Celsius Creditors Move to Block Company From Selling Mined Bitcoin

11 August 2022

in Mining

Reading Time: 3 mins read

Celsius Network’s unsecured creditors have been pressing the company on “potential misconduct by Celsius and its insiders.”

During a hearing in the Chapter 11 bankruptcy proceeding today, the committee moved to block Celsius’s attempts to sell some of its mined cryptocurrency.

Celsius Mining is the Bitcoin mining subsidiary of Celsius Network, the embattled crypto lender that filed for bankruptcy on July 13. A day later, the mining operation joined its parent company in the bankruptcy filing.

It was an abrupt development. In May, Celsius Mining filed a draft registration with the U.S. Securities and Exchange Commission to go public.

This week, attorneys representing the committee wrote in a court filing that they first need more insight into how selling Celsius’s mined Bitcoin will be carried out and how the proceeds from the sale will be used.

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The company has previously said that it will use its mining operation to pay back creditors and clients. In fact, at the start of the proceedings in July, Celsius got approval from the judge to spend $5 million to jumpstart its mining operation. But that’s since drawn criticism from the U.S. Department of Justice and now the creditor committee.

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The committee also said it is launching a “broad-ranging investigation” and expects to invoke Bankruptcy Rule 2004.

If approved by the judge, that rule would allow the kind of broad discovery process that could require interested parties to testify or produce documents in a process that’s similar to a deposition in a civil lawsuit.

So far, Celsius Network CEO Alex Mashinsky has already filed a declaration of more than 1,000 pages that documents each version of the company’s terms of use, for all of its products, all the way back to February 2018, right after Mashisky became CEO.

This week has been especially contentious for Mashisky.

On Monday, the committee of unsecured creditors filed a statement calling out “empty and false promises” he made days before the company froze customer assets.

“Celsius’ assurances turned out to be empty and false promises. On June 12, 2022—less than a week after promising to ‘damn the torpedoes’—Celsius initiated a ‘Pause’ and halted all account holder withdrawals due to ‘extreme market conditions,’” the attorneys wrote in the statement, referring to blog post that the crypto lender published just five days before it froze customer assets. “Celsius, which had previously championed its transparency, then largely went silent.”

In a press release announcing the filing, following its efforts to repay $1 billion in outstanding loans, Mashinsky said that he believed the filing would be a “defining moment, where acting with resolve and confidence served the community and strengthened the future of the company.”