Something big happened the Celsius bankruptcy case last week. The filed by the Office of The United States Trustee (“UST”), a part of the US Department of Justice, has filed a motion asking the Court to appoint an examiner in the Celsius chapter 11 case. According to the UST, an examiner is needed because of: (1) the dozens of customer letters to the Court, (2) multiple pre-bankruptcy lawsuits and regulatory actions, (3) questions about decisions made and actions taken, (4) the state of cryptocurrency markets, (5) a lack of visibility into Celsius, (6) Celsius’ illiquidity, and (7) the divergent interests of stakeholders.

If the UST’s motion is granted, the examiner may look into, some or all of the following:

  • Cryptocurrency – how much does Celsius hold? Where is it? Who owns what?
  • Commingling – what customer assets were commingled and what is the consequence of that?
  • Intercompany loans – why were large intercompany loans made?
  • Underwriting – what underwriting of third-party loans occurred?
  • GK8 – why was GK8 acquired?
  • Tether loan – why was the Tether loan liquidated when it was?
  • Taxes – have all taxes due been paid?
  • Mining operations – what mining and other equipment does Celsius owned or otherwise hold?  Is it cost-effective to continue?
  • Management – did the Celsius management and board of directors satisfy their duties?
  • On the eve of bankruptcy – who got crypto from or paid by Celsius close to bankruptcy, who did not and why?
  • Securities laws and regulations – were unregistered securities sold in violation of securities laws?
  • Hedging – what was hedged and what should have been hedged?
  • Pledging – whose digital assets did Celsius pledge? To what end?
  • Stories – what were customers and potential customers told? What should they have been told?
  • Market upheaval – how did changes in crypto markets impact Celsius? Should those changes have been expected?
  • Licensing – did Celsius obtain necessary licenses and other governmental approvals?
  • Other – any other issues raised by the judge or another party.

The UST believes a publicly filed examiner’s report will give visibility that is both lacking and needed. The motion says, “Given the unique nature of these cases, a public report which provides transparency as to the debtors’ business model and operations, their investments, their lending transactions, and the nature of customer accounts is essential….”

The UST hopes an examiner would also consider what causes of action the creditors committee might be authorized to pursue on behalf of the bankruptcy estate and thereby customers, creditors and potentially equity holders.

Keep reading and watching. The examiner motion is scheduled to be heard on September 14, 2022 and objections are due on September 7, though those dates may change.