Celsius Creditors Get Chance To Ask Where The Money Is Going

Creditors of Celsius Network
including users who are owed $4.7 billion from the crypto exchange, will get their first day in court on Tuesday, after the company projected it would run out of cash by October due to unexplained capital spending.

In a weekend filing, Celsius said operating expenses would total $57 million this month, $20.8 million of which are for largely unexplained “capital expenditures,” even though its business is shut down. After revealing cash of $130 million in its bankruptcy filing last month, Celsius said it will spend all that and $34 million more by the end of October.

A coin report that shared the company’s digital asset holdings released along with the budget figures revealed a staggering shortfall.

The weekend’s report detailed $6.6 billion of coin liabilities, compared with $3.8 billion of digital assets held. In a statement following the bankruptcy announcement from Alex Mashinsky, the company’s CEO, Celsius Network disclosed $5.5 billion worth of total liabilities versus $4.3 billion of assets.

Celsius Network expects to bring in $20.5 million of income in August, but that assumes proceeds from the contested sale of mined bitcoin. Earlier this month, the creditors’ committee filed an objection to Celsius’ plan to sell bitcoin from its mining operation. One of the company’s most notable creditors is Alameda Research, a trading firm run by crypto billionaire Sam Bankman-Fried. The committee asked the court to ensure that account holders and other unsecured creditors are considered in the use of the sale proceeds.

Celsius Network became a crypto giant by lending out customers’ digital-asset deposits promising the safety of bank accounts but with much higher returns.

Mashinsky is known for wearing a “banks are not your friend” t-shirt. By July, Celsius Network had 300,000 active users with account balances of more than $100. Even as crypto winter descended this year, Celsius and Mashinsky assured customers that their assets were secure and that the platform was not struggling to process withdrawals.

In June, however, Celsius Network suspended withdrawals, causing a panic among users whose funds were still on the platform. One month later, the company filed for Chapter 11 bankruptcy protection.

“The amount of digital assets on the Company’s platform grew faster than the Company was prepared to deploy,” Mashinsky’s first-day declaration reads. “As a result, the Company made what, in hindsight, proved to be certain poor asset deployment decisions.”

The Tuesday hearing is the first time lawyers for creditors and the company will face each other in court. Kirkland & Ellis represents the company, while White & Case is the creditors’ law firm. The hearing, which will take place in New York at 2 pm, is being held by conference call and is open only to parties that previously applied.


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