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Bankruptcy Judge Advances Probe Into Whether Celsius Operated As Ponzi Scheme
A court-appointed examiner and a committee of Celsius creditors will confer about who will lead an investigation into the crypto lender’s use of customer money.
Ankita K.
11:01 1st Nov, 2022

A bankruptcy judge advanced an inquiry into Celsius Network LLC’s business practices and whether it operated as a Ponzi scheme, responding to customer demands to look into how the crypto lender used their money.

A court-appointed examiner and the official committee of Celsius creditors were instructed in a bankruptcy-court hearing Tuesday to meet and confer about who will lead the probe into whether the firm used some depositors’ money to meet financial obligations to others.

“We don’t know if Celsius was a Ponzi scheme, but there are flags that came up,“ said the creditors committee’s lawyer, Greg Pesce. ”Let me make it clear we’re looking into whether it is. We don’t have an answer to that.”

The examiner, Shoba Pillay, also will broaden the scope of her probe to include the company’s marketing practices and representations it made to attract new customers, as well as its handling of CEL tokens, the firm’s proprietary digital currency.

Celsius didn’t immediately respond to a request for comment. The closely held crypto firm, which filed for bankruptcy after freezing withdrawals in June amid a meltdown in digital currencies, has faced allegations from customers and state authorities that it made misleading statements about its financial health and used assets of new investors to pay yields to account holders.

Vermont state regulators have alleged Celsius’s losses stretch back to 2020 and were possibly at odds with its subsequent claims that its collapse was precipitated by the crypto crash and massive withdrawals earlier this year.

In September, Judge Martin Glenn of the U.S. Bankruptcy Court in New York appointed an independent examiner to look into allegations of mismanagement by the company’s executives. The examiner, Ms. Pillay, is due to report on her findings about certain aspects of Celsius’s business in December.

On Tuesday, the judge went beyond her request to expand her investigation to cover new topics, however, and asked both Ms. Pillay and the creditors committee to consult with each other on who should take charge of investigating whether Celsius operated a Ponzi scheme.

Lawyers for Celsius and for the creditors’ committee reiterated concerns that Ms. Pillay’s work might be costly and time-consuming. The creditors committee has said her work may duplicate its own efforts, according to court papers.

State regulators including officials from Texas and Vermont, however, argued in favor of having an independent third party such as Ms. Pillay conduct an inquiry and issue findings to the public.

In her own court filings, Ms. Pillay said she could look into the issue of whether Celsius operated a Ponzi scheme if instructed, but that she would stick to finding facts that could inform such an inquiry, rather than presenting her own legal conclusion.

The more information that is publicly available, the better, especially in light of the number of Celsius customers appearing in the chapter 11 case to represent themselves, said Layla Milligan, the assistant attorney general of Texas.

The judge raised the possibility that if Ms. Pillay isn’t allowed to broaden her probe, the company may face time-consuming and expensive queries from dozens of state regulators.

But the judge held off on deciding whether Ms. Pillay or the creditors committee should lead the inquiry, and instead ordered them to confer on the matter and report back to him.


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