The Federal judge handling the bankruptcy case for Celsius has ordered a probe to investigate whether the firm operated like a Ponzi scheme.
In response to claims made by customers that Celsius had violated the legal definition of a Ponzi scheme by using assets of new users to pay yields and allow withdrawals to existing users, the court issued the order at the hearing on November 1.
Following requests for greater transparency into Celsius’ business operations, including its tax payment procedures and the reasons why some customers were moved to different accounts, the judge approved the appointment of an independent examiner on September 9 to look into various aspects of Celsius’ operations.
It’s not the first time the troubled lender has been charged with functioning like a Ponzi scheme; on July 7, decentralized finance (DeFi) protocol KeyFi filed a lawsuit against Celsius, alleging that Celsius engages in such behavior.
The lawsuit has been moving through the courts ever since Celsius filed for Chapter 11 bankruptcy on July 13, citing a collapse in cryptocurrency values and bad asset deployment decisions.
The Federal judge, Martin Glenn, also instructed Celsius during the hearing on November 1 that they would need to provide more information in their Oct. 11 motion to pay roughly $3 million to 62 employees as part of a key employee retention plan (KERP). Law360 cites the judge as saying the following:
“I was shocked when I saw the redactions. I had never seen anyone try to redact everything.”
Glenn is referring to a section of the motion that lists the recipients of the bonus, where all information about the individuals that could have been made public, such as their wages and job descriptions, had been deleted.
The United States Trustee had objected to the KERP on October 27 and raised concerns about the motion’s lack of measurable metrics to support such a pricey bonus scheme as well as how it prevented interested parties from debating whether some participants could be deemed insiders and thus ineligible for a KERP.
