U.K. from the country’s Financial Conduct Authority.
To avoid fallout, CNL set up a Limited Liability Company — Celsius Network LLC — in the state of Delaware and looked to transfer its assets to the new company.
1) #Celsius left UK as they were offering illegal securities & were getting pressure from UK Securities Regulator (FCA). Yes securities laws exist outside US. pic.twitter.com/2bu3uJq9Fr
— Simon Dixon (@SimonDixonTwitt) December 29, 2022
According to a May 1 court filing from the now-bankrupt crypto firm, the migration of the two entities “resulted in intercompany chaos.” The filing adds that formal documentation of the intercompany relationship was “not completed for several months” and when it was “it remained ambiguous” what transactions the agreements affected.
The filing claims that for everyday investors the result of this transfer was too confusing to make sense of, however, the more “sophisticated” Series B investors were well aware of the implications of such dubious record keeping.
As a result, the two entities should be treated as one and the same in subsequent bankruptcy proceedings, so that smaller creditors are not ignored in favor of Series B investors when it comes to the recovery and return of lost funds.
According to a corresponding court filing from the Celsius Official Committee of Unsecured Creditors (UCC), the migration was a “sham” and the transactions that facilitated the transfer of billions of dollars worth of assets between the two were likely fraudulent.
Simon Dixon, who reportedly lost more than $8.8 million worth of Bitcoin (BTC) as a result of the Celsius collapse, summarised the UCC filing in a series of tweets on May 2 saying “Celsius acted as if the migration never occurred” and was given “poor documentation” and “no clear distinctions” to distinguish between the two entities.
UCC argument for substantive consolidation and joinder to #Celsius motion. They argue that CNL & LLC have always been the same entity and the whole CNL to LLC transfer was a sham. Creditors & Celsius itself saw CNL & LLC as functionally the same. They assert that while CNL…
— Simon Dixon (@SimonDixonTwitt) May 2, 2023
In a March 9 memorandum opinion, Chief U.S. Bankruptcy Judge Martin Glenn found that customers only had claims against Celsius’ Delaware-based LLC, meaning that Series B investors stand to be more likely to receive recompensation.
Related: Celsius creditors demand transparency on ‘suspicious’ FTX transactions
The auction of the remaining Celsius assets is scheduled to go ahead on Wednesday, May 3, with a number of major firms including the exchanges Coinbase and Gemini vying for possession of the defunct firms’ assets.
NovaWulf Digital Management currently stands as the “stalking horse bidder,” a term used to describe the first mover that sets the bar for the ensuing bids. NovaWulf’s proposal includes a direct cash contribution in the range of $45 million to $55 million. If NovaWulf’s proposal is accepted, customers can expect to recover up to 70% of their funds.
The auction marks a significant step forward for Celsius’ customers in recovering their funds, after the firm filed for Chapter 11 bankruptcy protection on July 14, 2022.
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