Celsius trustee wants independent examiner to probe ‘gross mismanagement’

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An independent examiner should be appointed to probe the incompetence and gross mismanagement at Celsius Network, the government trustee handling the bankruptcy proceedings for the collapsed lender has recommended in a recent court filing.

William Harrington, the U.S. Department of Justice (DOJ) trustee for the Celsius bankruptcy proceedings, filed the motion with the New York Bankruptcy Court. 

Harrington requested the court assign an examiner to look into the “credible allegations of incompetence and gross mismanagement,” which include Celsius’ failure to obtain licenses, offering unregistered securities, engagement in risky investments, and failure to hedge against market volatility.

The trustee further believes that Celsius has been intentionally opaque in the bankruptcy case, denying him clear visibility into the company’s prepetition business operations. Some of the issues that the examiner will look into are how digital assets the company holds and where they are stored, why it changed its clients from the Earn Program to Custody Service, its mining business and some of its multi-million dollar loans.

“An examiner is better positioned to conduct an investigation in this bankruptcy case than a committee because an examiner is a disinterested person who, akin to a trustee, represents the interests of the entire estate—not just a subset of unsecured creditors, equity holders, or some other constituency,” Harrington’s motion stated.

In addition to probing Celsius and its management, Harrington believes that an examiner would give the creditors more trust in the bankruptcy process. 

He would also alleviate some of the misleading information being spread via social media, which “is not vetted or explained, thereby leaving hundreds of thousands of customers to form their own conclusions based on the missing facts in this case coupled with the information passed around as truth on the internet. The result has been confusion and anxiety.”

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While it would be the first time an independent examiner has been appointed to probe a digital asset company, it’s not as new in the financial world. Some of the most spectacular company collapses, from Lehman Brothers to Enron have all had independent examiners who have looked into their operations to determine who’s at fault. With these two, the finger has been pointed at the management.

This request has already been opposed by the ‘Celsius Committee of Unsecured Creditors,’ who believe that an examiner would only rack up the costs. 

@CelsiusUcc is concerned about the effort to interject an outside “examiner” into @CelsiusNetwork bankruptcy case. It will run up millions in costs when CEL should cut costs. Let @CelsiusUcc do its job for account holders @TheJusticeDept

— Celsius Official Committee of Unsecured Creditors (@CelsiusUcc) August 18, 2022

There are those in support of the appointment of an examiner. One of these is Sasha Hodder, a digital currency attorney who believes that only an independent examiner can get to the bottom of the rot at Celsius, especially with CEO Alex Mashinsky failing to be transparent.

“If [Mashinsky] was being transparent, [the Trustee] would not have a need to pull in an independent examiner. […] No one has been able to get any straight information out of Celsius CEO Alex Mashinsky about how much they actually owe certain creditors,” Sasha told one outlet.

The appointment of an examiner is just the first step, the attorney believes. If he can’t get the answers that creditors are seeking, the DOJ should go ahead and file criminal charges against Mashinsky, she says.

“The probe into that criminal case may show that the creditors were lied to,” she noted.

Meanwhile, the bankrupt Celsius is now reportedly claiming it has enough cash to fund its operations for the rest of the year. This is after previously claiming the company would run out of cash by October.

In a bankruptcy hearing call on Friday, Celsius Chief Financial Officer Chris Ferraro said that the company would be earning additional revenue from some of its operations. This includes a $61 million loan it issued to the Bitfinex exchange, which will be maturing in a few weeks. 

And while Ferraro continues to serve as the CFO for now, the company recently tried to bring back its former CFO, Rod Bolger, to help it navigate its bankruptcy process at $92,000 a month.

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