As a Wall Street Journal reported, Celsius Network, the beleaguered cryptocurrency lender, is nearing the completion of court settlements that could pave the way to recovering its customer assets.
The development follows tumultuous times for the company after filing for Chapter 11 bankruptcy protection in 2022. If the settlements are approved, disbursements of cryptocurrency and other assets to customers could commence before the end of the year.
The proposed settlements, to be scrutinized by Judge Martin Glenn at an August 10 hearing, are expected to deal with $78.2 billion in unsecured claims. Interested parties have until August 3 to respond or raise objections to the court. According to experts, this procedure represents a significant development in the company’s rehabilitation process, battling financial and legal upheaval.
An increase in recovery rates to address fraud allegations
A significant aspect of the settlements is the resolution of fraud and misrepresentation claims against Celsius management. To mollify disgruntled customers, the agreements propose to boost recoveries by an additional 5%. This adjustment will mean those eligible account holders who choose not to opt out of the settlement will have their claims augmented to 105% of their original claims.
However, the settlement agreement does not entirely extinguish customers’ right to seek redress. Account holders may opt out of the settlement to pursue individual claims against Celsius, signalling that the legal troubles for the company might not yet be over.
A new deal for ‘Earn’ program customers
The second aspect of the settlements seeks to provide a solution for customers who had funds in Celsius’ interest-bearing ‘Earn’ program. These account holders will be allowed to receive a part of their funds in cryptocurrency assets and compensation in shares of the new company expected to arise from the bankruptcy proceedings.
This arrangement could potentially lead to tax benefits for those customers and provide them with a priority preference for exchanging the new company’s equity for liquid cryptocurrency at a 30% discount.
Moving forward: The road ahead for Celsius
According to people familiar with the matter, while the settlement agreements could resolve a significant portion of customer claims, the path to recovery could be smoother for Celsius. A reorganization plan is allegedly due to being discussed in a confirmation hearing scheduled for October.
Meanwhile, Celsius lawyers have argued that customers are entitled to no more than what they initially deposited. This stance has been met with resistance from users who have sought damages for alleged misconduct by the former management.
Alex Mashinsky, the erstwhile CEO of Celsius, was taken into custody recently following federal securities fraud charges. Mashinsky, in collaboration with his co-accused Roni Cohen-Pavon, stands accused of various crimes, including securities and commodities fraud, wire fraud, and manipulation of securities.
Celsius Network’s potential settlements represent a significant step towards resolving its ongoing legal and financial issues. However, with hearings and potential individual claims still on the horizon, the path to recovery remains fraught with challenges. The unfolding story of Celsius provides a cautionary tale for the cryptocurrency industry and its participants.
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