'Intercompany Chaos': Bankrupt Crypto Lender Celsius' UK, US Entities A Facade?

Crypto lending platform Celsius CEL/USD is seeking to consolidate its U.K. and U..S entities amid allegations the distinction between the two was a "sham."

The embattled cryptocurrency company is the latest to be accused of poor record-keeping within its corporate structure, resulting in a legal battle between its customers and Series B investors, according to a Coindesk report.

In 2021, Celsius Network Limited, which had been warned by the U.K.'s Financial Conduct Authority to halt operations, established a limited liability company in Delaware and attempted to transfer assets through multiple financial transactions.

According to a May 1 filing by Celsius, "the migration resulted in intercompany chaos," and the lack of internal records makes it difficult, if not impossible, to separate each entity's affairs.

The filing said ordinary customers were misled by management and unaware of the implications of the asset transfer, while more sophisticated Series B investors were fully aware of the inadequate record-keeping.

It argues the two entities should be considered as one for bankruptcy purposes.

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In parallel filings, a committee of Celsius' creditors asserts the reorganization was a "sham" and a "façade," and the billions of dollars transferred between the two entities were fraudulent.

These claims suggest that the transactions should be disregarded by the New York court working to return funds to creditors, drawing parallels to allegations against FTX FTT/USD.

Judge Martin Glenn's March 9 opinion determined that customers only had claims against the Delaware LLC entity, increasing the likelihood that Series B preferred equity holders could recover some of their investment, which would typically be downgraded under bankruptcy law.

During the week of July 24, Glenn will evaluate Celsius' argument for "substantive consolidation" of the two entities, merging assets and customer claims.

Celsius filed for bankruptcy in July 2022, with an auction of the company's assets set to continue on Wednesday. Preferred bidder NovaWulf now faces competition from Fahrenheit LLC and the Blockchain Recovery Investment Committee. 

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