Bankrupt cryptocurrency platform Celsius has allocated $2 billion worth of cryptocurrencies to thousands of creditors.
The distribution, which is facilitated through PayPal and Coinbase, forms part of Celsius Network's ongoing strategy to address obligations to creditors.
Percentage repays creditors
In a recent court filing, Kirkland & Ellis — the Chicago-based law firm advising Celsius — shared an update on creditor fund distributions outlined in the restructuring plan. This development comes after Celsius announced its exit from bankruptcy, a process that began in July 2022.
Kirkland & Ellis revealed that cryptocurrency distributions to US holders are made via PayPal, while Coinbase acts as a distribution agent for foreign currency holders. The legal team confirmed the transfer of $2 billion worth of crypto assets to creditors, including 20,255.66 Bitcoin and 301,338.77 Ether.
The filing notes that distributing cryptocurrencies to the majority of creditors instead of cash — as is typically the case in Chapter 11 bankruptcy cases — “accelerated the speed of distributions.”
The debtors have successfully initiated a global distribution process to hundreds of thousands of creditors without facing any significant processes or collateral
The lawyer explained.
Account holders who do not agree to the restructuring plan will not receive any distribution of funds until their claims are resolved.
He also highlighted that some account holders may face challenges receiving their distributions if Coinbase or PayPal discover any anti-money laundering (AML) or compliance issues.
The filing also made clear that distribution agents have the discretion to refuse to make distributions to anyone they believe does not meet compliance and other requirements.
Celsius Files Chapter 11
On July 13, 2022, Celisus Network LLC—a cryptocurrency lending and borrowing platform that manages approximately $25 billion in client assets—filed for Chapter 11 bankruptcy.
On the same day, the company's founder and former CEO, Alex Mashinsky, was arrested and charged with multiple crimes, including securities, commodities, and wire fraud.
The charges accuse Mashinsky and a key executive, Ronnie Cohen-Pavon, of engaging in complex financial schemes, intentionally misrepresenting the company's business model, and manipulating the value of Celsius' cryptocurrency token, CEL.
The allegations also allege that Mashinsky misled the company's clients, portraying it as a bank while operating it as a risky investment fund.
Additionally, the SEC and CFTC filed separate civil charges against Mashinsky and Celsius based on similar grounds.
As part of the settlement with the FTC, the company agreed to pay a $4.7 billion fine, contingent on paying creditors. This settlement ranks as one of the largest in the FTC's history and highlights what the FTC calls repeated deception by Celsius and Mashinsky.
While Mashinsky's arrest and charges have provided some relief to creditors, some within the industry are concerned about underlying situations that facilitated the platform's rapid growth and subsequent collapse.
Mashinsky has pleaded not guilty to seven criminal charges, including securities fraud, wire fraud, and conspiracy to commit wire fraud.
He was released from prison on $40 million bail. However, the case is still ongoing. Mashinsky, who resigned as CEO in September 2022, is expected to stand trial on September 17.
On January 5, Celsius revealed its intention to divest its existing holdings of Ethereum (ETH), which were generating significant income from staking rewards for the property.
The released Ethereum aims to address various expenses accumulated during the restructuring process and accelerate distributions to creditors.
Celsius' bankruptcy and the legal action against Mashinsky have reverberated throughout the cryptocurrency industry, underscoring the importance of transparency, accountability, and regulatory compliance.
