US Trustee opposes Celsius’ plans to reopen withdrawals for certain customers
William K. Harrington, United States Trustee for Region 2, has objected to the motion of the Celsius Network LLC for the entry of an order authorizing it to reopen withdrawals for certain customers with respect to certain assets held in the custody program and withhold accounts and the motion of the crypto firm for the entry of an order permitting the sale of stablecoin in the ordinary course.
The Trustee argues that the motions are premature and should be denied until after the Examiner Report is filed.
First, the Withdrawal Motion seeks to impulsively distribute funds to one group of creditors in advance of a fulsome understanding of the (1) Debtors’ cryptocurrency holdings, (2) relationship of the Debtors’ cryptocurrency balance sheet to cryptocurrency deposited by its various different groups of creditors, and (3) transfers of cryptocurrency between and among different types of accounts.
Second, the Stablecoin Motion seeks to liquidate stablecoins held by the Debtors without providing information regarding ownership, segregation, or the impact of such sale on later distributions to creditors who may have stablecoins on deposit with the Debtors. Indeed, the facts necessary to evaluate these Motions are the exact facts identified by the Examiner Motion as lacking transparency and that the Examiner is required to investigate and analyze in the Examiner’s Report.
The Trustee warns that any distribution or sale at this juncture could inadvertently impact or limit distributions to other creditors in this case. The interested parties, the United States Trustee, and the Court require additional information to assess what impact such a distribution or sale would have.
Accordingly, any such distribution or sale should be denied until the Examiner’s Report is submitted detailing (1) the Debtors’ cryptocurrency holdings, including where such holdings were stored prepetition and are stored postpetition and whether different types of accounts are commingled and (2) why there was a change in account offerings beginning in April 2022 from the Earn Program to the Custody Service for some customers while others were placed in a “Withhold Account.”
The Debtors’ Terms of Use Version 8 establishing the Custody Accounts (but silent as to the Withhold Accounts), made clear that while title to the custody assets remained with the account holder, Celsius reserved the right to comingle the digital assets. There has been no evidence that the custody/withhold assets that the Debtors now seek to return or sell were or are segregated.
Parties cannot evaluate if the Debtors should be making distributions or sales until it is clear how many creditors the Debtors have, what the Debtors owe, to whom, what the Debtors assets are, and how its crypto assets are held. Moreover, given that coin liabilities of $6.1 billion exceed coin assets of $3.65 billion and there has been no explanation provided as to why, to the extent custody/withhold assets were commingled, they should not bear their proportional share of the coin deficiency. Accordingly, the Motions should be denied, the Trustee concludes.
Let’s recall that, on July 13, 2022, Celsius Network LLC, Celsius KeyFi LLC, Celsius Lending LLC, Celsius Mining LLC, Celsius Network Inc., Celsius Network Limited, Celsius Networks Lending LLC, and Celsius US Holding LLC each commenced a voluntary case under Chapter 11 of the Bankruptcy Code.