When it comes to corporate governance and record-keeping, the bankruptcy of crypto lender Celsius has shed light on some serious issues in the crypto industry. The firm, whose U.K. operations were previously warned by the Financial Conduct Authority, set up a Limited Liability Company in Delaware in 2021, transferring assets through a series of financial transactions. However, recent court filings allege that the distinction between the two entities was nothing more than a “sham.”
What ensued can only be described as “intercompany chaos,” stemming from deficient record-keeping and internal records that are “sorely lacking.” This situation left customers in the dark, unable to fully grasp the implications of the asset transfer. On the other hand, those invested in the Series B funding round seemed to be well aware of the record-keeping issues.
The court battle is now pitting customers against Series B investors, with the former highlighting the fraudulent nature of the billions of dollars transferred between the two entities, calling for the two to be treated as one for bankruptcy purposes. But, while these allegations are making headlines, this isn’t the first time a crypto firm faced such scrutiny.
FTX, another crypto exchange, was also accused of being a “digital Potemkin village” with a messy and ill-governed reality lurking beneath its slick exterior. As the debate over Celsius’ case heats up, Judge Martin Glenn recently ruled that customers only have claims against the Delaware LLC entity, offering hope to Series B investors hoping to recoup their investments.
In the coming weeks, Glenn will consider Celsius’ argument to consolidate the two entities, which could potentially merge both assets and customer claims. The outcome of this case may have far-reaching implications for the crypto industry, and the way assets and operations are managed across various entities.
One key conflict arising from this case is whether the lax regulation that fosters innovation and rapid growth in the crypto space comes at the cost of proper governance and ethical business practices. While the blockchain community celebrates decentralized systems and reduced regulations, is it time to reconsider the potential fallout that could follow from cases like Celsius?
Auction of Celsius’ assets is expected to continue this week, with potential buyers like NovaWulf, Fahrenheit LLC, and the Blockchain Recovery Investment Committee in the competition. As this case unfolds, it poses a critical question: Are we heading towards a turning point where crypto companies must reassess the balance between regulations and disrupting the financial system? Only time will tell.