Article/Intelligence
Court Says Celsius ‘Hid the Ball’ on Limiting Timely Crypto Distributions to 100 Corporate Creditors, Asks UST to ‘Look Into’ ‘Outrageous’ Lack of Disclosure
Relevant Document:
Supplemental Objection
At a hearing on the Faller creditors’ motion for further plan distributions this afternoon, Judge Martin Glenn said that he believes the Celsius debtors breached the confirmed plan and “hid the ball” by failing to disclose limits on distributions to corporate creditors. Judge Glenn has directed the parties to file a joint status report within two weeks, at which point he will set another hearing, adding that the U.S. Trustee “needs to look into this.”
The “serious disclosure issue” raised by Judge Glenn relates to the motion from the Faller creditors, joined by “40 odd” other creditors, seeking almost $351,000 in additional plan distributions. The Faller creditors claim that only 100 of the debtors’ 1,900 corporate creditors received timely in-kind cryptocurrency distributions, while other creditors, including the Faller entities, received delayed fiat payments.
This disparity, the Faller creditors argue, allowed larger creditors to benefit from a 60% increase in bitcoin and 40% increase in ethereum values while disfavored creditors suffered prejudice in receiving delayed fiat distributions. The Faller creditors assert that they should be compensated for discrepancies in plan distributions that deviate from the confirmed plan’s terms and create disparities in treatment among members of the same class.
Celsius contends this limitation was necessary due to constraints imposed by its distribution agent, Coinbase Inc. In a supplemental response filed on July 23, Celsius explains that it was “only able to find one suitable distribution partner to facilitate Liquid Cryptocurrency distributions” – Coinbase.
“Coinbase made clear from the beginning that it would only agree to make distributions to approximately 100 corporate creditors” because of an “intensive and multi-stage onboarding process” for corporate creditors, according to Celsius. As a result, the post-effective date debtors have been unable to distribute liquid cryptocurrency to some corporate creditors. However, the debtors maintain, all creditors have received the same value as of the distribution record date, and the “only potential damages” derive from delay in making distributions.
At today’s hearing, Judge Glenn took issue with the 100-creditor limit for distributions from Coinbase, questioning what plan term authorized that restriction. The judge also said that because “hundreds of people are being forced by the debtors to receive fiat,” he would have expected to hear from the official committee of unsecured creditors, the plan administrator and/or the debtors. Instead, Judge Glenn said, he first learned of these issues from pro se creditors’ letters. “It’s outrageous,” Judge Glenn added. “Why didn’t you come to me and tell me about it?”
Judge Glenn said that he expects counsel for the debtors, UCC and plan administrator to engage in discussions with the U.S. Trustee and counsel for the objecting creditors before filing a status report. “We will see what gets scheduled after that,” Judge Glenn warned, after suggesting that he may set an “open book” evidentiary hearing.
“Obviously, I am not happy,” Judge Glenn said, adding, “disclosure is the whole of our bankruptcy system.”
In a declaration supporting Celsius’s objection, Robert Campagna of Alvarez & Marsal estimates that if the court grants the relief sought by the Faller creditors, corporate creditors initially scheduled to receive cash could be entitled to approximately $52 million in additional distributions. Creditors receiving cash distributions under the plan could be entitled to an additional $29 million, according to Campagna.