Crypto lender Celsius gets court sign-off to sell bitcoin, but not stocks or debt

Celsius logo and representation of cryptocurrencies are seen in this illustration taken, July 7, 2022. REUTERS/Dado Ruvic/Illustration
  • Judge approved mining operation despite concern about cost
  • Demands more transparency on proposed sales of investments in other crypto companies

(Reuters) - Crypto lender Celsius Network LLC got signoff on Tuesday from a U.S. bankruptcy judge to mine and sell bitcoins during its bankruptcy.

Chief U.S. Bankruptcy Judge Martin Glenn in Manhattan expressed concern at a hearing that the bitcoin mining would not be immediately profitable since Celsius needs to make additional investments to get its mining facilities running at full capacity, but said he would respect the company's business judgment and allow it to proceed.

He did, however, block Celsius from selling equity or debt investments in other crypto companies until it provides more information about the assets it wishes to sell.

Celsius' spending has been under scrutiny in bankruptcy court since it filed for Chapter 11 on July 13 in the wake of its decision to freeze customer accounts. Its business model, like that of other crypto lenders, came under scrutiny following a sharp selloff in the crypto market spurred by the collapse of major tokens terraUSD and luna in May.

Celsius attorney Ross Kwasteniet of Kirkland & Ellis acknowledged the initial stage of the mining operation would lose money, but said at the hearing that the company is close to turning the corner and making a profit after investing considerable resources in buying computers and building facilities for the mining operation.

The U.S. Department of Justice and the Texas State Securities Board had opposed Celsius' spending on the mining operation, but the Texas SSB withdrew its objection after Celsius clarified that it would only sell the mined bitcoin for cash, rather than using it as collateral for further loans.

Celsius has previously said bitcoin mining is key to its restructuring efforts, and it received permission early in its bankruptcy case to spend $5.2 million on mining efforts.

Glenn did not grant Celsius' separate request to make "de minimis" sales of assets that it did not consider to be core to its business. Celsius was too vague about the assets it wished to sell, and only disclosed recently that those assets include up to $210 million in equity and debt investments in other crypto firms, Glenn said.

"Certainly I had no inkling that Celsius was thinking of selling investments in equity and debt of other crypto companies," Glenn said. "Those are not what I would ordinarily consider to be 'de minimis' assets."

Celsius is exploring more significant sales of some or all of its assets while in bankruptcy, and it will return to court on Sept. 1 to get approval for a process and schedule for auctioning its assets.

The case is In re Celsius Network LLC, U.S. Bankruptcy Court for the Southern District of New York, No. 22-10964

For Celsius: Joshua Sussberg, Ross Kwasteniet and Heidi Hockberger of Kirkland & Ellis

For the DOJ: Shara Claire Cornell of the U.S. Department of Justice

For the creditors' committee: Michael Andolina and Gregory Pesce of White & Case

Read more:

Crypto lender Celsius Network reveals $1.19 bln hole in bankruptcy filing

Crypto lender Celsius defends bitcoin mining plans as bankruptcy kicks off

Ripple Labs interested in bankrupt crypto lender Celsius' assets

Reporting by Dietrich Knauth

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