Celsius Fights Dismissal of $444 Million Claim in Ongoing FTX Case

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As a seasoned analyst with over two decades of experience in the financial industry, I have seen my fair share of legal battles and bankruptcy proceedings. The ongoing dispute between Celsius Network and FTX is particularly intriguing, given the complexities involved and the high stakes for both parties.

From the outset, it’s clear that Celsius Network is fighting tooth and nail to recover what they believe is rightfully theirs in the FTX bankruptcy proceedings. Their initial claim of $2 billion has been revised down to $444 million, focusing on preferential transfers that allegedly provided unfair advantages to certain creditors. However, their proofs of claim were found insufficient by Judge Dorsey, leading to an appeal.

Celsius’ argument that their original proofs of claim were adequate is a valid one, as they should have served the purpose of notifying debtors of potential avoidance claims. Yet, the court dismissed this argument due to procedural and evidentiary shortcomings in Celsius’ filings. It seems that the legal nuances of bankruptcy proceedings are proving challenging for Celsius.

The broader implications of this dispute extend beyond just the financial recovery for Celsius. The company’s native token, CEL, has seen its value plummet since reaching an all-time high, and further scrutiny is inevitable due to the legal troubles of its founder, Alex Mashinsky, who faces fraud charges and could potentially face up to 20 years in prison.

In a lighter vein, I can’t help but think of a joke that comes to mind: What do you call a bankrupt crypto lender with a guilty founder? A felonious insolvent! But in all seriousness, this is a situation that will be closely watched by the industry and the legal community alike. The outcome could set a precedent for similar cases in the future.

Celsius Network has chosen to challenge a court verdict that rejected their $444 million lawsuit in the ongoing FTX bankruptcy case. The appeal aims to reverse the judgment made by Judge John Dorsey in December, who denied Celsius’ claims due to technical flaws and lack of solid proof.

Background of the Dispute

Originally, the defunct cryptocurrency lender intended to sue FTX for $2 billion, claiming that the exchange’s unproven and critical comments harmed Celsius, leading to its bankruptcy. However, the claim was later reduced to $444 million, focusing on the allegation of “preferential transfers” that are said to have given an unfair edge to specific creditors.

In his decision last December, Judge Dorsey determined that Celsius’ initial evidence of claim lacked substance, as it consisted of just one sentence hinting at an investigation of potential preference claims. The court later ruled that the revised claims submitted in July 2024 were flawed because Celsius didn’t receive approval to modify them. Furthermore, the amendments were deemed unconnected to the initial claims, and there was insufficient justification for the delay in submitting them.

According to Judge Dorsey, permitting the proposed changes might interfere with FTX’s current restructuring activities.

Celsius’s Position

Celsius believed their initial evidence was enough to inform debtors about possible claims they could avoid. The company thought this evidence met the rules set by Bankruptcy Law. But, the court rejected this claim, pointing out issues with the process and lack of sufficient proof in Celsius’ submissions.

On December 31st, Mohsin Meghji, serving as the litigation administrator for both Celsius Network and its related creditors, filed an official appeal against Judge Dorsey’s verdict. Celsius argues that the court’s rejection of their claims was unwarranted, and they are aiming to overturn this decision.

Broader Implications

As a researcher, I’ve been closely following the legal proceedings involving Celsius, a company I’ve been studying. Since 2023, we’ve been diligently working towards repaying our creditors, and so far, we’ve disbursed over $2.5 billion to around 251,000 of them. This covers approximately 84% of the total assets owed. In a significant development, Celsius announced in November 2024 its intentions to distribute an additional $127 million from its litigation recovery account.

Back in September 2024, the company’s native token, CEL, experienced a significant increase of approximately 350%, peaking at $0.56. But since then, it has dipped below $0.20, marking a substantial decrease of around 97.5% from its record high.

Due to the legal issues surrounding its founder, Alex Mashinsky, Celsius may be subjected to additional examination. Mashinsky admitted guilt for fraud allegations and is set to receive his sentence in April 2025. He risks incarceration for up to 20 years.

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2025-01-02 19:09