The US Bankruptcy Court for the Southern District of New York has approved collapsed crypto lender Celsius’ plan to transition itself into a Bitcoin mining company owned and managed by its creditors. The proposal is part of a comprehensive strategy to refund Celsius account holders whose assets have been frozen on the platform since it declared insolvency in June 2022.
Celsius Rebrands as a Bitcoin Mining Company and Promises Shares to Affected Customers
On Thursday, Judge Martin Glenn issued a court confirmation stating that the company’s bankruptcy plan was approved overwhelmingly by its creditors on September 27, 2023. The proposed plan suggests the redistribution of around $2 billion in Bitcoin (BTC) and Ether (ETH) along with shares in a newly formed, and publicly listed Bitcoin mining company called NewCo, to Celsius’ creditors.
Celsius lawyers and representatives of NewCo have said that the company may start distributing the assets early next year.
Judge Glenn’s ruling confirms a much-needed exit for Celsius from its Chapter 11 bankruptcy claims made last year after a downturn in the crypto market negatively impacted its liquidity. This comes despite accusations of fraud and misconduct against former company executives, including founder and former CEO Alex Mashinsky and chief revenue officer Roni Cohen-Pavon.
Many of Celsius’ creditors were also participants in its “Earn” program, which allowed them to earn weekly rewards in the platform’s native CEL token by lending their crypto that was locked for a period of one year.
As per federal securities laws, the CEL token and the Earn program are considered to be securities and have to be registered as such. But Celsius did not do so and continued to offer unregistered securities to its customers, a violation of federal financial laws according to the SEC.
After filing for Chapter 11 bankruptcy protection in July 2022, Celsius held onto customer assets, claiming them to be corporate securities that could be liquidated as part of the bankruptcy procedure. When angry creditors sued the company, it noted that by accepting the terms and conditions of the Earn program, clients had effectively given the firm the right to claim their assets as its own.
Celsius Clients Raise Concerns Over Restructuring Plan and Future of CEL Token
Customers are not entirely satisfied with the new management and raised concerns about the shift to Bitcoin mining operations. They argued that the plan significantly undervalues the CEL token, which will essentially be used to distribute digital assets and stocks to creditors through the newly formed company.
Celsius lawyers responded by saying that CEL became worthless when the crypto lender filed for Chapter 11, arguing that the native token only served as a proxy for company shares that were wiped out during bankruptcy. Meanwhile, Judge Glenn wrote in his decision that Celsius’ bankruptcy plan averted the need for the court to find out whether the CEL token or the Earn program constitutes a security.
NewCo’s Bitcoin Mining Firm Can Only With the SEC’s Approval
NewCo will expand Celsius’ existing Bitcoin mining operations, monetize illiquid assets of the former crypto lender, and conduct other developmental activities. The new company will be managed by the Fahrenheit Consortium, a group of investors and cryptocurrency enterprises that had acquired Celsius’ assets.
The members of the group include Bitcoin mining company US Bitcoin Corp., digital asset management firm Arrington Capital, tech consultancy Proof Group, and crypto entrepreneurs Steven Kokinos and Ravi Kaza. Fahrenheit Consortium is reportedly bidding for FTX, the crypto exchange founded by Sam Bankman-Fried that collapsed in November 2022.
NewCo indicated that the plan is subject to regulatory approval from the SEC. They also noted that in case the crypto mining venture does not proceed, an alternative liquidation plan might be enacted.
Judge Glenn has called upon the SEC to make a decision regarding Celcius’ intention to rebrand itself as a publicly traded Bitcoin mining company.
Celsius CEO Alex Mashinsky was arrested in July 2023 on charges of securities fraud, commodities fraud, and wire fraud. While Mashinsky is out on a $40 million bail, he is expected to be tried in September 2024.
Meanwhile, Cohen-Pavon, ex-CRO of the crypto lending company, pleaded guilty to fraud and price manipulation charges in September. His trial is scheduled for December 11. He revealed that the duo carried out a scheme to artificially inflate the price of CEL and made roughly $45 million in profit.