A new report by the examiner of the bankrupt crypto lender, Celsius Network, details shortfalls in controls and operations at two of the company’s product offerings related to digital assets it held in custody for customers, raising issues of whether and how these users can get reimbursed.
Custody insufficient accounting
In September, a judge in Celsius’s bankruptcy case approved the appointment of a third party to investigate the lender’s asset storage. The report noted that the company accelerated the rollout of its custody program due to pressure from New Jersey’s regulator. In August 2021, the Securities and Exchange Commission also started investigating the company.
Based on the released report, both Withhold and Custody were similar programs letting users keep their digital coins in their lender’s custody while maintaining ownership. However, their users have raised concerns that these programs should not be lumped together with other debts.
According to Shoba Pillay, the interim reporter, Celsius launched the custody program without sufficient operational controls and technical infrastructure. As a result, the platform was overfunded by $50.5 million on June 10. On June 24, the program was underfunded by another $24 million.
The report noted that the Withhold program failed to separate the various assets associated with the accounts from the debts. This issue could affect the customers’ efforts to get their refunds. According to Pillay, the lack of separation between the accounts and the assets could make it difficult for them to track their assets.
Bar date set for early next year
This week, the bankruptcy court of Celcius approved the company’s motion to set a deadline for its customers to file claims, according to a Twitter post. The bar date has been set for January 3, 2023.
Those who wish to file a claim should receive a notice regarding the next steps in the process, which Stretto, their claims agent, will send. They can also access this information through the Celsius app.
Celsius’ customers who agree to the company’s schedule of their claims in various schedules do not need to provide proof of their claims. That is because no further action is required at this time.
In the meantime, Celsius is also closely monitoring the environment in the industry. To assure their customers that their data and assets are secure, they will continue to take the necessary steps to improve their information security. Meanwhile, the next hearing is scheduled for December 5, where there will be advance discussions around Custody and Withhold accounts, among other matters
Celsius among platforms filing for bankruptcy
In June, Celsius stopped all withdrawals and filed for bankruptcy after its risky bets failed. That was part of a series of crises that affected the financial industry in the spring. Some of these included the collapse of TerraUSD, the failure of Three Arrows Capital, and the bankruptcy of Voyager Digital. The crypto market suffered another round of volatility this month following the collapse of the FTX empire of Sam Bankman-Fried.
Meanwhile, despite its demise, many traders are still trying to use its CEL token. CEL hit a post-collapse high of $3.76 after it initially fell to a low of $0.28 after it said it was halting all withdrawals on June 12.
The sudden volatility might have been caused by a short squeeze, which occurs when many traders bet against an asset. The trading activity on Celsius was a top topic on the infamous WallStreeBets Reddit communities.