Bankrupt Celsius Seeks Sale to NovaWulf As Top Execs Are Sued
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Bankrupt Celsius Seeks Sale to NovaWulf As Top Execs Are Sued

3 months ago

The 85% of the crypto lender's customers with less than $5,000 in their frozen accounts would get 70% of their funds back. Also, eight executives were sued for "gross mismanagement."

Bankrupt Celsius Seeks Sale to NovaWulf As Top Execs Are Sued

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Bankrupt cryptocurrency lender Celsius has found a buyer that hopes to resurrect the company. If all goes smoothly, smaller Celsius investors with less than $5,000 frozen on the site could see up to 70% of their funds back.

The Celsius debtors and the main creditors' group have proposed selling the retail Earn platform and crypto mining division to investment firm NovaWulf Digital Management.

In a Feb. 14 filing, the two groups said that after 40 prospective bidders gained access to its books, six bids emerged for the Earn platform and three more for its mining operations.

But while the other bids all proposed some version of a liquidation, NovaWulf proposed injecting $45 million to $55 million in cash and rebuilding the operations as a public company — with attendant Securities and Exchange Commission (SEC) disclosures providing verifiable transparency.

That company — currently referred to as "NewCo" — would be 100% owned by former Celsius Earn creditors, with no involvement of Celsius founders. The majority of its board would be appointed by the Celsius Official Committee of Unsecured Creditors, or UCC.

Now the plan will be put before the New York bankruptcy judge.

Who Gets What

The creditors would be divided into two groups: A Convenience Class, representing the roughly 85% of creditors owed less than $5,000, and the General Earn Class of larger creditors.

The latter group will receive a proportional share of a "significant distribution of liquid crypto (in the form of BTC, ETH and USDC)" as well as 100% of the equity in NewCo.

NewCo will hold the debtors' illiquid assets, which include "the mining operations, retail and institutional loans and alternative assets," as well as its illiquid crypto such as staked ETH. It will also have a "well-funded litigation trust" which will "vigorously pursue designated litigation claims against certain former insiders of Celsius and other third parties."

Most notably, that would target founder and CEO Alex Mashinsky. In court documents filed Tuesday, the UCC announced its intention to sue Mashinsky to recover $2.8 million he withdrew to his wallet, as well as $17 million to a pair of companies he controls.

Beyond that, it is seeking recovery, damages and costs from Mashinsky, former COO Daniel Leon, and seven others including Mashinsky's wife. The filing alleged:

"The committee's investigation has uncovered significant claims and causes of action based on fraud, recklessness, gross mismanagement, and self-interested conduct by the Debtors' former directors and officers."

'Gross Mismanagement'

Much of this was covered in a damning report by the court-appointed examiner Shoba Pillay earlier this month.

In that, Pillay alleged Celsius lied to its customers, manipulated the price of its native CEL token to enrich insiders, and used what one of its own employees called "Ponzi-like" methods.

Speaking of those seven top executives, the UCC filing said:

"They caused Celsius to spend hundreds of millions of dollars transferred by customers to inflate the price of CEL tokens, for their direct benefit. They secretly sold tens of millions of CEL tokens (or were aware of such sales) as they directed Celsius to purchase the CEL tokens on public markets."

They also covered up Mashinsky's "repeated lies" about Celsius' financial condition and the state of its investments, the document alleged. It added:

"Finally, when it became apparent that Celsius would be required to file for bankruptcy, the Prospective Defendants withdrew assets from the sinking ship."
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