FILE PHOTO: Celsius Network logo and representations of cryptocurrencies are seen in this illustration taken, June 13, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
(Reuters) -Crypto lender Celsius Network will seek to exit bankruptcy under the guidance of asset manager NovaWulf Digital Management, which will take over the operations of a new company that will be owned by Celsius customers, the company said at a court hearing in Manhattan on Wednesday.
The proposed deal with NovaWulf should allow Celsius to exit Chapter 11 and begin returning crypto assets to customers in June, Celsius attorney Ross Kwasteniet said at Wednesday's hearing.
Celsius selected NovaWulf's bid out of more than 130 proposals received, saying that NovaWulf was the only finalist that intended to maintain long-term control over Celsius' harder-to-liquidate assets, like its loan portfolio and bitcoin mining business.
Those assets would be owned by Celsius creditors and managed by NovaWulf under a profit-sharing agreement if U.S. Bankruptcy Judge Martin Glenn, who is overseeing Celsius' Chapter 11 process, and creditors sign off on the deal.
Crypto lenders such as Celsius boomed during the COVID-19 pandemic, drawing customers with the promise of high interest rates on their cryptocurrency deposits and the ability to borrow against their crypto assets. But many companies in the highly interconnected sector went bankrupt in 2022, driven by a market crash in May and the November implosion of a major crypto exchange, FTX.
Under the plan, Celsius customers with less than $5,000 in their accounts will be eligible to receive a one-time payment in bitcoin, Etherium or the stablecoin USDC, according to court documents filed on Wednesday. Celsius estimates that option will be available to more than 85% of its customers, providing them with about 70% of the value of their deposits.
Celsius customers with more than $5,000 in their accounts would receive payments from crypto that is left over after smaller customer accounts have been paid back, and will additionally receive ownership shares in the new company.
NovaWulf has agreed to pay up to $55 million to the reorganized company, called "NewCo" by Celsius, which will be owned by Celsius creditors and will continue Celsius' bitcoin mining and loan businesses. NovaWulf will share in the new business' profit, Kwasteniet said.
The new company would also pursue litigation stemming from Celsius' collapse, including claims against former CEO Alex Mashinsky and other insiders.
Celsius creditors previewed their legal claims against Mashinsky and other insiders in a late Tuesday court filing, accusing them of withdrawing millions of dollars from Celsius as it collapsed and causing billions in losses through their "negligent, reckless, and self-interested" actions.
The creditors' legal claims echo many of the findings of an independent bankruptcy examiner, who reported on Jan. 31 that Celsius used investor money and customer deposits to prop up its own token while two of its founders made millions of dollars from token sales.
New York's attorney general has already sued Mashinsky for alleged fraud carried out during his time leading Celsius.
Mashinsky could not immediately be reached for comment on Wednesday. An attorney representing him has said previously that he denies the allegations and looks forward to vigorously defending himself in court.
Any proceeds from the post-bankruptcy litigation would benefit the Celsius customers who take an ownership stake in NewCo, Kwasteniet said.
New Jersey-based Celsius filed for U.S. bankruptcy in July after freezing customer withdrawals. Celsius said at the time that it had more than 1.7 million registered users and approximately 300,000 active users with account balances greater than $100.
(Reporting by Dietrich Knauth in New YorkEditing by Alexia Garamfalvi and Matthew Lewis)
