(Kitco News) - The bankruptcy judge overseeing the Celsius case has ordered the court-appointed examiner and the official committee of Celsius creditors to decide who will lead an advanced inquiry into whether the firm was operating as a Ponzi scheme.
Customers of the platform have accused the crypto lender of using the assets deposited by new users to pay yields and facilitate withdrawals for existing users, which technically fits the legal definition of a Ponzi scheme.
The judge previously approved the appointment of an independent examiner to look into the various aspects of Celsius’ business after receiving numerous calls for more transparency into the firm's operations, including why some customers were moved to different accounts.
“We don’t know if Celsius was a Ponzi scheme, but there are flags that came up,“ said the creditors committee’s lawyer, Greg Pesce. ”Let me make it clear we’re looking into whether it is. We don’t have an answer to that.”
The court-appointed examiner, Shoba Pillay, has indicated that she will broaden the scope of the probe to include Celsius’ marketing practices and statements it made to attract new customers, along with an examination of how it handled its native CEL token.
The embattled crypto lender filed for Chapter 11 bankruptcy on July 13, citing the decline in the value of cryptocurrencies and poor asset deployment decisions, which left the firm unable to meet its obligations.
Following the collapse of Terra/Luna in May, Celsius got caught up in the contagion effect that spread across the crypto ecosystem and punished those who were not operating with the best business practices or risk management strategies.
Since filing for bankruptcy, the firm has faced multiple allegations from state authorities and customers that it made misleading statements about its financial health and used assets of new investors to pay yields and fund withdrawals for account holders.
The decentralized finance protocol KeyFi previously sued the platform in July, alleging that the firm acts like a Ponzi and owes the DeFi protocol millions of dollars.
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| Celsius users open to dox'ing after financial record disclosure |
During the hearing on Tuesday, the Federal judge on the case, Martin Gleen, ordered Celsius to include more details on its Oct. 11 motion to pay nearly $3 million to 62 employees as part of a key employee retention plan (KERP).
According to Law360, as he was making the order, the judge said, “I was shocked when I saw the redactions. I had never seen anyone try to redact everything.”
The statement was made in reference to a section in the motion that provided details about the participants of the bonus, or at least was supposed to, as every detail relating to the individuals had been redacted, inducing their salaries and job descriptions.
On Oct. 27, the United States Trustee filed an objection to the KERP due to the lack of identifiable metrics with the motion to warrant the expensive bonus scheme. The Trustee alleged that the heavy redactions prevented interested parties from arguing whether some participants could be considered insiders and therefore ineligible for a KERP.
