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Celsius creditors threaten to sue Alex Mashinsky and other execs

celsius-creditors-threaten-to-sue-alex-mashinsky-and-other-execs
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Celsius creditors threaten to sue Alex Mashinsky and other execs

The Celsius official committee of unsecured creditors plans to file a complaint against Celsius executives on fraud, misconduct, mismanagement of funds, and other allegations. The committee blames the management for Celsius’ downfall.

Alex Mashinsky in legal trouble

The Celsius official committee of unsecured creditors has threatened to sue Alex Mashinsky and his fellow Celsius management staff. The creditors’ attorneys filed preliminary documents with the US bankruptcy District Court of New York on Feb. 14, claiming that Mashinsky and seven other official management staff members. 

According to the court filings, Mashinsky and his juniors allegedly conducted fraud, reckless use of funds, gross management, and made self-benefit decisions using customer deposits. These mistakes rendered the crypto lending platform insolvent in July 2022.

Among the executives mentioned in the filing include;

  • Alex Mashinsky- former CEO and co-founder of Celsius Network
  • Shlomi Daniel Leon- co-founder, director, and former Chief Strategy Officer and Chief Operating Officer
  • Hanoch Goldstein, Celsius’ co-founder and former CTO
  • Harumi Thompson, the former CFO and Chief Investment Officer
  • Jeremie Beaudry, the Chief Compliance Officer and former General Counsel
  • Johannes Treutler, the former head of the platform’s trading desk. He was also in charge of CEL token transactions on behalf of Celsius
  • Aliza Landes, the former Lending Vice President
  • Kristine Mashinsky, the wife of Mr. Mashinsky

The investigation was ongoing for six months

The creditors revealed in the filing that they have been investigating the executives for the past six months, conducting interviews, reading through financial books, and speaking to victims. The New York Attorney General Letitia James also mentioned suing Mashinsky for fraud on Jan. 5.

In conclusion of their investigations, the creditors argued that mismanagement from the officials mentioned above caused the firm to lose more than $1.5 billion in less than 12 months, to which $1 billion was lost as a result of self-benefit transactions chaired by Mashinsky. The remaining half a billion disappeared from the firm’s accounts due to poor management of customer funds.

After incurring the losses, creditors believe Mashinsky never took measures to recover the lost funds or fix the gaping hole in the books. The information was concealed from investors, and the execs commenced a series of high-risk trades speculating about the movement of cryptocurrencies. Most speculative trades did not work out, resulting in further loss of funds.

The motion concerning the case will be held on Mar. 8, where the public will be allowed to join the hearing via government zoom video and audio sessions.

Defunct lender notifies users of necessary withdrawal steps

Celsius halted withdrawals last June after suffering severely. However, based on recent reports, Celsius is moving closer to reopening withdrawal options for users of certain custody accounts.

After months of waiting, some network users could begin withdrawing their assets soon. Celsius announced they have begun notifying some of its eligible users, qi.e., those with custody accounts, about the steps involved in completing their withdrawals. 

The lender noted that some eligible users could quickly get full info about withdrawal processes through the lender’s FAQ blog.

David Adler, a bankruptcy attorney, also offered insight into Celsius’s recent actions, tweeting that the debtor recently filed their plan presentation deck. Adler shared a court document presented in the United States Bankruptcy Court in New York, where Celsius stated the status of their chapter 11 plan process.

One of the key points to note in the document is the framework for resolving retail borrowers’ and custody account holders’ claims. By helping people know how to reach withdrawals, Celsius already has a plan for some of those custody and retail account holders to withdraw. 

Based on some Twitter users, Celsius document 1958 indicates that about $1.3 million CEL will be eligible for withdrawal in the new plan. Releasing all at once will cause the dumping of CEL. 

The reorganization structure

Aside from allowing some unique account holders to withdraw their funds, Celsius also provided more details on the reorganization plan. NovaWulf Digital Management will sponsor the reorganization.

According to the document, creditors with claims amounting to below $5k will be added to the “Convenience Class” to receive a one-time settlement. Those with claims of at least $1k could opt out of the Convenience Class and get pro-rata shares of liquid crypto and common equity in the newly structured company.

The new company will be fully registered and public, controlled by Earn Creditors, with its tokenized equity trading through the Provenance blockchain and SEC-registered exchange.

This article was written with additional reporting from Wayne Jones.