March 27, 2023

Volume XIII, Number 86


March 24, 2023

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Celsius Bankruptcy Case: February 2, 2023

As Celsius Network LLC, et al., Case Number: 22-10964 (MG), proceeds in the Bankruptcy Court for the Southern District of New York (the “Court”), the highly anticipated examiner report was released on January 31st.

Shoba Pillay, a former prosecutor, was appointed by U.S. Bankruptcy Judge Martin Glenn, who is overseeing the Chapter 11 case, as an independent examiner and tasked with investigating the conduct of the company. The highly detailed report covering 689 pages is highly critical of Celsius and its management. Providing support to what many creditors have alleged, the report found that Celsius was far from transparent about a number of its procedures and operations in a way that could be construed as fraudulent.

Among the most troubling findings is how the company used its own token called CEL in a way that enriched itself at the expense of its users and other stakeholders. The report alleges that the company bought in the open market over $558 million of CEL tokens, not to distribute as an interest to depositors, as they said, but in order to artificially increase the price of the tokens through market manipulative purchase timing. Many insiders, including Celsius CEO and founder Alex Mashinsky, took advantage of this inflated price to sell their allocation of CEL tokens. As quoted in the report, the then Celsius Chief Financial Officer appeared to be very aware that what the company was doing was deceptive. “Just to clarify between us three: The last 3-4 months, we always bought more CEL than what we pay as interest per week, but we did not buy it for the interest payments, that is just what we told the community.” Another employee reportedly said in internal Slack conversations, “[w]e are using users USDC to pay for employees worthless CEL…All because the company is the one inflating the price to get the valuations to be able to sell back to the company.”

This conduct of which was called “very Ponzi-like” in the report. This is not the same as concluding that the company operated a Ponzi scheme but provided information that could cause the bankruptcy judge or other regulators to do. Also of note is that the report found that Celsius’s problematic and non-transparent conduct did not start with the recent decrease in crypto prices but was there from the start including in the 2018 Celsius initial coin offering, although they didn’t raise the $50 million as anticipated they never publicly reveal this nor did Mr. Mashinky personally purchase the 11.7 million token shortfall as he committed to doing.

As troubling as these findings are, it’s unclear how these findings will affect creditors and other stakeholders of Celsius as the report did not give direct recommendations to the court.

As a reminder, the deadline to file a proof of claim is February 9, 2023 (the “Bar Date”), as we have noted in previous updates, in order for a creditor to reserve their rights for a fraud claim against Celsius. They should include that in a proof of claim filed on or before the Bar Date.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume XIII, Number 33

About this Author

Stephen A. Rutenberg Shareholder Polsinelli New York Bankruptcy and Financial Restructuring Bankruptcy Litigation Capital Markets ,Commercial Lending ,Debt and Claims Trading, Financial Services, Insolvency, Financial Technology FinTech and Regulation

Stephen Rutenberg’s practice focuses on the intersection of special situations investing and FinTech including cryptocurrency and blockchain technology. 

A significant component of Stephen’s practice relates to his work in the distressed debt market, representing clients in the purchase and sale of loans and securities of distressed and bankrupt companies. Recent representations include advising on the purchase, sale and financing of bankruptcy trade claims in several major chapter 11 cases, including Lehman Brothers, and the MF Global and Icelandic bank liquidations. He works with...


Jonathan Schmalfeld is an Associate with Polsinelli's St. Louis office. He is committed to understanding how privacy, data security and technology impact each client’s business model, practices, and objectives to help protect their investment in various technologies. He negotiates complex technology and related transactions for clients across a variety of industries. Jonathan’s practice focuses on advising clients in privacy and data security matters, including both litigation and counseling on compliance with domestic and international privacy and data security laws and regulations.

Tanya Behnam Los Angeles Bankruptcy Attorney Polsinelli

Tanya Behnam is a bankruptcy and financial restructuring associate in Polsinelli’s Los Angeles office. Tanya’s practice focuses on corporate restructuring, bankruptcy litigation, distressed asset sales and other insolvency matters. She represents debtors, lenders, unsecured creditor committees, secured and unsecured creditors, financial institutions and other parties in interest in a variety of Chapter 11 cases, bankruptcy litigation and appeals. In addition to representing national chapter 11 debtors and committees in distressed healthcare matters, she represents...