DOJ Objects to Celsius' Withdrawal Plan
Resuming withdrawals is a top priority for Celsius, but the company may have to wait since the U.S. Trustee Program (which regulates the management of bankruptcy proceedings) has concerns. Celsius sought approval to release $225 million from its custody program and withhold accounts. A U.S. Trustee Program official from the Department of Justice is now pushing back against that demand. Objecting to Celsius’s intent to 'reopen withdrawals for certain customers with respect to certain assets' held in custody and withhold accounts, U.S. Trustee William K. Harrington filed paperwork with the court.
[Imran. DOJ Official Objects to Withdrawal Request by Celsius Network. (Accessed October 3, 2022)].
The brunt of Harrington's objection is summarized as follows:
Harrington criticized Celsius’s timing for releasing the money. Furthermore, he continued, saying the company was asking to “impulsively distribute” assets without first fully comprehending its cryptocurrency holdings or how to move cryptocurrencies across accounts. Additionally, it would disregard the connection between the company’s financial sheet and creditors’ deposits of cryptocurrency. Harrington further said that until an Examiner Report is submitted, Celsius shouldn’t be authorized to disburse money. Whether or if the corporation blends customer cash and the reasoning for an alteration to account options in April of 2022 will be included in that document.
[Id].
"Harrington essentially asserted that Celsius’ motions should not even be considered until well after the examiner report has been filed, noting that 'any distribution or sale should be deferred until interested parties, the United States Trustee, and the Court are able to make a determination' on the value of Celsius liabilities, claims against it, its assets and what 'the debtors intends to actually pay its creditors" [Quarmby, B. DOJ objects to Celsius plans to reopen withdrawals and sell stablecoins. (Accessed October 3, 2022)].
The DOJ has also opposed a potential stablecoin sell off, highlighting similar concerns held by Texas and Vermont regulators that Celsius’ motion doesn’t concretely outline 'what impact such a distribution or sale would have' on the business moving forward. 'Second, the Stablecoin Motion seeks to liquidate stablecoins held by the Debtors without providing information regarding ownership, segregation, or the impact of such sale on later distributions to creditors who may have stablecoins on deposit with the Debtors,' the filing reads.
[Id].
[For further information on the Texas and Vermont objections, please see: Nagoda, K. Celsius' Stablecoin Sale Plan Faces Objections in Bankruptcy Court. (Accessed October 3, 2022)].
Mashinsky Allegedly Withdraws $10 Million from Celsius Weeks Before Bankruptcy Freeze
"Celsius Network founder and former CEO Alex Mashinsky allegedly withdrew $10 million from the crypto lending platform just weeks before the company froze customer funds and declared bankruptcy. The withdrawal was cited by sources from the Financial Times who said Mashinsky withdrew the funds in 'mid to late May' prior to the June 12 pause on all withdraws" [Coghlan, J. Celsius founder reportedly withdrew $10M before bankruptcy filing: FT. (Accessed October 3, 2022)].
"The withdrawal raises questions about whether Mashinsky knew ahead of time that the company would be freezing customer funds and withdrawals" [Id].
According to a statement by Celsius, "[i]n the nine months leading up to that withdrawal, he consistently deposited cryptocurrency in amounts that totaled what he withdrew in May,' the spokesperson said, adding Mashinsky and his family still had $44 million worth of crypto frozen on the platform" [Id].
"A Mashinsky spokesperson, cited by the paper, said that the entrepreneur had disclosed to an unsecured creditors committee (UCC) in the bankruptcy proceedings that he and his family had $44 million in crypto frozen with Celsius following the withdrawal. The spokesperson said that Mashinsky ‘withdrew a percentage of cryptocurrency in his account, much of which was used to pay state and federal taxes,' according to the FT" [Rubin, J. Ex-CEO of Bankrupt Crypto Lender Celsius Withdrew $10M Weeks Before Company Froze Customer Accounts: Report. (Accessed October 3, 2022)].
"Roughly $8 million worth of assets withdrawn were used to pay income taxes arising from the yield the assets produced, and the remaining $2 million was made up of the platform’s native token Celsius (CEL)" [Coghlan, supra].
There is a chance "Mashinsky could be forced to return the $10 million as in the 90 days leading up to a bankruptcy filing, payments by a company can be reversed to benefit creditors under United States laws" [Id].
Celsius froze withdrawals, swaps and transfers on its platform in June, citing "extreme market conditions" before filing for chapter 11 bankruptcy protection one month later in U.S. Bankruptcy Court for the Southern District of New York. In a subsequent court filing, Celsius said it had a $1.2 billion hole in its balance sheet. That document showed that Celsius held $4.3 billion of assets and $5.5 billion of liabilities. In a statement at the time of the initial bankruptcy filing, Celsius said that 'without a pause, the acceleration of withdrawals would have allowed certain customers – those who were first to act – to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery.' Mashinsky then called the decision 'right...for our community and company,' adding that in the history of Celsius, 'we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company' (emphasis added).
[Rubin, supra].
If the allegations are true, Machinsky's statement above emphasized is quite hypocritical. Wouldn't you say???