Celsius has filed an appeal challenging a court order that disallowed its $444 million claim against FTX, part of an ongoing legal battle stemming from both firms' bankruptcies.
Background
- The collapsed crypto lending platform Celsius Network has filed a notice of appeal against a ruling by Judge John T. Dorsey that disallowed its $444 million claim against FTX
- Celsius initially sought $2 billion in damages, accusing FTX officers of making “disparaging statements” that allegedly worsened Celsius’ financial crisis
- The claim was later revised to focus on “preferential transfers”, alleging that FTX received special treatment as a creditor
- In December, Judge Dorsey ruled that Celsius' original claims lacked sufficient detail, stating that amendments filed after the bar date were improper and prejudicial to FTX’s reorganization
- The appeal notice was filed by Mohsin Meghji, the litigation administrator for Celsius Network and its affiliated debtors, on December 31, 2024
Why should you pay attention?
- Significant Financial Impact: A $444 million claim, if upheld, could substantially influence the financial outcomes of both Celsius and FTX creditor settlements
- Legal Precedent: The appeal raises broader questions about proof-of-claim procedures in bankruptcy cases, potentially setting a precedent for future crypto-related bankruptcy litigations
- Creditor Recoveries at Stake: Creditors from both Celsius and FTX are watching closely, as the ruling affects the pool of funds available for repayment
Who said what?
- Celsius Litigation Filing:
“Celsius counters that the original proofs of claim were sufficient to put the debtors on notice of alleged avoidance claims, and at a minimum constitute protective proofs of claim sufficient to meet the requirements of the Bankruptcy Code”
- Sunil Kavuri, FTX creditor activist:
“Celsius filed a Notice of Appeal against Judge Dorsey's ruling for FTX debtor. Elected for Appeal to be heard in the District Court”
- The filing read:
“More than a year later, Celsius filed amended proofs of claim (without moving for amendment) (the "Amended POCs") dropping the $2 billion Disparagement Claims and instead asserting avoidance claims of not less than $444,457,844 against the Debtors for alleged preferential transfers (the "Preference Claims")”
Zooming out
- The Celsius-FTX dispute highlights the interconnected vulnerabilities in the cryptocurrency lending and trading ecosystems, especially during insolvency proceedings.
- The appeal could delay or complicate the restructuring plans for both Celsius and FTX, affecting thousands of creditors waiting for fund recoveries.
- With Celsius having already repaid $2.53 billion to approximately 250,000 creditors, representing 84% of owed assets, and an additional $127 million in distributions planned, the resolution of this appeal remains pivotal.
- The outcome of this case could shape how preference claims and amended proofs of claim are interpreted in future bankruptcy proceedings, particularly in the cryptocurrency sector.
