Celsius Network’s unsecured creditors have pressured the company over “potential wrongdoing by Celsius and its insiders.”
During a hearing in the Chapter 11 bankruptcy case pending today, the committee voted to block Celsius’ attempts to sell some of its mined cryptocurrency.
Celsius Mining is the bitcoin mining subsidiary of Celsius Network, the embattled crypto lender that filed for bankruptcy on July 13. A day later, the mining operation joined its parent company in filing for bankruptcy.
It was an abrupt development. In May, Celsius Mining filed a draft registration with the US Securities and Exchange Commission to go public.
Writing in a court filing this week, attorneys representing the committee say they first need more insight into how the sale of Celsius’s mined Bitcoin is being conducted and how the proceeds from the sale will be used.
The company has previously announced that it will use its mining operations to repay creditors and customers. In fact, at the start of the July trial, Celsius received the judge’s approval to spend $5 million to boost its mining operations. But that has since drawn criticism from the US Department of Justice and now the Creditors’ Committee.
The committee also said it was launching a “full investigation” and expects to invoke the Bankruptcy Rule 2004.
If approved by the judge, this rule would enable the kind of broad investigative process that might require interested parties to testify or produce documents in a process similar to a civil filing.
So far, Celsius Network CEO Alex Mashinsky has already submitted a more than 1,000-page statement documenting every version of the company’s Terms of Service for all of its products through February 2018, right after Mashisky became CEO.
This week was particularly contentious for Mashisky.
On Monday, the Committee of Unsecured Creditors filed a statement calling for “empty and false promises” made days before the company froze client assets.
“Celsius’ assurances have turned out to be empty and false promises. On June 12, 2022 — less than a week after promising to ‘damn the torpedoes’ — Celsius initiated a ‘pause’ and halted all withdrawals by account holders due to ‘extreme market conditions,'” the attorneys wrote in the statement, with reference the blog post the crypto lender published just five days before freezing customer funds. “Celsius, who had previously championed its transparency, then largely fell silent.”
In a press release announcing the filing, following his efforts to repay $1 billion of outstanding loans, Mashinsky said he believed the filing would be a “defining moment in which to take decisive and confident action by the… served the community and strengthened the future of the company. ”