The judge overseeing Celsius’s bankruptcy case has ordered Celsius’s examiner and official committee of creditors to determine who will lead an investigation into whether the company operated as a Ponzi scheme..
The order during the November 1 hearing came in response to customer allegations that Celsius had used the assets from new users to pay returns and facilitate withdrawals to existing usersand as a result, fits the legal definition of a Ponzi scheme.
The judge had approved on September 9 the appointment of an independent examiner to analyze aspects of Celsius’s businessfollowing requests for greater transparency in its operations, such as tax payment procedures and the reason why some clients were transferred to different accounts.
This is not the first time the beleaguered lender has been accused of operating as a Ponzi scheme, as the decentralized finance (DeFi) protocol KeyFi alleged that Celsius is acting like one when it sued the company on July 7..
Celsius filed for Chapter 11 bankruptcy on July 13.citing a crash in cryptocurrency values and poor asset deployment decisions, and the case has been proceeding through the court system ever since.
At the hearing on November 1, the federal judge, Martin Glenn, also told Celsius that they would have to include more details in their October 11 motion to pay nearly $3 million to 62 employees as part of a key employee retention plan (KERP).for its acronym in English), with Law360 quoting the judge when he said:
“I was surprised to see the redactions. I’ve never seen anyone try to redact everything.”
Glenn refers to a section of the motion describing the bonus participantsin which all the details regarding the individuals have been redacted and are available to the public, including their salaries and job descriptions.
On October 27, the United States Trustee filed an objection to the KERPquestioning the lack of identifiable metrics within the motion to justify such an expensive bonus scheme and that it prevented stakeholders from arguing whether some participants could be considered insiders and therefore ineligible for a KERP.
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