Celsius Network clients have until January 3, 2023, to file their claims against the collapsed digital asset lender after the United States Bankruptcy Court for the Southern District of New York approved the firm’s motion.
This week, the bankruptcy court approved our motion to set the bar date, which is the deadline for all customers to file a claim. The bar date has been set for January 3, 2023.
— Celsius (@CelsiusNetwork) November 20, 2022
Celsius announced that its customers should expect to receive a notice regarding the deadline and the next steps in the process via email or physical mail. The company will also send notifications via its official app.
“As a reminder, customers who agree with Celsius’ scheduling of their claims as filed in the Schedules of Assets and Liabilities do not need to submit a proof of claim, and no further action is required of them at this time with respect to such claim,” the company added.
The next big date for the bankruptcy case is December 5, 2022, when a hearing will be held. Discussions on Withhold and Custody accounts will take center stage.
Celsius suspended withdrawals in June after its risky bets on projects like LUNA backfired. A few weeks later, it filed for bankruptcy as the incompetence, negligence, and possible fraud perpetrated by founder Alex Mashinsky started to unravel.
Celsius was lax with its custody program, examiner finds
The new developments come at a time when a new report has revealed that negligence in handling the Withhold and Custody accounts played a big part in the company’s downfall.
The report was released by the independent examiner appointed by the Department of Justice trustee, William Harrington, to probe the “credible allegations of incompetence and gross mismanagement” at Celsius.
As reported by Bloomberg, shortfalls in handling two of the lender’s accounts—Withhold and Custody—played a big part in the company’s implosion. The two accounts allowed users to reportedly deposit their assets with Celsius while still maintaining control.
According to the examiner’s preliminary report, Celsius launched the two programs without “sufficient accounting and operational controls or technical infrastructure.” By June 10, Custody wallets were reportedly overfunded, but two weeks later, on June 24, there was a $50.5 million shortfall. The examiner further claimed that the company sped up the rollout of its Custody wallet program due to pressure from New Jersey regulators.
With Withhold wallets, Celsius didn’t make any effort to segregate or even separately identify users’ assets, examiner Shoba Pillay noted in her report.
“As a result, customers now face uncertainty regarding which assets, if any, belonged to them as of the bankruptcy filing,” Pillay found.
Celsius has previously filed a motion seeking to refund at least $50 million trapped in its accounts, but only to Withhold and Custody account holders. This would exclude users whose money was in its Earn and Borrow accounts, yet the two were its primary offerings. Withhold and Custody accounts were only available in select jurisdictions, while Earn and Borrow were universally available.
The filing didn’t go down well with most of its users.
So because I had my crypto in an earn account (your main feature) and was lending it so you could make money off of it, I get nothing back?
— Camille Johnson (@OffbeatLook) September 1, 2022
Since its collapse, Celsius has held that users who placed their assets in its Earn and Borrow accounts forfeited any ownership of these assets.
In one motion, its lawyers pointed out that the company believes “that assets in the Earn Program and the Borrow Program are likely property of its estates.”
While the wider Celsius community is in uproar over the move, Custody and Withhold customers fully support the lender’s attempt to pay them out first. Custody account holders have hired Kyle Ortiz, partner at Togut, Segal & Segal LLP, to represent them. Deborah Kovsky-Apap, partner at Troutman Pepper, is representing the Withhold account holders.
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