Celsius Bankruptcy Managers to Require Clawbacks from Large Withdrawals
Creditors who made significant withdrawals in the 90 days leading up to Celsius’ bankruptcy announcement will be required to return a portion of the funds or face legal action, according to bankruptcy managers. Account holders who withdrew over $100,000 within 90 days of July 13, 2022, the day Celsius declared bankruptcy, are liable for clawbacks. The affected accounts will receive letters instructing them to pay back 27.5% of the amount withdrawn during that period. Compliance with this requirement will make them eligible for future distributions under the reorganization plan.
Alan R. Rosenberg, a partner at Markowitz Ringel Trusty & Hartog law firm, explained that individuals who fail to comply may be sued to recover the preferences they received. However, users who withdrew less than $100,000 do not have to return the money but still need to vote on and accept the reorganization plan.
The Bankruptcy Saga
Celsius declared bankruptcy on July 13, 2022, due to a $1.2 billion deficit in its balance sheet. In September 2023, creditors approved a reorganization plan where custodial account holders would receive 72.5% of their holdings in bitcoin and ether, while interest earning account holders would receive a combination of crypto and shares in a new mining company formed from Celsius’ remaining assets.
In November, Celsius emerged from bankruptcy and allowed eligible creditors to make withdrawals. Additionally, Celsius and its founder and CEO Alex Mashinsky faced lawsuits from the SEC, FTC, and CFTC for misleading customers. Mashinsky is scheduled to stand trial for fraud next fall. After completing the bankruptcy proceedings, Celsius settled with the FTC for $4.7 billion.
Hot Take: Celsius Implements Clawbacks for Large Withdrawals During Bankruptcy
Celsius’ decision to require clawbacks from account holders who made substantial withdrawals prior to its bankruptcy announcement aims to recover funds and ensure equitable distribution during the reorganization. While creditors who withdrew less than $100,000 are exempt from returning the money, all account holders must vote on and accept the reorganization plan. Failure to comply may result in legal action. This development demonstrates the challenges faced by crypto lenders and the importance of transparency and compliance in the industry.
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