Court rules that Earn Account Cryptocurrency is owned by Debtors and will not be returned In our latest Bitblog update regarding the Celsius Network LLC, et al. (the “Debtors”) bankruptcy proceeding (Case No. Number: 22-10964 (MG), in the Bankruptcy Court for the Southern District of New York (the “Court”)),  we discuss the recent Court decision (i) confirming that the cryptocurrency assets held in Debtors’“ Earn Accounts” are property of the Debtors and (ii) permitting the Debtors to sell $18 million of stable coins, some of which were deposited by Earn Account holders. This ruling decides definitively that the only recourse for crypto holders in the Bankruptcy Court will be receiving payment as a creditor under a plan of reorganization. Although this ruling will disappoint many account holders, having hoped for a ruling that would require Celsius to return crypto deposited by account holders, even if at a discount, this ruling is not unexpected and comports with applicable bankruptcy statutes and case law. As mentioned in our prior posts, one of the Debtors’ primary businesses was their Earn Account program, whereby cryptocurrency assets were deposited with Debtors, and depositors “earned” interest on the assets deposited.  As of July 10, 2022, there were approximately 600,000 accounts in the Earn program with a market value of about $4.2 billion in crypto assets.  These “Earn Assets,” when considered part of the Debtor’s estate, constitute a huge portion of its total assets. A grating central question from the start of the case has been whether or not ownership of these “Earn Assets” were transferred to the Debtors when cryptocurrency was placed in an Earn Account or if the assets are still owned by the depositors. Per the Court, once cryptocurrencies were invested in Earn Accounts, those coins became assets of the estate, turning the investors into unsecured creditors of the bankruptcy estates once the Debtors filed for bankruptcy. In this case, the Debtors would be allowed to sell the Earn Account assets (with the Court’s permission) in order to fund its bankruptcy operations. Procedural History and Case Discussion of the Terms of Service: On September 15, 2022, the Debtors requested permission from the Court and the Unofficial Creditors Committee (the “UCC”), the official group appointed in the case to represent the interest of all creditors, to sell certain of the stable coins held by the Debtors. At this point, the Debtors had not asked for a ruling on the status of the Earn Accounts. However, the Debtors received objections to this request which raised the issue of who owns the Earn Account assets. Following these objections, Debtors amended their motion to request a ruling from the Court as to the legal status of the Earn Accounts, as it was becoming clear that it would be difficult for the case to move forward until such a determination was made. The key factor used by the Court in determining the ownership of the Earn Account assets is a contract question related to the terms of service for the Earn Accounts (the “Terms”). These Terms were agreed to by means of an online “clickwrap contract” by most Earn Account holders before their coins were deposited into Earn Accounts.  The Debtors argued, and the Court agreed, that the Earn Account Terms clearly granted the ownership of the Earn Assets to the Debtors: Most notably, the Debtors pointed to the most recent version of the Terms, which state: In consideration for the Rewards payable to you on the Eligible Digital Assets using the Earn Service . . . and the use of our Services, you grant Celsius . . . all right and title to such Eligible Digital Assets, including ownership rights, and the right, without further notice to you, to hold such Digital Assets in Celsius’ own Virtual Wallet or elsewhere, and to pledge, re-pledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use any amount of such Digital Assets, separately or together with other property, with all attendant rights of ownership, and for any period of time, and without retaining in Celsius’ possession and/or control a like amount of Digital Assets or any other monies or assets, and to use or invest such Digital Assets in Celsius’ full discretion. You acknowledge that with respect to Digital Assets used by Celsius pursuant to this paragraph: 1. You will not be able to exercise rights of ownership; 2. Celsius may receive compensation in connection with lending or otherwise using Digital Assets in its business to which you have no claim or entitlement; and 3. In the event that Celsius becomes bankrupt, enters liquidation or is otherwise unable to repay its obligations, any Eligible Digital Assets used in the Earn Service or as collateral under the Borrow Service may not be recoverable, and you may not have any legal remedies or rights in connection with Celsius’ obligations to you other than your rights as a creditor of Celsius under any applicable laws. Additionally, all prior Terms since 2020 included some similar language about losing the title to assets deposited and each version of the Terms allowed the Debtors to update the terms of service at any time. Ruling: Though it received a number of objections, the Court was not convinced by creditor and State arguments. In granting the Debtors’ motion, the Court decided that there was at least a presumption of a binding contract between the Earn Account holders and the Debtors and that this contract unequivocally gave title to the crypto deposited into the accounts to the Debtors. In this regard, the Court was moved by the Debtors’ uncontroverted evidence showing that 99.86% of the Earn Account holders accepted Terms Version 6 or a later version of the Terms. The Terms starting with version 6, clearly state that the account holder is losing their title to the deposited assets. Additionally, the court found that in New York State, it is settled law that agreeing to a contact via “clickwrap” such that one needs to click on something to proceed to the next page creates a valid contact, disregarding another argument that the onscreen click agreement wasn’t valid. Additionally, regarding the original question that led to this ruling,  the Court allowed the Debtor to sell $18 million worth of stable coins, notwithstanding the many objections to such a sale. In the Court’s view, even if this sale would be considered outside the ordinary course, thus requiring permission of the Court, the Debtors’ reasons for wanting the sale are reasonable and thus should be given deference. In general, United States Bankruptcy Courts give Debtors a wide amount of deference to run their businesses, even under Chapter 11 protection. Status of Creditors After these Rulings While many of the creditors were disappointed by this ruling, it does not mean that creditors need to give up on obtaining a meaningful recovery. As the Court points out, this ruling is not the end of the case, and as unsecured creditors, the Earn Account holders are likely to receive at least a portion of their claim back as part of a plan of reorganization. It should be noted that, had the Debtors been forced to return the crypto tokens held by Earn Account holders, Celsius would not have had the chance to reorganize and remain in business, which is not off the table. Additionally, a return of crypto would have likely impeded the recovery of deposited collateral for the loans Celsius took out. Further, the current process ensures that all crypto holders will likely be treated equally under the reorganization. This ruling states that there is a presumption of a valid contract. The ruling does not state that each party has a valid contract but rather that there is a presumption that there is a valid contract. This ruling does not prevent a creditor from claiming damages based on fraud or other problems in their contract. For example, if an Earn Account creditor did not believe that they were giving up title to their crypto assets, this ruling does not prevent them from arguing such to the Court. However, such claims must be filed or rights for such claims reserved prior to the claims bar date (which was just extended to February 7, 2023). This is one of the reasons why it is recommended that creditors file a proof of claim even if they are not mandated to do so. Conclusion and Relevance to Other Cases: While this ruling may not create a legal precedent, it is likely to be relevant in looking at other bankruptcies of entities holding crypto assets. Other Debtors with similar terms of service to the Celsius Terms are likely to find comfort here that title to the assets was effectively transferred to the Debtors’ bankruptcy estate.  In locations where “clickwrap contracts” are not accepted as a binding contract, there may be more reasons to differentiate from this ruling. On the other hand, the fact that this ruling was so closely based on the wording of the Terms should hopefully provide some protection to holders of digital assets in other cases where similar terms do not exist.

As discussed in the prior Bitblog update regarding the Celsius Network LLC, et al., (the “Debtor”) bankruptcy proceeding (Case No. 22-10964 (MG) in the Bankruptcy Court for the Southern District of New York (the “Court”)),  the last date for non-governmental creditors to file a proof of claims was set for today, January 3, 2023, at 5:00 p.m. Eastern Time (the “Claim Deadline”). The bar date for government-related claims was set as January 10, 2023. However, late last week, the Debtors filed a motion with the Court requesting an extension of the Claims Deadline. Though the Court won’t decide on the Debtors’ Motion to extend the bar date until January 10, 2023, the revised bar date is likely to be set as February 9, 2022, at 5:00 p.m., Eastern Time, for both general and governmental claims. In the meantime, the Debtors have stated that creditors can rely on the bar date being extended until at least January 10, 2023. Such bar date extensions are not unheard of, and given the general deference that bankruptcy courts give to debtors for such matters, it will almost certainly be granted. The Debtors argue that this extension of the Claim Deadline benefits all creditors, and not just those late to file since the report by the bankruptcy examiner is expected to be filed on January 17, 2023, prior to the expected new bar date. The Court-appointed examiner, Shoba Pillay, is tasked with investigating several topics related to the Debtors, including whether the company or its officers committed criminal acts in addition to asset tracing. The Debtors suggest that there might be information in this report that would affect what claimants may include on their proofs of claim. Therefore, delaying the Claim Deadline until after its publication has a theoretical benefit. For claims already filed, to the extent that the examiner report changes anything, a revised proof of claim can be filed if warranted. A possible explanation for the last-minute request to extend the Claim Deadline is that it was requested by one or more government regulators who want to file a proof of claim. It is likely that federal and state regulators are going to file claims for damages and/or fines for violations against the Debtors. Unfortunately for all other creditors, to the extent that any governmental claims are accepted by the Debtors, it may lower recovery for individual creditors by increasing the size of the overall claim pool. As mentioned in our prior updates, if a creditor is in complete agreement with their claim amount as listed by the Debtors on the Debtors’ Schedules, they have a valid claim against the Debtors in the amount listed in the Schedules pertaining to their claim, even if they do not file a proof of claim. In any event, it is still advisable to file a proof of claim regardless.

As Celsius Network LLC, et al., Case Number: 22-10964 (MG), proceeds in the Bankruptcy Court for the Southern District of New York (the “Court”), recent case updates relating to the approaching claims bar date: As discussed in a previous Bitblog entry, the last date to file a proof of claim in the Celsius bankruptcy case is January 3, 2023, at 5:00 p.m. Eastern Time (the “Claim Deadline”). Any holder of a claim that fails to file a proof of claim[1] by the Claim Deadline cannot assert a claim against the Debtors at a later time and cannot vote on a plan of reorganization. Part of the purpose of the Claim Deadline is to give the Debtors a full picture of what their liabilities are so that they can fashion a plan of reorganization to repay and/or compensate their creditors, at least in part. Since many of the claims in the Celsius case are filed on behalf of cryptocurrency account holders, there are a few particularities to the proof of claim process that are worth mentioning: If a creditor is in complete agreement with their claim amount as listed by the Debtors’ on the Debtors’ Schedules, they do not need to file a proof of claim. This means that these creditors will still have a valid claim against the Debtors in the amount listed in the Schedules pertaining to their claim, even if they do not file a proof of claim. In any event, it is still advisable to file a proof of claim regardless. One of the advantages of filing a proof of claim in this bankruptcy case is that it allows claim holders to preserve their rights to additional claims against the Debtors in addition to their cryptocurrency claim. An example of such a claim could be an allegation of fraud based on how the Debtors marketed the cryptocurrency lending products.  In this regard, when drafting a proof of claim it is recommended that the claimant be as specific as possible in identifying which statements by Celsius or its executives were fraudulent or misleading. Additionally, it is recommended that a creditor have its claim lodged against all of the debtor entities and not just against Celsius LLC in order to give the claim holder a claim against the assets of all the Debtor entities instead of just one. The proof of claim should also mention any airdropped tokens that a creditor believes that they are entitled to have received during the period that their crypto wallet was given to Celsius. It is recommended that one retain counsel to assist with drafting the proof of claim and any addendum and supporting documentation, as well as filing the proof of claim. Claimants can attach an addendum to their proof of claim explaining the claim, preserving rights, and attaching any important documentation to the claim. The claims process will be handled and monitored by Stretto, the Debtors’ Claims and Noticing Agent. Proof of claim forms can be mailed to Stretto (and must be received by January 3, 2023, at 5:00 PM Eastern Time). Alternatively, the proof of claim can be filed electronically. For Celsius customers, the electronic filing process requires the use of your Celsius account email address and your customer claim number. Unfortunately, filing a proof of claim does not obligate the Debtors to pay your claim and does not initiate proceedings to demand payment. Instead, all claims will be considered together and worked out as part of a plan of reorganization during the bankruptcy proceedings. Customers with outstanding loans to Celsius in which the Debtors hold collateral should also file a proof of claim noting the existence of the collateral granted to Celsius and held by them. There is a developing market for Celsius claims under which a third party may buy a claimant’s claim(s). Currently, the market for these claims is priced at a very large discount to the face value of the claims. Third party claims buyers will almost certainly demand that a claim has a proof of claim filed before the Claim Deadline with an added reservation of rights  and may not simply rely on the Debtors having scheduled the claim (another reason why filing a claim with the court is advantageous to the claimant). [1] Some creditors are not required to file a proof of claim. To determine if this may apply to you, review the Order Setting Bar Dates for Submitting Proofs of Claim at Docket No. 1368 on the Court’s docket.

As Celsius Network LLC, et al., Case Number: 22-10964 (MG), proceeds in the Bankruptcy Court for the Southern District of New York (the “Court”), the following summarizes two important case updates as of November 18, 2022: Setting of Bar Date for Filing Proofs of Claim: On November 16, 2022, the Court entered an order (the “Bar Date Order”) setting the date and time by which all creditors must file their proof of claim(s) in the Chapter 11 Cases. Proof of claim forms must be submitted and received by the Debtors by 5:00 p.m., prevailing Eastern Time on January 3, 2023 (the “General Claims Bar Date”). Proofs of Claims submitted by governmental units, on the other hand, must be actually received by 5:00 p.m., prevailing Eastern Time on January 10, 2023 (the “Governmental Claims Bar Date”). As outlined in the Bar Date Order, with few exemptions, any claim that is not filed by the respective bar dates listed above will be barred from being asserted against the Debtors unless such claim is already listed on the Debtor’s Schedules.  If the Debtor has listed a claim as contingent, unliquidated, or disputed, it is critical that a proof of claim be filed in order to reserve a right to the claim. What must be included in the proof of claim: The proof of claim must be in English; For any cryptocurrency claims held in an account on the Debtors’ platform, the claim must state the type of cryptocurrency and the number held; For any non-cryptocurrency claims, the claim must include an amount denominated in U.S. Dollars; Must be signed or electrically submitted via the claim agent’s webpage; Include as much supporting documentation as can be provided unless voluminous, in which case an explanation should be provided as to what was not included; Form must conform substantially with the form provided by the Debtors. Personal information not to be included: The proof of claim should not include a complete social security or tax ID number but only the last 4 digits; Should not include a full birthday (only the year); If the creditor is a minor, only initials should be used; Only the last 4 digits of financial account numbers should be used. As we have mentioned before, given the complexity of the claim it remains our recommendation that all parties file a proof of claim regardless of how their claim is scheduled. Approval of action procedures for retail assets: As mentioned in our previous updates, the Court has approved procedures for an auction of the Debtors’ assets (in particular, the Debtors’ retail assets). Part of the controversy behind this auction is that parties are being asked to submit bids prior to a determination of how the company plans to treat the Custody accounts with a decision on the Earn accounts not even on the near horizon. The Debtor has made it clear that the approval of these auction procedures is not a commitment to sell assets and is at least purporting to be considering restructuring and remaining a standalone entity as an alternative. Note the proposed sale here would take place under a plan of reorganization and not as a separate asset sale under Section 363 of the Bankruptcy Code. Though the dates and deadlines are subject to change, the current deadlines are as follows: Initial Bid: The initial bid deadline for retail assets is set for November 21, 2022, at 4:00 p.m. ET. This non-binding initial bid must include a price including for both cash and non-cash components as well as any conditions. Submitting this initial bid does not obligate the bidding party to bid further, nor will it definitely allow one to submit a final bid as the Debtor still needs to approve final bid candidates prior to giving them confidential information about the Debtor. Final Bid: Final bids are due on December 12, 2022. In the final bid, the Debtors are looking for bids that, in theory, the Debtors can be ready to sign. This includes a signed transaction document with any markup that the bidder requests as well as committed financing, a good faith deposit of the greater of 10 percent of the bid or 20 million dollars.  Under these bid procedures, the Debtors are unwilling to accept any financing or other conditions There are several other requirements including that bids provide information on how with a potential buyer of the assets will deal with the Debtors. It is highly unlikely that any particular bid made on December 12, 2022, will be accepted in its form as submitted. Auction and Sale Hearing: If needed, a virtual auction may take place on December 15, 2022, and a sale hearing is set to take place on December 22, 2022. If other cases in this area are a guide, it is likely that these deadlines are likely to be extended. Many creditors are hoping that the auction will lead to a buyer taking over accounts that will include Earn accounts, thus allowing creditors to keep their accounts or a percentage of them intact. While this is in the realm of possibility, it is not a likely outcome. An important element of the approved bid procedures is that it will allow the Debtors to sell the assets in question free and clear of liabilities. In many ways, these bid procedures give the Debtors the ability to test the waters to gauge the interest of buyers in their assets without committing themselves to anything. As such, there is little that we can learn from here (for now) as to the final direction that the case is going to take or how claimants are going to be paid back. A full listing of action deadlines is as follows, though may be subject to change:

As Celsius Network LLC, et al., Case Number: 22-10964 (MG), proceeds in the Bankruptcy Court for the Southern District of New York (the “Court”), the following summarizes an important case update as of November 4, 2022: Adjournment of Bar Date Hearing: Our October 27, 2022 update referenced a hearing scheduled for November 1, 2022, whereby the Debtors planned to request approval for a motion to set a bar date of December 13, 2022 (the “Bar Date Motion”). Under the Bar Date Motion, any claim not filed by December 13, 2022, or listed on the Debtors’ Schedules would be barred from submission.  The purpose of the bar date is to allow the Debtors to assess the value of their assets versus liabilities so that they can institute a plan of restructuring and hopefully pay their creditors. The Debtors also intend to update the proof of claim form to better accommodate claims that consist of cryptocurrency assets. The hearing on the Bar Date Motion has been adjourned to November 15, 2022, at which time the Debtors will also seek approval of the updated Proof of Claim form. No reason was given for the adjournment of this hearing from November 1, 2022, to November 15, 2022. It is our advice both to protect creditors with regard to the Debtors as well as to ease a potential claim sale that creditors file a proof of claim even if they are in agreement with the amounts listed by the Debtors on the schedule. Although creditors should wait for the updated Proof of Claim form to be approved, creditors are advised to gather any relevant documents and, if desired, retain counsel to assist with filing a proof of claim, especially given that the proposed bar date is only five weeks away We expect further updates, possibly related to the treatment of trust assets on or prior to the November 15th hearing.

As Celsius Network LLC, et al., Case Number: 22-10964 (MG), proceeds in the Bankruptcy Court for the Southern District of New York (the “Court”), on October 24, the Court issued two rulings related to matters mentioned in our October 14, 2022, update: Approval of Bidding Procedures: As introduced in a previous update, on September 29, 2022, the Debtors filed a motion to set bidding procedures for the auction and sale of substantially all of the Debtors’ assets, including Debtors’ retail platform, account holders, loan portfolio, and related technology, custody, and swap services, and staking and mining operations (the “Sale Motion”). On October 24, 2022, the Court approved the Sale Motion over the objection of the US Trustee and several other parties (the “Sale Order”). One of the core objections of the US Trustee and a number of States is that the Debtors’ proposed (and now Court-approved) bidding procedures are premature since the Court has not yet determined whether the Earn, Custody and Withhold accounts will be part of the bankruptcy estate and thus included in the asset sale.  The objecting parties argue that “trying to proceed to an auction prior to determining what is to be sold would be no more realistic than if one sought to sell a car dealership without being able to tell the buyers whether some, all, or none of the cars on the lot would be part of the assets being purchased.” Although the Court-appointed Chapter 11 Examiner’s initial report is due before the bidding deadline, this report will not resolve the ultimate treatment of the Earn accounts, which represents the vast majority of creditors. While the Sale Motion and Sale Order do not directly address how or in what way the “Earn” creditors will get paid out, they do provide insight into just how the Court and Debtors are understanding and analyzing this bankruptcy case. For instance, though the Court agreed that determination of the treatment of the Earn, Custody, and Withhold accounts would take time, it held that these issues “involve only a fraction of the potential estate assets that the Debtors propose to sell,” may be subject to “months or years” of appeals, and, therefore, the bankruptcy court process should not be delayed. The Court stated in its ruling that a winning bid could deal with the contingency of how these accounts will be treated. In any event, the Debtors have also noted that they “will not sell or purport to sell any Assets absent a finding by the Court that they have title and authority to sell the Assets.” In the Sale Order, the Court appears to accept the Debtors’ view that time is of the essence in this case and gives great deference to the Debtors’ business judgment. (To those less familiar with the United States Chapter 11 system, this deference to the management of a bankrupt entity is likely to come as a surprise.)  Per the Court, the bidding procedures are designed to “maximize value of the Debtors’ assets.” In the Sale Order, Judge Glenn compared the Debtors’ businesses to a melting ice cube in that if the Debtors wait too long to act, liquidity issues are likely to impact the Debtors’ operations in 2023 as the assets available for sale dwindle. This view that “time is not on the side of maximizing recovery by all stakeholders” is in contrast to those “bullish” on crypto prices who would prefer the Debtors to wait for a price recovery before selling assets. Key points on the bidding procedures, as approved by the Sale Order: Debtors intend to try to sell the entirety of their retail platform, including customer earn accounts and coin balances, retail and institutional lending portfolio, swap services, staking platform, Celpay, and CelsiusX. The Debtors also requested the ability to sell their staking and mining operations and any other assets; Sale timeline: Initial bids for the Retail Platform Assets are due November 21, 2022, an auction, if necessary, is scheduled for December 15, 2022, and a sale hearing is set for December 22, 2022; The Debtors have a list of over 30 parties they believe may be interested in bidding; As it remains an open question if certain accounts are part of the bankruptcy estate, it is unclear if bidders will be interested in bidding on accounts given such uncertainty; Debtors anticipate allowing the winning bidder to purchase assets free of potential liabilities; Debtors made clear that they plan, or at least hope, to sell all accounts. However, as seen in another bankruptcy case, bidders may only desire to acquire account information and not accept liabilities assets in accounts; The sale procedures do not appear to contemplate the Debtors making a distribution of crypto assets to creditors; however, nothing in these bid procedures is the final word on how any distribution will be made; and The bid procedures anticipate that any sale under these procedures will happen under a plan of reorganization that will be approved by the Court and creditors. Rejection of the Equity Committee: On October 24, the Court also denied a motion for the appointment of an official preferred equity committee (the “Committee Motion”). The equity holders in question have been active participants in the Debtors’ bankruptcy case from the start, often filing objections to the Debtors’ filings. Both the Debtors and the Official Committee of Unsecured Creditors filed objections to the Committee Motion. In general, under the rules of a Chapter 11 bankruptcy case, the equity holders are not entitled to any proceeds of the bankruptcy estate unless all impaired creditors are paid back in full with interest, something which is not expected to happen in this case. Ultimately, the Court agreed with the objections, holding that appointment of an Official Preferred Equity Committee is inappropriate for three reasons: (1) the equity holders are adequately represented by already existing stakeholders and do not need additional representation; (2) the equity holders have not met their burden to demonstrate that there is a substantial likelihood of equity recovery; (3) other factors, such as the balance of costs and benefits to the bankruptcy estate, as well of the complexity of the bankruptcy, do not weigh in favor or appointing an Official Preferred Equity Committee.

As Celsius Network LLC, et al., Case Number: 22-10964 (MG), proceeds in the Bankruptcy Court for the Southern District of New York (the “Court”) over the last month there have been a number of important updates in the case. Here are some highlights as of October 14, 2022: Though Debtor filings and Committee investigations have revealed a great deal more to the public about the Debtors’ financial affairs, insider activity, and the path and direction of the bankruptcy case, there is still little indication of how claims will be treated and repaid in this case. This is particularly true of claim holders who have “Earn” accounts where prior withdrawals may be clawed back. Over the next few months, the Court will determine the ownership status of certain accounts and how those accounts will be treated, and the Debtors will present a plan of reorganization for Court approval which will give creditors a better sense of how the Debtors intend to treat all claims. After that plan is presented, creditors will have an opportunity to vote to “accept” or “reject” the plan. Claims and Proof of Claim Process On October 5th, 2022, the Debtors filed their Schedules of Assets and Liabilities with the Court (the “Schedules”). On these Schedules, the Debtors list what they believe to be customer account balances as of July 13, 2022, the day that the bankruptcy petition was filed (the “Petition Date”). Customers can view Debtor Celsius Network, LLC’s Schedules on page 92 of Docket No. 974. Debtor Celsius Network, LLC’s Statement of Financial Affairs is available at Docket No. 973. Interestingly and potentially of concern to certain creditors, the Schedules also list all withdrawals from the accounts in the 90 days preceding the Chapter 11 filing. This likely indicates a serious consideration in the Debtors to claw back these funds. If a creditor agrees with the Schedules as-filed, and if their claims are not listed as “contingent,” “unliquidated,” or “disputed,” the Creditor is not required to file an additional proof of claim. However, it may still be a better practice to file a proof of claim to ensure the claim is correct and that the court has a copy of any supporting documentation. Regardless, a creditor should wait to file a proof of claim since the current proof of claim form available through the Stretto website is expected to be revised to make it easier for customers to submit information related to their crypto balance. More information on this will be provided once the Court makes a ruling about on procedures. The Debtors have filed a motion requesting to establish the general claims bar date (for non-governmental entities) as December 13, 2022 by 5:00 p.m. prevailing Eastern Time. If the Court grants this request, all general creditors must file a proof of claim by that date unless they wish to rely on their claim being listed on a schedule. Classification of Claims and Ad Hoc Committees There are at least four types of creditors who have accounts at Celsius which are currently blocked due to the bankruptcy, and it’s still up in the air as to how the court is going to treat them. Custody Accounts. These are accounts that did not earn interest and where funds were to some extent held on behalf of the owner. The Debtors have agreed to return these funds and not consider them part of the bankruptcy estate, though now it appears that they intend to cap the amount that they are going to return and/or not return assets that were in Earn Accounts prior to the bankruptcy filing. A group of these holders have created an “ad hoc committee” represented by the law firm of Togut Segal & Segal LLP to represent their interests.  Unlike the Unofficial Creditors Committee, the fees of these ad hoc committees are not being paid by the Debtors. The parties will brief these issues to the Court over the coming weeks and will determine how to “treat” these accounts by December. Withhold Accounts. Withhold accounts are very similar to custody accounts where the assets did not earn interest. In many cases withhold accounts were issued to people residing in places such as New York where the Debtor was not authorized to provide custodial services. Like the custody accounts, a number of these holders have set up an ad hoc committee represented by Troutman Pepper Hamilton Sanders LLP. These holders have also agreed with the Debtor that it will decide how it is treating their accounts by December. Earn accounts. These are interest accounts whereby a holder deposited crypto assets with the Debtor and earned interest on the assets deposited. This interest stopped accruing on the bankruptcy petition date. The majority of claims against the Debtor, likely in the amount of about 4 billion USD at current crypto valuation, is in an earn account. The Debtor has not committed to deciding how it views these accounts by a particular date. Chances are these accounts are likely to be viewed as assets of the estate and subject to a 90-day clawback. Borrow Accounts: These are accounts containing collateral which was used for loans that account holders received from the Debtor. See please below regarding obligations to pay interest on these loans. On December 7 and 8, the Court will hold a hearing to discuss the “Custody” and “Withhold” accounts and ownership of the same. In other words, the Court will hold a hearing to determine whether these cryptocurrency assets are property of the bankruptcy estate or not. Appointment of an examiner. Debtors’ CEO Alex Mashinsky (“Mashinsky”) resigned from his position on September 27, 2022. Reports have since emerged that Mashinsky withdrew nearly $2.9 million in cryptocurrency and that entities related to Mashinsky withdrew more than $7.1 million from Celsius accounts in multiple transactions in May 2022. The Court Judge has agreed to appoint a chapter 11 examiner to investigate Celsius leadership’s prepetition conduct, including allegations of both civil and criminal misconduct. The Court appointed Shoba Pillay, a Chicago-based partner at the law firm Jenner & Block, as an examiner in this case. The expected role of the examiner is a bit amorphous but includes looking into the status of the claims as being assets of the estate as well as determining what third parties the Debtors should pursue claims against. Recent news that Mashinsky and other executives withdrew about 17 million dollars from the company around the time of the filing is likely to increase pressure to pursue claims against him. However, in a case involving multibillions in creditor money, it is unlikely that the recovery of less than 20 million dollars will offer meaningful restitution to the creditors. The Examiner has agreed to provide interim findings in a few weeks’ time in order to assist the Debtors in determining the status of the custody and withhold accounts with a final report expected in the not too distant future. The Official Committee of Unsecured Creditors, which commenced an investigation into Machinsky’s conduct and demanded his removal as CEO, filed a statement following Machinsky’s resignation that it remains optimistic that a Chapter 11 plan is possible and that an open and transparent process will maximize value. The Committee stated that it intends to pursue any actionable claims against Mr. Mashinsky, other insiders, and any related parties for the benefit of all account holders and unsecured creditors. Asset Sales. On September 15, the Debtors filed a motion asking the Court for permission to sell its “stablecoin” stock for U.S. dollars. According to the filing, Debtors own eleven different forms of stablecoin, totaling approximately $23 million. Because the stablecoins are pegged to fiat currency, the Debtors argue that the stablecoins offer a stable cryptocurrency option that is not subject to market fluctuations and plans to monetize those assets as needed in order to generate liquidity and fund operations during the bankruptcy case. On September 27, the Debtors noticed a sale of certain “de minimis” assets, which included the sale of 169,467 shares of common stock in Orgenesis Inc., a company that researches and develops cell and gene therapies, which is owned by Debtor Celsius Network Ltd. On September 29, the Debtors filed a motion seeking approval of bidding procedures for a sale of its retain platform. The Debtors’ proposed sale would include the Debtors’ account holders, loan portfolio, and related technology, custody and swap services, and staking and mining operations. A hearing on the motion is set for October 20, 2022. Rejection of Motion to Redact Names of Claim Holders. Debtors had filed a motion for authorization to redact individual names from any documents and to implement an anonymized process by which to identify individuals in connection with account balances on any documents filed publicly on the docket. The Court ruled that while the names of creditors could not be hidden from public view, the email and home addresses of individual creditors could be redacted. The Court’s decision to shield the email and home addresses was made to reduce individual creditors’ risk of identity theft, among other reasons. Request for an Equity Committee. Certain equity holders requested that they be granted an official equity committee to look after their rights to determine whether the equity will have any value and whether they will have any claim to it. Unless all creditors are paid-in-full with interest, there is no value to the equity. The court registered this request. Loan Collection Efforts. On September 30, the Debtors filed a statement regarding Debtors’ loan collection efforts toward account holders with outstanding loans. The statement shared that while a borrower’s obligation to repay maturing loans on the Debtors’ platform remains in force during the bankruptcy case, the Debtors will not seek to enforce payment obligations on account of outstanding loans during the chapter 11 cases and borrowers do not need to repay such loans during these chapter 11 cases. Further, no interest or penalties will be assessed post-maturity. Further, while a borrower can make payments on its outstanding loan, the Debtors will not release any collateral to borrowers or set off any claims until the Court orders otherwise. Next omnibus hearing is set for October 20, 2022.

As Celsius Network LLC, et al. Case Number: 22-10964 (MG) proceeds in the bankruptcy court for the Southern District of New York (the “Court”) here are some highlights as of September 7: The Court has approved procedures proposed by the Debtor to govern the sale of “de minimis” assets, which are defined as assets with a fair market value of less than $4,000,000. This approval will not allow the company to sell any cryptocurrency, cryptocurrency tokens, or other digital assets. The Debtors would not need further permission from the bankruptcy court to sell these “de minimis” assets. Allowing the Debtor to run its business and sell “de minimis” assets is standard practice in a Chapter 11 bankruptcy. The Court has approved bidding procedures for the potential sale of certain of Debtors’ assets, including the Debtors’ GK8 Ltd. assets. The final bid deadline is September 21, 2022, an auction (if necessary) will be held on September 23, 2022 (remotely, at 10:00 a.m.), and a sale hearing is scheduled for October 6, 2022. The Court has appointed an Official Committee of Unsecured Creditors, represented by the law firm of White and Case LLP. This UCC is the official representative of the interests of the unsecured creditors with the fees and expenses of the UCC paid for by the Debtor. The UCC  pledged to be active in the Chapter 11 cases, including: ensuring the Debtors are effectively safeguarding their account holders’ assets; overseeing the Debtors’ efforts to develop a viable business plan that reduces overhead and preserves the Debtors’ limited cash reserves; investigating the prepetition conduct of Alex Mashinsky and other Celsius insiders, including the problematic asset deployment decisions, prepetition transfers, and other issues; exploring strategic options to reorganize or sell the business (or portions thereof) to maximize value for account holders and unsecured creditors; balancing the need of transparency with protecting the confidentiality of information received from the Debtors and non-Debtor parties so that it has the information to efficiently protect its constituents’ rights. The Court has approved Debtors’ request to continue mining cryptocurrency during the pendency of the Chapter 11 Case. The Debtors have stated that they will use any profits made via mining to support its restructuring efforts.  It appears that the Debtor has spent hundreds of millions on its mining operations which with energy prices is likely not consistently profitable. However, shutting down the mining business would preclude any ability to recoup this investment for the benefit of the creditors. Debtors have received an extension of time to file their schedules and statement of financial affairs. Multiple extensions have been granted to-date and such is common practice in Chapter 11 Cases. Debtors have requested permission to release nearly $56 million in cryptocurrency to its customers. This requested the release of cryptocurrency which are held in “Custody” and “Withhold” accounts. The Debtors state that it has determined these specific assets are free and clear of any claims by Celsius in its Chapter 11 case and do not constitute property of the bankruptcy estate. The Debtors contend that assets in the Earn Program and the Borrow Program are likely property of their estates, and that customers that transferred those assets to Custody or Withhold within a certain time period may be subject to preference claims. Debtors have filed a motion for authorization to redact individual names from any documents filed publicly on the docket and implement an anonymized process by which to identify individuals in connection with account balances on any documents filed publicly on the docket. The Motion is still pending, and the Ad Hoc Group of Withhold Account Holders have filed a statement in support of the Debtors’ motion. Relatedly, in a recent hearing, Judge Glenn stated that he is not going to allow anonymous proofs of claim to be filed in the Case. Under the Chapter 11 process the Court is given the power to adjudicate any litigation that relates to the Debtor this  includes  the following three cases filed to-date: Ad Hoc Group of Custodial Account Holders v. Celsius Network LLC et al: Ad hoc group is seeking a declaratory judgment that the Custody Assets (cryptocurrency transferred into the Celsius Custody Service) are not property of the estate under section 541 of the Bankruptcy Code. Celsius Network Limited et al v. Prime Trust, LLC: Celsius is seeking the turnover and transfer of crypto assets that are in the possession of Prime Trust worth approximately $17 million. Celsius Network Limited et al v. Stone et al: Celsius seeks to require defendants Jason Stone and KeyFi, Inc. to turn over certain assets and coins to the Debtors, among other causes of action. Next omnibus hearing is set for October 6 at 10:00 a.m. where many of these issues will be further discussed.