DOJ demands more insight into Celsius' severance payments, bitcoin sales

Celsius logo and representation of cryptocurrencies are seen in this illustration. REUTERS/Dado Ruvic/Illustrations
  • DOJ's bankruptcy watchdog opposes $409,000 in severance payments
  • More oversight of proposed bitcoin sales needed to protect Celsius customers, DOJ says
  • Celsius junior creditors echo DOJ's demand for more transparency

(Reuters) - The U.S. Department of Justice has demanded more court oversight of Celsius Networks' plans to make employee severance payments and to sell bitcoins during the cryptocurrency lender's bankruptcy.

The U.S. Trustee, DOJ's bankruptcy watchdog, filed an objection on Wednesday in the U.S. Bankruptcy Court in Manhattan opposing Celsius' proposed severance payments of $409,000 to 19 employees, following a separate objection Tuesday to the company's bitcoin mining proposal. In both objections, the DOJ called on the bankruptcy court to require more transparency from Celsius about its assets and plans to pay back creditors before allowing it to move forward.

The DOJ said it may ask for a court-appointed examiner to ensure that Celsius is providing creditors with accurate information in the bankruptcy case, according to its filings.

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New Jersey-based Celsius did not respond to a request for comment on Wednesday.

Celsius filed for Chapter 11 protection on July 13, listing a $1.19 billion deficit on its balance sheet. Its, as well as other crypto lenders', business model came under scrutiny following a sharp sell-off in the crypto market spurred by the collapse of major tokens terraUSD and luna in May.

The DOJ said Wednesday that 12 of Celsius' proposed severance payments exceed the norms for bankruptcy cases, with some as high as $80,000. One former employee is set to receive more than $20,000 in severance pay after just six weeks of work with the company, according to the DOJ's objection.

Those former employees should not necessarily be paid before Celsius' customers, who are creditors in the bankruptcy case, the DOJ said. Celsius froze customer accounts in June and prevented them from withdrawing cryptocurrency assets held on its platform.

The DOJ also opposed Celsius' request to sell bitcoin during its bankruptcy case. Before allowing Celsius to sell mined bitcoin, the court must require the company to give a clearer picture of its assets, the need for the sales, and how it would spend any sales proceeds, the DOJ argued.

For example, Celsius could use the bitcoin sales to repay a $750 million loan to an affiliated company that is not bankrupt, according to the DOJ objection. In that case, the money would not be available to creditors in the bankruptcy, including customers whose accounts were frozen, the DOJ said.

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 bitcoin mining efforts.

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

For Celsius Network: Joshua Sussberg 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

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