A trustee with the Department of Justice has asked a judge to appoint an independent examiner to investigate Celius Network's financial history more deeply as the crypto exchange navigates its bankruptcy proceedings.
U.S. Trustee William Harrington said that an independent examiner was needed to probe allegations of mismanagement and incompetence by members of Celsius' upper management more deeply. An examiner would be able to ascertain the viability of legal claims against Celsius help resolve "transparency issues" surrounding the case.
The entry of an examiner would likely be to the benefit of Celsius' many customers that have had their investments locked away since Celsius halted withdrawals, though upper management may be sweating at the prospect. As was the case with infamous firms like Enron and Lehman Brothers, the broad investigatory powers an examiner has could turn up details not yet revealed by standard court procedures.
The examiner appointed to probe Lehman Brothers, for example, turned up previously undisclosed evidence that the company had been using accounting maneuvers to manipulate its balance sheets.
It Doesn't Help that Celsius is More Illiquid than Previously Thought
Adding fuel to allegations of mismanagement are court filings made by Celsius last week showing that the firm is in more dire financial straits than previously thought. There had been some knowledge of Celsius' increasingly shaky financial health as early as July, with the Vermont Department of Financial Regulation warning consumers that the company was "deeply insolvent."
Celsius had roughly $130 million in cash reserves in early August but requires just over $45 million a month to keep operational. According to Celsius' filings, the company is expected to run out of money by October.
Celsius' crypto holdings are, for the most part, dwarfed in size by the company's outstanding liabilities to customers. The highest amount of liabilities is owed in Bitcoin; Celsius owes customers $2.5 billion in the pioneering cryptocurrency, but currently only holds $348 million worth.
Is There a Way for Customers to Cash Out?
As the Vermont DFR pointed out in July, cryptocurrency bankruptcy cases traditionally don't pan out well for consumers.
However, in addition to the possibility of an independent examiner, Celsius' bankruptcy has driven many of its customers to band together and better organize their efforts to get their investments back. There are currently two groups of customers that have pooled their resources to hire lawyers to represent them in proceedings, with chat groups set up to help members stay in contact throughout.
Despite organizing by customers and a potential examiner appointment, Celsius' proceedings are still unprecedented. It is hard to say with certainty if investors will get their money back, but if they do, Celsius' bankruptcy could be the precedent that helps future crypto investors avoid the crushing losses that have been typical of crypto exchange bankruptcies so far.