U.S. Bankruptcy Judge Martin Glenn has ruled that Celsius creditors who deposited funds after the lender filed for bankruptcy can soon withdraw their money.
Glenn’s ruling stipulates that those withdrawing more than $40,000 or to whom Celsius transferred more than 200,000 during the three months before the lender’s bankruptcy filing will need approval from the Celsius Creditor Committee. This approval follows an earlier ruling to airdrop FLARE tokens to customers with XRP on the platform in Dec. 2020.
Celsius Creditors Eye Bitfinex Success Story
Creditors in one corner of Celsius’ bankruptcy ring have insisted that the lender issue new tokens to bereft creditors. This relatively novel method is similar to how Bitfinex reimbursed victims of its 2016 hack.
Bitfinex issued BFX tokens to all customers after Ilya Liechtenstein and Heather Morgan allegedly laundered about 119,000 Bitcoins from the exchange in 2016. Each BFX token, essentially an IOU, entitled the customer to $1 of funds that Bitfinex could later buyback.
Alternatively, customers could settle for shares in Bitfinex’s parent company, iFinex, based on how much they were owed. Bitfinex later issued a Recovery Rights Token that entitled holders to a percentage of the exchange’s recovery after all BFX tokens were redeemed. Within eight months, Bitfinex reimbursed all creditors.
In the Celsius case, Glenn must approve a new token issuance.
Public Listing and Token Issuance Raises Disclosure Questions
Celsius’ lawyers also toyed with taking the company public and issuing a new token to repay creditors.
As a public company, Celsius would likely accrue the liquidity necessary to reimburse creditors sooner than if it sold its assets.
A public listing would also bring greater transparency to Celsius’ internal controls, fostering greater transparency if the company continues operations. Additionally, it would compel the company to make certain disclosures to the SEC. Any organizational restructuring would require approval from creditors, whose vote Glenn will consider when ruling.
The elephant in the room would be whether the lender could issue a token without registering it as a security. A possible registration will depend on whether it can be invested in perhaps a DeFi protocol to generate yield. Finance watchdogs have previously rebuked several crypto companies, including Binance, for offering tokenized equities without investor prospectuses.
A stock purchased from a broker is essentially an IOU that the broker bought from the stock issuer. Similarly, cash in a bank account is simply a bunch of IOUs entitling the holder to a certain dollar amount. If the bank goes bust, IOUs can become worthless.
If Celsius issues new tokens, those will also essentially be IOUs. Celsius will likely take time to win public trust and generate enough funds to reimburse creditors, but generating liquidity would likely happen sooner than if legal processes run their course.
The CEO of bankrupt exchange FTX recently said that resurrecting the exchange’s business could likely raise liquidity quicker than legal procedures.
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