Listen to the Article: Follow-up on the Celsius Crisis - The Oct U.S Hearing Update

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Here's the latest update on the Celsius case: At a hearing held on October 2-3 at the U.S. District Court for the Southern District of New York, Judge John Koeltl said that the criminal trial of the former CEO of the crypto platform, Alex Mashinsky, is scheduled for September 2024. Regarding repayment, Celsius also plans to release some of the frozen funds to the victims whose funds are trapped since June 2022.

A Brief Review of the Celsius Bankruptcy and What Happened in 2023

Celsius was "one of the largest players in the crypto lending space" in Q2 2022, according to CNBC. In June that year, it had 1.7 million clients and offered up to 17% annual yield. It used Prime Trust as its custodian for some assets from March 2020 to June 2021. After the relationship ended, Celsius sued Prime Trust in August 2022 for retaining $17 million of assets.

Celsius paused all withdrawals on June 13 2022, citing "extreme market conditions". This caused a drop in the prices of bitcoin, Ethereum, and CEL token, as well as the market value of all cryptocurrencies. Celsius' CFO resigned on June 30 and it laid off a quarter of its workforce in early July.

On July 13 2022, Celsius filed for Chapter 11 bankruptcy, with a $1.2 billion deficit. It owed $4.7 billion to its clients, who were unsecured creditors.

Celsius sold its custody platform GK8 to Galaxy Digital Holdings in December 2022. A judge ordered Celsius to return $50 million in crypto to its custody users. About 600,000 clients became unsecured creditors.

Celsius declared at a court hearing on February 15, 2023 that it had chosen NovaWulf Digital Management to give advice for its road out of bankruptcy. The agreement must be approved by a bankruptcy judge as well as Celsius' creditors.

The Federal Trade Commission (FTC) announced a settlement in July 2023 that would prohibit Celsius Network from handling consumer assets. Alex Mashinsky, Daniel Leon, and Nuke Goldstein, the company's founders, are facing federal accusations. Celsius agreed to pay $4.7 billion, one of the largest FTC settlements in history. Concurrently, the SEC filed allegations against Celsius and Mashinsky.

In September 2023, according to documents from the U.S. District Court for the Southern District of New York, former Celsius executive Roni Cohen-Pavon pleaded guilty to four counts: price manipulation, securities fraud, securities price fraud, and wire fraud.

Update on the Hearing during Oct 2-3

During the hearing held in the U.S. District Court in New York on October 2-3, Celsius' lawyer stated that the troubled crypto platform's operations are now run by a new company, temporarily called "NewCo". They plan to pay $2 billion to creditors through NewCo in bitcoin and Ethereum.

The judge has not decided whether to approve Celsius' restructuring plan. If he does, Celsius will be the first crypto platform to get back to business after filing for Chapter 11 bankruptcy since 2022. Celsius said at the hearing that over 95% of its creditors supported its plan.

Celsius' interim CEO Chris Ferraro said his main goals were to give the $2 billion in crypto to creditors and to rebuild the business and hand it over to a new management team led by Arrington Capital.

The hearing also confirmed that Celsius' founder and former CEO Alex Mashinsky will face a criminal trial in September next year. Three pre-trials will take place in March, July, and September. Mashinsky is out of jail after posting $40 million bail. He is accused of illegally getting billions of dollars of client assets by lying to investors. This hearing was the first update on the criminal charges against Celsius.

Fazzaco will keep you posted on the latest developments in the Celsius case. On December 11, there will be a sentencing hearing for Roni Cohen-Pavon, a former Celsius executive who admitted his guilt.

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