Celsius Customers to Battle Investors for Money From Mining Rigs

Celsius Network LLC customers will likely have to fight with large investment funds over who gets to cash in on the bankrupt crypto lender’s most valuable assets.

Investors including venture capital firm WestCap Management LLC and pension fund Caisse de Depot et Placement du Quebec (CDPQ) believe their equity stakes in Celsius entitle them to value that flows from the company’s crypto mining business and its loan book, among other assets, according to court papers. Customers owed billions of dollars in crypto don’t have claims against those assets, Dennis Dunne of Milbank said on behalf of certain equity holders in a bankruptcy court hearing Thursday.

“We believe we’re in-the-money today,” Dunne said. Preferred equity investors who poured hundreds of millions of dollars into Celsius did so to fund the build-out of its crypto mining operation and the purchase of GK8, the company’s digital asset custody subsidiary, he said. That gives the investors, not customers, a right to those assets, according to Dunne.

A bankrupt company’s owners typically don’t receive any recovery ahead of its creditors, which in the case of Celsius are its customers. In this case, the stockholders are arguing that the legal entities they invested in -- and which own Celsius’s most valuable assets -- are separate from those that relate to customer money.

Attorneys for Celsius creditors disagree. The company’s terms of use give account holders claims against each of Celsius’s legal entities, they argue in court papers.

The fight will likely impact how much money Celsius customers, which have been locked out of their accounts for months, will recover through the bankruptcy. Celsius is considering a sale of some or all of its assets, while also exploring other ways to repay creditors and exit Chapter 11 protection.

WestCap and CDPQ led a $400 million investment in Celsius last year that valued it at more than $3 billion, according to a statement at the time.

The investors on Thursday asked US Bankruptcy Judge Martin Glenn to appoint an official committee of preferred equity holders, arguing that the company’s formal creditor committee is too dominated by customers to adequately represent stockholder interests. Judge Glenn said he would rule on the request at a later date.

The bankruptcy is Celsius Network LLC, 22-10964, US Bankruptcy Court for the Southern District of New York (Manhattan).

To contact the reporter on this story:
Jeremy Hill in New York at jhill273@bloomberg.net

To contact the editors responsible for this story:
Claire Boston at cboston6@bloomberg.net

Taryana Odayar

© 2022 Bloomberg L.P. All rights reserved. Used with permission.