Texas regulator supports appointment of examiner in Celsius bankruptcy case
Less than a month after William K. Harrington, United States Trustee for Region 2, pushed for the appointment of an examiner in the Celsius Chapter 11 case, several state watchdogs have thrown their weight behind the US Trustee proposal.
On September 7, 2022, the Texas State Securities Board (SSB) filed a Joinder to the Motion of the United States Trustee for Entry of an Order Directing the Appointment of an Examiner.
The SSB notes the history of mismanagement by Celsius, the lack of transparency into the financial condition and assets of Celsius both pre-petition and since the filing of the bankruptcy case, and the continued regulatory investigations that are ongoing in more than 40 states, including Texas. That is why, the SSB says that the appointment of an examiner with specific guidelines as to their duties is not only appropriate and in the best interest of creditors, but mandatory pursuant to 11 U.S.C. § 1104(c) as well.
Regulators in at least 40 states are currently investigating the Debtors’ pre- petition investment activities, including Alabama, Kentucky, New Jersey, Washington, Idaho, and Texas. Prior to the Petition Date, securities regulators in Texas, New Jersey, Alabama, Washington, and Kentucky ordered Celsius to cease offering unregistered securities.
The SSB has requested information and documentation from the Debtors to which responses have been slow or incomplete, despite their representations to the Court and to the public of an intent to reorganize and continue operations post-emergence from bankruptcy.
The representations of the Debtors regarding their financial status in the bankruptcy case have been inconsistent at best. The Debtors have filed inconsistent budgets/cash flow statements, failed to accurately disclose bank accounts, and have not yet filed Schedules or Statements. As asserted by the U.S. Trustee, the financial irregularities and extensive mistrust of the Debtors by customers and regulators warrants the appointment of an independent and disinterested examiner.
The SSB says that the Court may limit the examiner’s duties to those that compliment the work of the Unsecured Creditors Committee. The SSB is appreciative of the work being done by the Committee to clear the murky waters that are the Debtors’ operations and assets, but believe a neutral third party will increase transparency in the present case. Further, an examiner may be more efficiently able to coordinate information requests by and dissemination to various parties in the case, including the Committee, state and federal regulators, creditors, and other parties in interest.