Crypto Platform Celsius Bankruptcy: Judge Hears Arguments in Two Adversarial Proceedings

News | February 26, 2024 By:

On Wednesday, February 21, 2024, the U.S. Bankruptcy Court for the Southern District of New York heard arguments in two lawsuits related to the Chapter 11 bankruptcy case of former cryptocurrency platform Celsius Network LLC.

U.S. Bankruptcy Chief Judge Martin Glenn heard a motion to compel arbitration and a motion to dismiss filed in separate adversary actions involving Celsius, its former business partner Mawson Infrastructure Group Inc., and Adam Kryskow, a Celsius creditor.

Celsius filed for Chapter 11 bankruptcy protection in July 2022 with over $5.5 billion in liabilities. It formerly offered accounts where customers could earn interest on deposits of digital currencies. In November 2023, Celsius confirmed a Chapter 11 plan to repay creditors from its new business focused on cryptocurrency mining.

One adversary action involves a lawsuit Celsius filed against Mawson in November 2023, alleging it failed to meet contractual obligations from agreements in February 2022 involving cryptocurrency mining infrastructure and a $20 million loan. Mawson argued disputes should go to arbitration per the clauses in one agreement. Celsius contended only one of its ten claims was subject to arbitration.

Judge Glenn pressed Mawson’s attorney on why the arbitration clause in one agreement was not written more broadly if it was meant to encompass disputes related to all three contracts signed the same day. He observed the language “didn’t say ‘any dispute between the parties arising from any agreements.'”

The other action involves a lawsuit from Kryskow seeking a declaration that Celsius cannot recover around $231,000 he received in a loan 90 days before bankruptcy. While Celsius has not filed an avoidance action, Kryskow argued the potential “preference exposure” harms him. Celsius countered the case is premature without an active lawsuit.

In response to Kryskow’s complaint, Judge Glenn seemed skeptical of allowing the case to move forward given there was no active lawsuit against Kryskow. He noted that similar issues of potential preference exposure would impact an estimated 3,000 to 5,000 other creditors.

Judge Glenn questioned “why would the court jump ahead and address an issue for a nonexistent adversary proceeding?” He emphasized that throughout Celsius’ complex bankruptcy, when multiple creditors were affected by a common legal question, it was necessary to resolve the overarching issue consistently rather than considering individual ad hoc litigation.

While Judge Glenn heard arguments from both sides, he did not indicate which way he was leaning. He concluded by noting he would take the competing motions to compel arbitration, dismiss complaints, and for declaratory relief under advisement.

The bankruptcy case is In re: Celsius Network LLC et al., case number 1:22-bk-10964. The adversary proceedings are Adam Kryskow v. Celsius Networks LLC et al., case number 23-ap-01209, and Celsius Mining LLC v. Mawson Infrastructure Group Inc. et al., case number 23-ap-01202.