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Defunct cryptocurrency lender Celsius Network is seeking to merge its businesses in the United Kingdom and the United States as new court documents claim that any perceived difference between the two companies was a “sham”.
The central point of contention centers on a decision taken by the cryptocurrency lender in June 2021, when Celsius Network Limited (CNL) received a warning to cease operations in the UK from the country’s Financial Conduct Authority.
To avoid the consequences, CNL created a limited liability company – Celsius Network LLC – in Delaware and tried to transfer its assets to the new company.
1) #Celsius left UK as they were offering illegal securities & were getting pressure from UK Securities Regulator (FCA). Yes securities laws exist outside US. pic.twitter.com/2bu3uJq9Fr
— Simon Dixon (@SimonDixonTwitt) December 29, 2022
According to a May 1 lawsuit filed by a bankrupt cryptocurrency firm, the migration of the two organizations “led to chaos within the company.” The lawsuit added that the official documentation of the intercompany relationship “was not completed for several months” and when it was “remained unclear” which transactions affected the agreements.
The filing alleges that for ordinary investors, the result of this transfer was too confusing to understand, but the more “sophisticated” Series B investors were well aware of the implications of such dubious record keeping.
As a result, the two businesses must be treated as the same in subsequent bankruptcy proceedings so that smaller creditors are not overlooked in favor of Series B investors when it comes to recovering lost funds.
According to a related lawsuit from the Celsius Official Committee of Unsecured Creditors (UCC), the migration was a “sham” and transactions that facilitated the transfer of billions of dollars of assets between them were likely fraudulent.
Simon Dixon, who reportedly lost over $8.8 million in bitcoin (BTC) in the Celsius crash, summed up the UCC registration in a series of tweets on May 2, stating that “Celsius acted like the migration never happened,” and he was given “poor documentation” and “lack of clear distinction” to distinguish between the two.
UCC argument for substantive consolidation and joinder to #Celsius motion. They argue that CNL & LLC have always been the same entity and the whole CNL to LLC transfer was a sham. Creditors & Celsius itself saw CNL & LLC as functionally the same. They assert that while CNL…
— Simon Dixon (@SimonDixonTwitt) May 2, 2023
In a memorandum dated March 9, US Chief Bankruptcy Judge Martin Glenn found that clients only filed claims against Delaware-based Celsius LLC, meaning Series B investors are more likely to be compensated.
Related: Celsius Lenders Demand Transparency on ‘Suspicious’ FTX Transactions
An auction of the remaining assets of Celsius is scheduled for Wednesday, May 3, and a number of large firms, including exchanges Coinbase and Gemini, will compete for ownership of the assets of defunct firms.
NovaWulf Digital Management currently stands as a “pursuing bidder”, a term used to describe a trailblazer who sets the bar for subsequent bids. NovaWulf’s offer includes a direct cash contribution of between $45 million and $55 million. If NovaWulf’s offer is accepted, customers can expect a refund of up to 70% of their funds.
The auction marks a significant step forward for Celsius clients in recovering their funds after the firm filed for Chapter 11 bankruptcy protection on July 14, 2022.
