Celsius Network will have examiner appointed to Chapter 11 case

By Sarah Lizee

Olympia, Wash., Sept. 14 – Celsius Network LLC will have an examiner appointed to its Chapter 11 bankruptcy case at the request of Region 2 U.S. trustee William K. Harrington, according to an order filed with the U.S. Bankruptcy Court for the Southern District of New York.

The court ordered the U.S. trustee to appoint the examiner, who will then examine the debtors’ cryptocurrency holdings both before and after Celsius filed bankruptcy.

“The market for cryptocurrency is relatively new, purposefully opaque, and, at best, loosely regulated,” Harrington had said in his motion seeking the appointment.

“It also lacks transparency, which has resulted in widespread confusion among the debtors’ customers and other parties in interest, requiring the immediate appointment of an examiner under section 1104(c)(1).”

The U.S. trustee said the lack of visibility didn’t start with the bankruptcy filing, and has been ongoing and is evidenced by the sudden changes in types of customer accounts and extensive customer confusion about the status of individual assets.

Harrington said there is no real understanding among customers, parties in interest, and the public as to the type or actual value of crypto held by the debtors or where it is held.

“An independent examiner is necessary here to investigate and report in a clear and understandable way on the debtors’ business model, their operations, their investments, their lending transactions, and the nature of the customer accounts to ensure public confidence in the integrity of the bankruptcy system and to neutralize the inherent distrust creditors and parties in interest have in the debtors,” the U.S. trustee said.

Harrington also said there are questions as to the debtors’ management and their role in creating the debtors’ current illiquidity that require investigation by an impartial third party.

Additionally, the allegations found in the prepetition complaints and regulatory actions against the debtors are “severe,” including allegations of offering of unregistered securities, the failure to obtain proper licenses, and the failure to hedge against market volatility, the U.S. trustee said.

“If these allegations are true, they could expose further irregularities,” Harrington said.

The Hoboken, N.J.-based cryptocurrency lending platform filed bankruptcy on July 13 under Chapter 11 case number 22-10964.

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